Gamatronic (UK) Ltd & Anor v Hamilton & Anor

The Claimants (“Gamatronic UK” or “UK” and “Gamatronic Israel” or “Israel”, respectively) are in the business of supplying uninterruptible power supplies (“UPSs”), which provide backup power to critical computer and other systems when mains power fails. The Defendants, Robert Hamilton (“Mr Hamilton”) and Jayne Mansfield (“Ms Mansfield’), are former Managing Directors and employees of, and 49% shareholders in, Gamatronic UK. The remaining 51% of the shares in Gamatronic UK were held by Gamatronic Israel. On 29 February 2012, the Defendants entered into Compromise Agreements with Gamatronic UK, by which their contracts of employment and their directorships were terminated, and entered into a Share Purchase Agreement (“SPA”) with both Claimants by which they sold their shares to Gamatronic Israel.

The Claimants allege that the Defendants had since October 2010 acted in serious breach of numerous fiduciary and contractual duties by secretly helping to set up, and by acquiring a beneficial interest in, a new competing business, Vox Ratio Limited (“Vox”). It is said that they had concealed their wrongdoing by fraudulent misrepresentations and large-scale document destruction.

By these claims, the Claimants seek (among other things) rescission of the SPA and recovery of the sums paid to the Defendants for their shares in Gamatronic UK, repayment of the salaries paid to them by Gamatronic UK since their alleged wrongdoing began and an account of profits. The total value of the claims is £469,607. Each Defendant also brings a counterclaim for £11,797 for unpaid commissions. However, those counterclaims were stayed at the outset of the trial and are not considered further here.

I begin with a brief summary of the factual background to the proceedings.

Gamatronic Israel is an Israeli public company listed on the Tel Aviv Stock Exchange. Gamatronic Israel was founded by Joseph Goren (“Mr Goren”) in 1970. He remains CEO and Managing Director of Gamatronic Israel. Mr Goren’s daughter, Sharon Bar Zvi (“Ms Bar Zvi”) is also a director of Gamatronic Israel and has been since 1995.

The relationship between Gamatronic Israel and the Defendants first began in 2000. At that time, the Defendants owned and operated a UPS company called PK Europe. Following a meeting with Ms Bar Zvi, it was agreed that the Defendants would become Gamatronic Israel’s exclusive UK distributor. The Defendants sold Gamatronic Israel’s UPS systems through PK Europe until mid-2001, when the relationship was restructured.

On 6 June 2001, Gamatronic Israel and the Defendants incorporated Gamatronic UK. Gamatronic Israel held 51% of the shares in Gamatronic UK and the Defendants held the balance in equal shares. The directors of Gamatronic UK were Mr Goren, Ms Bar Zvi, Mr Hamilton and Ms Mansfield.

On 20 December 2001, the Claimants and the Defendants entered into a shareholders agreement (“the Founders Agreement”). Each party was required to use their best endeavours to promote the interests of Gamatronic UK (clause 8.6) and not become involved in any competing business (clause 10.1(b)). The business of Gamatronic UK was agreed to be the marketing and sale by Gamatronic UK of Gamatronic Israel’s UPS units in the United Kingdom (or other such products or areas as the parties might agree) (clause 4.1). The Founders Agreement also provided that in the event of an unrectifiable breach, the agreement would terminate in respect of the Defaulting Shareholder who could become obliged (at the election of the Non-Defaulting Shareholders) to sell their shares in Gamatronic UK to the Non-Defaulting Shareholders, at a value to be determined in accordance with a contractually agreed mechanism (clause 12). Concurrently with the signing of the Founders Agreement, the parties entered into an Acquisition Agreement, a Supply Agreement and employment agreements (referred to in the Founders Agreements as Directors Service Agreements). The latter agreements were entered into in December 2001.

In 2007, the Defendants signed new employment agreements (the “Employment Agreements”). These agreements included the following obligations:

3.5

Attention and Effort. During the Term, you shall devote your best efforts, entire productive time, ability and attention to the business of the Company. Further, during the Term you will not, without Company’s (sic) prior written consent, directly or indirectly engage in any employment, or in any consulting or other activity which would interfere or conflict with the performance of your duties or obligations to the Company or which would directly or indirectly compete with the Company;

3.7

….[I]t shall be your responsibility promptly to bring to the attention of the [Board] any material information regarding the Company, its business, clients, vendors and competitors, including, without limitation, any transaction or event which might adversely affect the Company or which is otherwise not in the regular course of business …

7.1

The Company may at any time terminate your employment for Cause, without prior notice. Without derogating from the generality of the aforesaid, any one or more of the following events shall, for purposes this (sic) agreement, constitute Cause:

7.1.1

Commission of an act deemed by the Company in its sole discretion to be an act of dishonesty, fraud, misappropriation of Company’s funds, misrepresentation or other act of moral turpitude that would reflect negatively upon the Company or compromise the effective performance of your duties;

7.1.2

Misconduct or unlawful conduct resulting in material injury to the Company as determined by the Company in its sole discretion.

7.2

For the avoidance of doubt – all disciplinary and grievance procedures shall be held in strict accordance with all applicable legal and regulatory requirements…

The Employment Agreements also contained obligations of confidentiality (clause 8) and restrictions for a period of 12 months post-termination on competition and solicitation (clause 9). The Defendants, by their Amended Defence, suggest that their signature on the Employment Agreements was “not freely given” in that neither was given a proper opportunity to consider the document or take advice before signing. However, the Amended Defence does not contend that the Employment Agreements were thereby vitiated or that they did not govern the employment relationship after 2007. Mr Timothy Sisley, who appeared on behalf of the Defendants (but was not responsible for the pleading), did not pursue this point in cross-examination or in submissions. He was right not to do so. There is no pleaded legal basis on which the Defendants’ employment relationship with Gamatronic UK could be governed by any document other than the Employment Agreements. In any case, the absence of any allegation of fraud or misrepresentation in obtaining the signatures means that the Defendants are precluded from arguing that they are not bound by the terms of the Employment Agreements: See L’Estrange v Graucob [1934] 2 KB 394 at 403 per Scrutton LJ.

The Defendants were the day-to-day managers of Gamatronic UK while Ms Bar Zvi and Mr Goren oversaw the UK operation from Israel. Ms Bar Zvi would also travel to the UK from time to time to work with the Defendants. The Defendants contend that Ms Bar Zvi’s oversight of Gamatronic UK amounted to excessive interference which was characterised by a bullying and abusive approach towards the Defendants and that this contributed to the deterioration in relations between the parties to which I refer below.

Gamatronic UK produced profits every year from 2006 until 2011, with the exception of the first year of trading. In 2011 and 2012, losses were recorded. The Claimants had originally sought to recover for these losses from the Defendants on the basis that these losses were due to the setting up of Vox and to the Defendants not devoting their time to Gamatronic UK. The Defendants retorted that any losses were caused by the actions of Gamatronic Israel; including the supply of defective products, supply of products on unfavourable terms and the removal of Gamatronic UK customers to Gamatronic Israel. By their Re-Amended Particulars of Claim, the Claimants accepted that it would not be proportionate to pursue the claim for lost profit. Accordingly, the Court is not required to determine the cause of such losses, although the various allegations of abusive conduct do continue to feature as part of the Defendants’ case that the Claimants (and Ms Bar Zvi, in particular) pursued for several years a campaign to force the Defendants out of the business.

The relationship between the Defendants and Gamatronic Israel appeared to be difficult at the best of times but deteriorated sharply in 2010 and 2011. The causes of this deterioration are contested, with the Defendants making a number of complaints (as referred to above) about the conduct, management style and business decisions of Gamatronic Israel. The Defendants also allege that these actions on the part of Gamatronic Israel constituted a campaign to force the Defendants out of the business. The Claimants reject the allegations and say that they did not attempt to (and could not) force the Defendants out of the business.

On 23 February 2010, a meeting took place in Israel between the Defendants, Ms Bar Zvi and Ms Ranit Rand (M&A and Overseas Subsidiaries Manager at Gamatronic Israel). Ms Bar Zvi expressed dissatisfaction with the performance of Gamatronic UK and suggested that Gamatronic Israel should send over an additional manager whose role would be to take over the running of Gamatronic UK leaving Mr Hamilton and Ms Mansfield to focus on sales.

On 9 March 2010, Ms Bar Zvi wrote to the Defendants saying that Gamatronic Israel would not consent to Gamatronic UK distributing a dividend, given its poor performance.

On 10 March 2010, Ms Mansfield emailed Ms Bar Zvi expressing concern that no dividend would be declared. Ms Mansfield stated that:

“we would both now like to receive your offer to buy our shares ... So we try to make this as amicable as possible and receive a fair offer for all of our shares, we will stay until you find somebody else to run the company or simply close it down and distribute the assets”.

Between 31 August 2010 and 2 September 2010, further meetings took place between the Defendants and managers of Gamatronic Israel in Israel to discuss the future running of the UK business.

On 8-9 March 2011, the Defendants met with Ms Bar Zvi in Israel. The meeting primarily concerned the possible sale of the Defendants’ shares to Gamatronic Israel but no agreement was reached. It was agreed that Mr Hamilton would look for a third party buyer. If he could find one, Gamatronic Israel would be invited to exercise its right of first refusal under the Founders Agreement.

On 11 May 2011, the Defendants’ solicitors sent a “Sales Notice” to Gamatronic Israel offering to sell their shares for c. £500,000. The Defendants stated that they had a third party buyer willing to purchase on these terms.

There followed a period of negotiation between Gamatronic Israel and the Defendants throughout the remainder of 2011 and into early 2012.

On 12-13 December 2011, Mr Goren and Golan Kashi (Chairman of Gamatronic Israel’s board of directors) travelled to London to discuss the purchase of the Defendants’ shares. An agreement in respect of the purchase, subject to contract, was reached at this meeting.

On 29 February 2012, Gamatronic UK and the Defendants entered into agreements which provided for the immediate termination of their directorships of Gamatronic UK and for termination of their employment on 23 March 2012 in the case of Mr Hamilton and 15 May 2012 in the case of Ms Mansfield (“the Compromise Agreements”). The Compromise Agreements also released Gamatronic UK and Gamatronic Israel from any claims the Defendants had or might have had against the Claimants.

On the same day, Gamatronic Israel, Gamatronic UK and the Defendants entered into the SPA, by which Gamatronic Israel purchased the Defendants’ shares in Gamatronic UK for a total consideration of £115,000. The SPA terminated the Founders Agreement, provided certain restrictions on the Defendants’ post-termination conduct and created certain revenue sharing rights for a short period after termination, referred to as “Commission”. It also contained at clause 6.2 a release in the following terms:

Each party hereby irrevocably and unconditionally releases each other party from performance of the Founders Agreement and from all liabilities and claims whatsoever and howsoever arising under or in connection with the Founders Agreement including (for the avoidance of doubt) for any liabilities or claims arising (or relating to the period) before such release.

The scope of the release is in dispute.

The amount actually paid by Gamatronic Israel to the Defendants pursuant to the SPA was £57,500 each (consideration for the shares), plus £2,500 each (as a bonus payment), minus £4,000 each (by way of repayment of certain directors’ loans), making a net sum of £56,000 each.

As a result of these agreements, the Defendants ceased to be directors and shareholders of Gamatronic UK on 29 February 2012 and ceased to be employees on 23 March 2012 (in the case of Mr Hamilton) and 15 May 2012 (in the case of Ms Mansfield). By about 22 February 2012, the Claimants had introduced Mr Meir Malinsky into Gamatronic UK as its general manager and the Defendants engaged in a handover of the business to Mr Malinsky from February 2012 onwards.

Vox was incorporated on 18 June 2010 by Ian Ward and Gerry Flynn, both directors of another company, TS Electronics Limited (“TSE”). TSE was a customer of Gamatronic UK and was also sub-contracted to provide maintenance services in relation to UPS units supplied by Gamatronic UK. Upon incorporation the shares in Vox were held by TSE and Mr Ward.

In about November 2010, Ian Ward and Gerry Flynn of Vox offered the Defendants an opportunity to join them at Vox after they had left Gamatronic UK. The Defendants were interested in the offer and accept that there were at least four meetings between the Defendants and Messrs Ward and Flynn from November 2010 to February 2011 although the purpose of such meetings is in dispute. The Defendants say that the meetings were initially about the purchase of the Defendants’ shares in Gamatronic UK and only subsequently developed into an “informal and general proposal that [the Defendants] would work for Vox once they had properly and fully terminated their relationship with Gamatronic UK”. The Claimants say that the purpose of the meetings was to discuss the setting up of Vox.

Vox commenced trading in early 2011 under the trading name, “The UPS Company”. It is common ground, as that trading name would suggest, that Vox was in the business of marketing and selling UPS systems and providing related maintenance services in the United Kingdom. However, it is disputed that Vox’s activities and/or products were in competition with the Gamatronic UK’s business in the period that the Defendants remained employed.

The Defendants also attended meetings in London in November and December 2010 with Noam Segev and Tom Ebner of XPCC, a US company which manufactures UPS systems. The Claimants say that these meetings were with a view to XPCC becoming a supplier of Vox. The Defendants say that that was not the “sole or primary purpose” of the meetings and that the primary purpose was to investigate whether Mr Ebner and/or XPCC were interested in acquiring the Defendants’ shares.

In early February 2011, the Defendants travelled to Denver, USA, to meet Mr Segev and Mr Ebner of XPCC. The Claimants’ case is that the Defendants travelled to Denver with Messrs Ward and Flynn to conduct business on behalf of Vox and gave untruthful reasons for their absence to cover this up. The Defendants state that the primary purpose of the visit was to see if XPCC would be interested in buying the Defendants’ shares in Gamatronic UK, although they admit that whilst there they “looked at XPCC products”.

On 18 June 2011, 38.4% of the shares in Vox were transferred into the names of family members of each of the Defendants, to be held on their behalves. The Defendants say that they did so to show their commitment to Messrs Ward and Flynn and that neither Defendant would exercise any rights attaching to the shares or receive any dividend.

On 17 November 2011, Mr Hamilton sent an email from a Vox email address to Mr Segev which contained the email signature, “Robert, Director, The UPS Company”. The Claimants say this was one of a number of emails sent by Mr Hamilton from a Vox email address which show his active involvement in the business of Vox whilst still a director and an employee of Gamatronic UK.

On or around 23 March 2012, Sean Briggs (Senior Sales Manager) left Gamatronic UK and started work at Vox. This was the same day as the termination of Mr Hamilton’s employment at Gamatronic.

Mr Hamilton and Ms Mansfield began working full time for Vox on 2 April 2012 and 28 May 2012 respectively.

On or by 18 June 2012, the Defendants’ family members transferred legal ownership of their shares in Vox to the Defendants.

On 9 July 2012, the Defendants became directors of Vox. They started to draw salaries by the end of that year and ultimately earned a total of £69,331 (Mr Hamilton) and £53,421 (Ms Mansfield) from Vox. Vox did not distribute any dividends, but made total net profits of £10,248 before its closure in April 2015.

Vox was originally the Third Defendant to these claims, but the claims against it were settled in early 2014.

In early July 2012, Gamatronic UK discovered that an email inquiry from a potential customer, Ms Hollie Pearson of Power Plus, had been automatically forwarded to the email address, robert.hamilton1974@googlemail.com. Ms Pearson was contacted by Mr Briggs who was now working for Vox. Ms Pearson reported Mr Briggs’ and Vox’s approach to Gamatronic UK. These events caused Gamatronic UK to investigate the Defendants’ involvement with Vox. A letter before action followed on 7 August 2012 in which the Claimants raised their concerns. Proceedings were issued on 4 March 2013.

The Claimants’ investigations also revealed that the Defendants had taken steps prior to their departure to delete emails from Gamatronic UK’s server. The Defendants accept that they did take some steps to delete emails but only those which contained their personal information. The Claimants say that the deletions were far more extensive.

In late 2012, Gamatronic UK was subject to an investigation by HMRC in respect of its tax payments. The findings of this investigation were set out in a letter dated 3 January 2013. HMRC’s conclusion was that the Defendants had claimed and Gamatronic UK had paid them for various expenses where there was no evidence that such payments were reimbursements of business expenditure. As a result, HMRC was obliged to treat such payments as extra pay, on which income tax and National Insurance contributions were due. There were three categories of such payments: (i) mileage on both Defendants’ use of their private cars, (ii) bills for use of both Defendants’ private mobile phones (which HMRC was willing to assume were 66% for business use) and (ii) other car related expenses for Mr Hamilton only.

Gamatronic UK contested some of the conclusions drawn by HMRC, some of which were revised by HMRC. The result was a settlement arrangement with HMRC on 15 October 2013 by which Gamatronic UK paid to HMRC sums including the following:

The pleadings are extensive and the following is no more than a broad summary of the claims and defences.

First, Gamatronic UK claims that the Defendants were in breach of their fiduciary obligations by being involved in the establishment and activities of Vox whilst still directors and employees of Gamatronic UK, and seeks the following remedies: (a) an account of profits made by the Defendants; (b) equitable compensation reflecting an account of any profits made by Vox as a result of the Defendants’ wrongdoing; and (c) equitable compensation reflecting forfeiture and repayment of the Defendants’ salaries from October 2010 onwards.

Secondly, Gamatronic UK claims the following as a result of the Defendants’ breaches of their contractual duties of confidentiality and to deliver up property (contained in the Employment Agreements, the Founders Agreement and the Compromise Agreements): (a) an account of profits made by the Defendants; (b) an order for delivery up of any Confidential Information or other property belonging to Gamatronic UK; and (c) damages in the amount of the cost of reconstituting deleted emails.

Thirdly, Gamatronic UK and Gamatronic Israel seek a declaration that the SPA is rescinded, with a consequential order that the Defendants repay the money they received under it. The two alternative bases for seeking rescission of the SPA are:

Although rescission is claimed, the Claimants do not wish for the shares in Gamatronic UK to be returned to the Defendants in the event that rescission is granted. The reason for this is said to be that such return would be inappropriate given that the relationship between the shareholders has irrevocably broken down. However, the Claimants accept that if rescission were to be ordered credit should be given for the value of the shares at the date of the SPA, although their expert evidence concludes that such value was nil. The net effect of the Claimants’ position is that, if they succeed in obtaining rescission of the SPA, the Defendants should receive neither the shares nor any value for those shares.

Fourthly, Gamatronic UK seeks the following as a result of other breaches of the Employment Agreements and the Founders Agreement (if the SPA is rescinded): (a) damages for want of attention assessed in the amount of the Defendants’ gross salaries (less an amount to reflect the value received from the services they did provide); (b) restitutionary damages to disgorge any profits made; and (c) damages reflecting the amount of improperly paid expenses.

Fifthly, Gamatronic UK seeks reimbursement of the sums paid to HMRC on the basis that it has discharged the Defendants’ liability by compulsion of law.

The Defendants rely upon the following defences to the claims for breach of fiduciary duty:

The Defendants say that there was no breach of confidentiality and that any emails deleted were personal.

The Defendants rely upon the following defences to the claim for rescission of the SPA:

The Defendants reject the Claimants’ nil valuation of the shares as at the date of SPA and say that the value would be up to about £500,000. If the SPA is not rescinded, the Defendants say that, on its true construction and having regard to the parties’ desire to achieve a “clean break”, clause 6.2 of the SPA released all claims by the Claimants against the Defendants.

The Defendants say that they were not in want of attention during their employment at Gamatronic UK and all expenses claimed were legitimate, properly claimed and accepted by the Claimants.

As to the HMRC review, the Defendants say that this was something they had no knowledge of at the time and challenge the lack of evidence as to what was in fact shown to HMRC at the time. In any event, they say that all of their expense claims were legitimate and had gone through Ms Bar Zvi and the auditors.

The litigation since the issue of proceedings in March 2013 has been described as “remarkably attritional”: per Haddon-Cave J on 17 February 2016. That description is entirely apt. There have been several revisions to the pleadings which included a substantial counterclaim, at least two strike-out applications by the Defendants and no fewer than 15 or so case management orders between April 2013 and May 2016 dealing with applications ranging from unless orders to security for costs. Against that background, there was clearly a danger of the costs of pursuing the litigation becoming disproportionate to the amount at stake (if they have not become so already). In particular, there was a claim by the Claimants for loss of profit which was dropped after disclosure as the Claimants accepted that the loss was not one that could be proportionately proved. Following the dropping of that claim, the Defendants’ Counterclaim was stayed (save for the one aspect of the Counterclaim which was stayed at the outset of the trial) in order to reduce the factual issues for trial and to reduce the initial time estimate for the length of trial from 15 days to 7 days. In the event, even with the pared-down issues, that timetable proved not quite sufficient, but the parties, court staff and transcribers were able to accommodate early starts and late finishes to the Court day to ensure that the case could conclude within the allotted seven days. I am grateful to all concerned for their flexibility.

At the Pre-Trial Review conducted by Garnham J on 25 May 2016, it was ordered that the parties were to be limited to calling five witnesses of fact each. The Defendants were expressly permitted to call Mr Hamilton, Ms Mansfield and three further named witnesses, Jonathan Peddel (a former UPS technician at Gamatronic UK), Linda Davidson (the former financial controller at Gamatronic UK) and Elia Di Lorenzo (a Partner in Gamatronic UK’s accountants / auditors, Haines Watt). The Defendants were, however, permitted to rely upon the statements of numerous further witnesses served pursuant to notices under the Civil Evidence Act 1995.

Following the service of witness statements, the Claimants indicated that they did not wish to cross-examine Ms Davidson or Mr Di Lorenzo. This led to an application at the outset of trial to call two further witnesses of fact to replace the two who were now no longer necessary. I refused that application on the basis that the terms of Garnham J’s order were clear in that the Defendants were only permitted to call the five named witnesses and because it would have been highly prejudicial to the Claimants for the Defendants to be able to call two different witnesses of fact after the trial had already commenced.

The Claimants called Ms Bar Zvi, Mr Goren, Ms Belinda West (UPS Sales Account Manager at Gamatronic UK), Mr Neil Wileman (Senior Digital Forensic Technician) and the expert witness Mr Daniel Shear. The Claimants were also going to call Mr Lee Messenger of N30 Ltd, Gamatronic UK’s website designer. However, the Defendants indicated on Day 2 of the trial that his evidence would not be challenged.

Ms Bar Zvi gave evidence in a direct and forthright manner. It was evident that she ran the business of Gamatronic UK in a similar manner, and did so without always realising the effect that her directness, which did occasionally stray into harsh, intemperate and foul language, could have on employees. There were one or two occasions when she gave evidence about matters with a degree of confidence that was later shown to be unwarranted. For example, she suggested that Mr Peddel had “never [been] trained to give technical assistance or repair units or attend units on site”, whereas in fact Mr Peddel had, some time after commencing with Gamatronic, attended “training courses in Israel with the technical team on the products that [Gamatronic UK was] selling in the UK”. [Day 5; p.127-8]. That said, I found Ms Bar Zvi generally to be a straightforward witness whose recollection was relatively good and whose evidence was not substantially undermined in cross-examination.

Mr Goren’s direct involvement in matters was more limited and it was apparent that he had little or no knowledge of at least one matter raised with him in cross-examination, namely the provenance of the message from Mr Hamilton’s LinkedIn account. English is not Mr Goren’s first language and there were times when it was apparent that he had difficulty in understanding some of what was said to or put in front of him. However, I did not consider that Mr Goren was being evasive and the impression I got was that of a witness doing his best to assist in difficult circumstances.

The evidence of Ms West, by contrast, was far from satisfactory. There are several reasons why I came to that view. I mention just three here although I will refer to others in due course. First, although it was no part of her responsibility to process expense claims she sought to suggest that the Defendants had regularly claimed home to work mileage. When pressed as to the source of her information, it was apparent that Ms West had no direct knowledge of the expense claims and was relying upon no more than a few unclear snippets of conversations with others. She could give no satisfactory explanation as to why these matters would even have been mentioned to her. Second, in her statement she sought to give evidence as to the Defendants’ attendance at the office and that this had declined from 2010 onwards. She said:

My experience of being managed by Mr Hamilton between 2008 and 2010 was that he was generally in the office at around 8.00am and left at around 6.00 to 6.30pm every day of the working week.

However, Ms West conceded that Mr Hamilton would spend a considerable amount of time out of the office each week and that her statement could only have been referring to the days when he was in the office. Her statement also states that she generally left the office between 4 and 5pm. She was not therefore in any position to say when Mr Hamilton left the office each day if it was after that time. She also sought to give evidence as to meetings between the Defendants and Mr Ward and Mr Flynn during October and November 2011. It was surprising that she felt able to give the evidence that she did about such meetings when, on her own evidence, she left at around the time such meetings started. Finally, Ms West gave evidence which was clearly meant to imply that Ms Mansfield had deliberately burned company documents including expenses receipts and claim forms. Her statement provides:

17.

One day during January 2012 I was at my desk, which was then situated at the foot of a flight of stairs in a room which led through from the stairs to a warehouse.

18.

Ms Mansfield walked into my room carrying boxes full of documents which I think she had carried down from her office, which was upstairs. Jonathan Peddel, the warehouse manager, met her in my room and she said to him something like: “Please take these to the field” as she handed Mr Peddel the first of the boxes. I was aware that Ms Mansfield owned a field in Wyboston, Bedfordshire, where I believe she kept horses.

19.

Mr Peddel replied by saying something like, “So this lot has to be burned as well, then?” and Ms Mansfield replied, “Yes”. Mr Peddel had use of the company van, which is why I assume he was assisting with the transport of the boxes of documents.

20.

I did not see what documents were in the approximately 8 to 10 boxes which Ms Mansfield gave to Mr Peddel on that occasion. However, I recall that in the following months I and others in the Gamatronic UK office noticed some paper documents missing. I recall that documents relating to the PK company, with which Mr Hamilton and Ms Mansfield had worked prior to Gamatronic UK, were missing. We were looking for those in 2012 since Meir Malinsky, then the manager of Gamatronic UK, believed that Mr Hamilton and Ms Mansfield had split from the PK company in similar circumstances to those which are the subject of this claim. We were also missing some expenses receipts and expenses claim forms, along with documents relating to the Saudi Arabia deal which had occurred in 2010.

Mr Peddel denied that this conversation occurred. Ms Mansfield said that it was inherently unlikely that she would ask anyone to burn documents near stables where she kept her horses. Ms West accepted that she had speculated as to the contents of the boxes given to Mr Peddel:

Transcript; Day 2, p.135

12 Q. Can we go back to 280.

13 Now, you appreciate that our side and you disagree

14 about whether Mr Peddel burnt any documents at

15 Mrs Mansfield's request.

16 A. Absolutely.

17 Q. I am just reading what you said here at paragraph 20

18 about the documents in question. You will recall that

19 there were some relating to the PK company, and you were

20 also missing some expenses, receipts, expenses, claim

21 forms, along with documents relating to the Saudi Arabia

22 deal.

23 A. Uh-huh.

24 Q. So did you see the contents of these boxes before they

25 were given to Mr Peddel to be burnt?

p.136

1 A. No, I did not. No, I did not.

2 Q. What makes you think that those three categories of item

3 were in them?

4 A. It is only an assumption based on the fact that when we

5 were asked to start collating information for the court

6 case, documents which I know were there were no longer

7 there.

8 Q. So paragraph 20 is really just a guess?

9 A. As to the actual contents of those boxes?

10 Q. Yes.

11 A. Yes.

12 Q. And as to expenses forms, Mr Malinsky himself destroyed

13 those, correct?

14 A. Absolutely not. I never saw him do that at all.

15 Q. He didn't?

16 A. Absolutely not. Actually, the folder was missing.

17 Q. I am sorry?

18 A. The folder was actually missing.

19 Q. Which folder?

20 A. The expenses folder, because he made a point of it.

21 Q. Containing everybody's expenses?

22 A. Just Rob and Jayne's expenses.

23 Q. That folder is missing?

24 A. Yes.

25 Q. Well, what you say in paragraph 20:

p.137

1 "We were also missing some expenses receipts and

2 expenses claim forms."

3 A. Uh-huh.

4 Q. What period of expenses receipts and claim forms were

5 missing?

6 A. I don't know the exact period but I just know that there

7 was a folder containing Rob and Jayne's expenses which

8 Lin made, got a comment towards the fact that this

9 folder was missing, and she had noted it, that it was

10 missing.

However, the falsity of that claim, namely that the expenses folder relating to the Defendants was missing, was exposed on the final day of the trial when the Claimants disclosed a substantial quantity of the Defendants’ expense claim forms. Of course it may be that Ms West was led to believe what she did about the expense forms being missing from what she was told by Mr Malinsky. However, that was not made clear in her statement, and the impression she gave in her statement is that this was something within her direct knowledge when that was not the case. The inescapable conclusion to be drawn from all of this is that Ms West was willing to give the impression that Ms Mansfield was responsible for the expenses folder going missing and had asked Mr Peddel to burn important documents including expense claim forms even though she had no real basis for doing so. I regret to say that I found Ms West’s evidence to be generally unreliable.

Mr Wileman was an independent witness. Mr Sisley’s cross-examination of Mr Wileman sought to explore the parameters of the searches that Mr Wileman was asked to conduct rather than put to him that he had come to any incorrect conclusions.

I turn now to the Defendants’ witnesses. The first to give evidence was Ms Mansfield. It was clear that she had a strong attachment to the Gamatronic UK business, which she described as her “baby”, and was deeply affected by what she perceived to be unfair actions on the part of Gamatronic Israel, and Ms Bar Zvi in particular, to undermine Gamatronic UK. Her recollection of events was generally good but her perception as to the motivation and intent behind some of the Gamatronic Israel’s actions may have been somewhat skewed by her overriding sense of injustice as to the way Gamatronic UK was being treated. There were a few occasions where her explanations for the contents of emails or her actions were not satisfactory (and I shall come to these in due course), but those occasions were not such as to undermine her evidence in its entirety.

Next was Mr Hamilton. His evidence was not always clear. He had a tendency to answer questions by saying “yes and no”, which was most unhelpful. Of more concern was the fact that, at times, he came across as being somewhat evasive in his answers. He seemed to find it difficult to give a direct answer to some questions preferring instead to say that things were being “taken out of context”. However, when asked to explain the context, he was either unable to do so or did so in a manner which did not advance his case. I set out just one example here, bearing in mind that evasiveness is a quality that is not as readily discernible from a transcript as it is from hearing the witness give evidence:

Day 5: p.26

21 Q. No, I'm still in the same email. The email tells us

22 about two lots of things. One is what's been done

23 already and what remains to be done.

24 A. Yes.

25 Q. And what needs agreeing soon, he says, and he suggests

1 it can be agreed "after our Tuesday morning meeting" in

2 the last line --

3 A. Uh-huh.

4 Q. -- a number of things. The first is:

5 "We need a Founders Agreement set up."

6 A. Yes.

7 Q. That's a recognition that you and Jayne and Ian and

8 Gerry would all be shareholders in Vox, isn't it?

9 A. That was one of the many discussions. Erm, again, it is

10 being taken out of context. There's no other

11 referencing points either.

12 Q. "We need a business plan amended."

13 A. Uh-huh.

14 Q. It suggests there was an original already drafted which

15 needed amending, doesn't it?

16 A. Again, it is entirely taken out of context.

17 Q. It goes on:

18 "We need correct terms and conditions also for New

19 Co."

20 New Co is a reference to Vox obviously.

21 A. New company.

22 Q. Then he goes on:

23 "We also need payment terms sorted from Gama to New

24 Co, New Co to TSE and New Co to others et cetera."

25 So this suggests it was anticipated at the outset

1 that Gamatronic would be paying Vox?

2 A. No, he is talking about other discussions which are

3 actually not relevant -- they are relevant but also not

4 relevant. Discussions are fluid and they were talking

5 about maintenance et cetera and this also is talking

6 about other bits and pieces with TSE. Again, there's no

7 other references backwards, erm, as to what this is

8 really talking about and in what context.

9 Q. The email was received rather than being sent by you,

10 but surely Ian would not have emailed you in these terms

11 if you had not already discussed these items and if you

12 had no interest or involvement in them?

13 A. Yes, he would. My Lord, there was -- if Ian and Gerry

14 were setting up another company, or indeed a company, to

15 bring in goods from the USA, they would, as part of

16 their discussions that they were having, they would of

17 course need to set up a VAT number as well as talking

18 about setting up various other agreements. Nothing had

19 been put in place.

20 Q. I suggest this email shows you were clearly involved in

21 the nuts and bolts of setting up a business.

22 A. Again, it is taken out of context.

23 Q. And you have given us now all of the relevant context in

24 which we need to consider it, have you?

25 A. Yes, this is five, six years ago.

1 Q. But you have told us everything we need to know in order

2 to understand the document correctly, have you?

3 A. As far as I am aware, yes.

This was but one example where Mr Hamilton failed to provide any or any meaningful “context” to explain a document despite saying that it had been taken out of context. However, although there was a degree of evasiveness in some of Mr Hamilton’s evidence I did not consider that all of his evidence was thereby wholly undermined.

Mr Peddel was the only other witness to give evidence for the Defendants. Mr Peddel gave his evidence in a straightforward manner. However, some criticism was (rightly) made of his assertions about the Defendants’ attendance at work, given the nature of his own work which would take him out the office for significant periods. In addition, like Ms West, he seems to have relied on office gossip to an extent to make an allegation that Mr Malinsky shredded documents after an Inland Revenue inspection. However, unlike Ms West, he did not purport to speculate as to what those documents were. There were also some unnecessary aspersions as to Ms West’s character which were unsubstantiated. Overall, Mr Peddel, in seeking to be helpful to the Defendants may have overstated his evidence thereby undermining its reliability in parts. However, I do accept his evidence that he was not asked by Ms Mansfield to burn documents and that he did not do so. It seems to me that the Claimants’ allegation that documents, and in particular expense forms, may have been burned or destroyed as a result of the Defendants’ actions is undermined by the fact that a selection of them were eventually disclosed.

As explained above, it was not necessary to call Ms Davidson and Mr Di Lorenzo as originally planned.

Ms Anna Boase, for the Claimants, invites me to draw an adverse inference from the fact that the Defendants did not call Mr Ward or Mr Segev to give evidence. Furthermore, I am invited to draw an inference from the fact that documents were deleted by the Defendants. On the question of witnesses, I do not consider that it would be fair in all the circumstances of this case to draw any adverse inference from the fact that certain witnesses have not been called:

Mr Sisley makes a similar criticism of the Claimants and the absence of Mr Malinsky. However, for similar reasons as in the preceding paragraph (save for the fact that there is no hearsay notice or statement in respect of Mr Malinksy), I do not consider it appropriate in the circumstances of this case to draw any adverse inference from his absence either.

Large swathes of emails on Gamatronic UK’s email server were deleted. The Claimants say that this was done by the Defendants in order to conceal their wrongdoing. The Defendants deny this and say that they only deleted “personal” emails. It is common ground that the Defendants were permitted by Mr Malinsky during the handover period to delete personal emails. However, the Claimants say that the Defendants went much further and deleted all work emails as well and that this amounted to the destruction of a valuable resource of Gamatronic UK.

Mr Wileman’s evidence was that he was asked to inspect the server in August 2012, several months after the Defendants had left Gamatronic UK. He found that the server contained the following categories of deleted emails:

Ms Bar Zvi gave evidence about the deletion of emails but this was based on what Mr Malinsky had told her rather than her direct knowledge. She claimed that the Defendants had “permanently deleted all of their work emails from Gamatronic UK’s email server at around the time they left the company”. However, there was no evidence from Mr Wileman confirming when the emails in the unallocated part of the server were deleted. His evidence was that if the email appears in an area of the server that is unallocated then it is not possible to say when it was deleted. [Day 3: 3/16]

Ms Hamilton and Ms Mansfield say that they only sought to delete “personal” emails with permission. It is clear that the Defendants understood “personal” emails to refer to anything that could affect their personal interests. Thus the emails they sought to delete or retain for themselves included those which might assist them in any potential product liability claims brought against them arising out of the poor quality of products which they say customers received, those which related to negotiations for the SPA and those which might be relevant to any claims which the Defendants might bring against the Claimants.

The Defendants did also seek technical advice from Gamatronic UK’s IT provider, Conquest Wildman Ltd (“Conquest”), about deleting emails on various dates in January 2012. An email from Conquest to Mr Malinsky dating from 24 September 2012 has been produced purporting to show notes of instructions received from the Defendants in the early part of 2012. There is no direct evidence about the contents of this email and it is not clear, in particular, where the notes set out within derive from. Neither Mr Malinsky nor the writer of the email was available to be cross-examined. The notes suggest that Ms Mansfield wanted to know how to delete “all email but still have this available on her laptop at home”. It is not clear whether the reference to “all email” is a reference to every single one of Ms Mansfield’s work emails on the server or just a loose reference to all of the ‘personal’ emails which Ms Mansfield wanted deleted. There was also a request to the IT company to do a “one-off backup of the server to a new hard disk drive”, which would later be removed. Ms Mansfield also issued an instruction on 3 February 2012 such that server-deleted items should permanently delete after one day. The same notes from the IT company show that Mr Hamilton was “happy that he knows how to delete what he wanted from the server”. In cross-examination, both Defendants remained adamant that these deletions were limited to “personal” emails and refuted the inferences which the Claimants sought to draw from the Conquest notes.

In my judgment, the Defendants were involved in deleting some emails in January and February 2012 and they attempted to remove these permanently from the server as well. These deletions went beyond the purely ‘personal’ (as one would normally understand that term) and included the communications described above. However, there is a gulf between seeking to delete such emails, which were believed to be personal, and engaging in the wholesale deletion of all or the vast majority of work-related emails on the server, which is what the Claimants allege. Having considered all of the evidence (such as it is) in this regard, I do not find that there is sufficient evidence to support that more serious allegation:

Mr Hamilton suggested that Mr Malinsky may have ordered the deletion of emails. It was put to Mr Hamilton that Mr Malinsky would not have had any interest in deleting the emails because they were a valuable resource. Indeed, Ms Bar Zvi had stated that the emails were an “invaluable resource” which “Ms Mansfield had destroyed … in its entirety”. However, if the deleted material had been of such value then it could reasonably be expected that the fact that it was missing would have come to light in the six or so months since it was purportedly deleted. The fact that it was not suggests that these emails were not in reality the commercial resource that is being suggested and that there was no real commercial need to access the emails in order to be able to serve customers. Given the apparent lack of utility in these historic emails, one cannot entirely discount the possibility that once the Defendants had left it was considered by Mr Malinsky for some reason that the emails should be deleted. However, given that there is no evidence other than Mr Hamilton’s assertion to support the allegation about Mr Malinsky and that Mr Malinsky did not give any evidence about these matters, it does not seem to me that there is sufficient material on which to draw an inference as to how the emails did in fact come to be deleted. All I can conclude is that there is insufficient evidence, on balance, to lay the blame for wholesale deletion of emails at the Defendants’ door.

The Claimants also allege that Vox had deliberately destroyed an old server on 1 March 2012 in order to avoid disclosure of relevant emails before that date. The Claimants say that Vox’s explanation that this was just done as an appropriate security measure upon installing a new server is to be rejected given the coincidence that the destruction just happened to occur the day after the SPA was entered into. The coincidental timing might have been more remarkable had there not been evidence, which was not disputed, that Vox was in fact looking to replace its server from at least October 2011. There was evidence before the Court from Mr Ward that the old server malfunctioned in March 2012 and had to be replaced at that stage for that reason. Moreover, it is apparent that Mr Ward would not have known as at 1 March 2012 that litigation would ensue so as to require Vox to disclose emails before that date. Given all of these matters, I find, on balance, that Vox did not deliberately destroy its server on 1 March 2012 so as to avoid disclosure.

It follows that the claim that the Defendants were in breach of their contractual duties by deleting emails is not made out and the corresponding claim for damages fails.

There is an agreed list of issues. It contains over 60 distinct issues with several of those containing further sub-issues. The list is cumbersome and it is perhaps no surprise that neither Counsel sought to rely upon it to any great extent. The issues were more succinctly identified in the skeleton arguments and closing submissions. From these, I consider that the issues that fall to be determined may fairly be summarised as follows:

I shall deal with each of these issues in turn.

The Defendants were directors and employees of, and shareholders in, Gamatronic UK. As such, the Defendants owed fiduciary duties to Gamatronic UK and contractual duties to both Gamatronic UK and Gamatronic Israel. The sources and content of those duties are as follows.

Obligations to Gamatronic UK as directors

It is common ground that by virtue of their position as directors of Gamatronic UK the Defendants’ duties to Gamatronic UK from the time of their appointment on 6 June 2001 until their resignations on 29 February 2012 included the following:

Whilst these duties are accepted, the Defendants’ contend that their actions amounted to no more than “preparatory steps” and therefore not in breach of duty. It is necessary therefore to consider the scope of these duties with regard to preparatory steps.

The following principles may be stated:

Obligations to Gamatronic UK as employees

The Defendants were subject to the Employment Agreements the terms of which were summarised in [9] and [10] above. These give rise, in summary, to the following contractual duties owed to Gamatronic UK:

By virtue of the Compromise Agreements, the Defendants owed additional duties of confidentiality to Gamatronic UK from 29 February 2012. Clause 8.3 provides:

“The Employee acknowledges that, as a result of his employment, he has had access to Confidential Information. He also acknowledges that he remains bound by and will comply with his ongoing duties of confidentiality to the Company and to the Group Companies and will not … at any time after the Termination Date:

(a)

use any Confidential Information; or

(b)

disclose any Confidential Information to any person, firm, company or other organisation whatsoever.

The restrictions in this Clause 8.3 do not apply to any Confidential Information which is in or comes into the public domain (otherwise than as a result of any breach by the Employee of any obligation owed by him to the Company or any Group Company).”

The Compromise Agreements also created a duty on the part of each Defendant to return to Gamatronic UK all Confidential Information (as defined in Schedule 1), all property belonging to Gamatronic UK and all documents, information storage devices and copies which were in their control (clause 7.1). This obligation extended to all copies of documents, regardless of whether the Defendants anticipated a dispute and wanted to retain relevant documents: Brandeaux Advisers (UK) Limited v Chadwick [2010] EWHC 3241 (QB) at [23].

Contractual obligations to Gamatronic UK and Gamatronic Israel as shareholders

By virtue of the Founders Agreement, the Defendants owed the following duties to Gamatronic UK and Gamatronic Israel:

An important preliminary issue of fact in determining whether there was a breach of duty is whether the activities of Vox were competitive with those of the Claimants. If Vox was not a competitor then the Defendants’ relationship and involvement with Vox might be less likely to result in harm to the Claimants’ interests. In those circumstances, the duty to avoid a situation where there is a conflict may not arise. If on the other hand, Vox’s activities were competitive then the potential for conflict is stark.

The relevant considerations in determining whether an entity is competing with another were identified by the Court of Appeal in Morris-Garner v One Step (Support) Limited [2016] EWCA Civ 180:

57 Whether or not A is carrying on business in competition with B in a particular area or areas is dependent on at least two considerations, each of which raises questions of definition. The first is whether A and B are properly to be regarded as supplying goods or services which are sufficiently comparable to mean that they are in competition. As to that, it was entirely open to the judge to hold that the products supplied by One Step and Positive Living – supported living for both children and adults – were of a type which (save as to registrable care) could be provided by either of them interchangeably. Insofar as One Step was not already providing child or adult care to any particular local authority in the Thames Valley of West London, it could readily do so.

58 The second consideration is whether Positive Living is to be regarded as competing in the same area as that in which One Step was carrying on business in December 2006.

59 As to that, A and B, whilst supplying identical, similar, or interchangeable products, may operate in areas which are sufficiently disparate to mean that they are not in reality in competition. Whether that is so may depend, at least, in part on (a) the nature of the product(s) supplied; and (b) whether potential consumers could realistically be expected to purchase from either A or B. That in turn may depend on the manner in which consumers make decisions about what to purchase.

60 The answer to the question may also turn on whether the area in which A and B are said to be in competition ought to be subdivided to allow for the fact, if such it be, that in sub-areas 1, 2, and 3 A carries on business in the supply of product X, whereas B supplies only product Y and does not aim or has no prospect of supplying product X. In such a case it may be that, although A and B both carry on business supplying products X and Y in the area taken as a whole, they are not in truth in competition in sub-areas 1–3. So, here, the appellants' case is that there was segmentation in the supported living market, arising from the way in which authorities make commissioning decisions, so that in respect of adult care there was no real competition in relation to authorities for which One Step had not provided adult services by December 2006.

61 The analysis in the previous paragraph assumes that in the relevant sub-areas B does not aim, or has no prospect, of supplying product X. That in turn raises the question of whether A and B are in competition if B hopes to do so. The answer to that seems to me to depend on (a) the degree of similarity between products X and Y; (b) the genuineness of B's hope; and (c) whether, and to what extent, it is realistic to expect that he may obtain customers for Y as well as X.

Conclusion on competition

62 In the present case the judge found [73] that One Step and Positive Living were in material competition in West London and the Thames Valley, in each of which One Step operated from a hub and in each of which they provided a range of services, from August 2007 to December 2009. He rejected the proposition that One Step was not in December 2006 in an advanced state of preparation to provide both types of service (“ I see no merit at all in this contention ”); and accepted that One Step was very much in the market for adult referrals from clients to which it had provided CLC services and would hope to receive cross referrals (whether between teams or authorities).

63 I regard this as a finding to which he was entitled to come.

64 Whilst the issue of competition can be analysed in the way that I have suggested the question whether A is in competition with B needs to be considered with a rather broader brush. The essential question is whether the scope of the businesses was the same, and, as Rose J put it, in Invideous Ltd v Thorogood [2013] 3015 Ch whether the provision of adult services to any authority in those regions was “ within the scope of [One Step's] business plan ”. It is also necessary to bear in mind that A can be in competition with B if both of them are supplying the same product and B seeks to provide it to outlets previously supplied only by A: per Christopher Clarke LJ.

The following questions emerge from that analysis:

The relevant time frame in which to consider these questions is the period from Vox’s incorporation until Ms Mansfield’s departure in May 2012. If there was no realistic prospect of competition by then and it was not within Vox’s plans then it is unlikely that there was any or any potential competition.

The Claimants’ pleaded case is that since early 2011, “Vox has, in direct competition with Gamatronic UK, been in the business of marketing and selling UPSs and providing related services in the UK”. The Defendants admit that Vox was in that business. However, it is denied that Vox was in competition since early 2011. The reasons for that are said to be that Vox only marketed or sold single-phase UPSs which were not the core business of Gamatronic UK; Vox did not sell three-phase UPSs in the UK until after the Defendants ceased to be directors of Gamatronic UK; Vox provided UPS maintenance services which Gamatronic UK only did through the use of subcontractors; and Vox targeted the Middle East which is said to be an area not available to Gamatronic UK “as a result of religious political and ideological differences.” The last of these reasons was not pursued during trial.

At this point it may be helpful to describe the difference between single-phase and three-phase UPS units in more detail. Single-phase and three-phase are descriptions of the input electrical supply to a unit. Single-phase refers to a single sine wave electrical input whereas a three-phase input comprises three distinct sine wave cycles. Single-phase UPS units are more suitable for smaller power loads including those that might be required by single desktop appliances, such as a computer or a small local area network. Three-phase UPS units are more suitable for larger power loads required by e.g. large servers servicing many computer terminals or the critical power needs for an entire facility such as a hospital. Single-phase UPS units generally come in a standalone box configuration. There is limited scalability with a standalone unit in that if the customer’s needs change and a bigger load is required, the unit will probably have to be replaced with another. Three-phase UPS units can come either as a standalone unit or as a modular unit. The latter, as the name suggests, consists of modules to which more modules may be added. This gives greater scalability. Three-phase units are generally at the higher end of the price scale.

When Gamatronic UK first commenced, it sold mainly single-phase standalone units. However, since 2004, Gamatronic UK has sold mainly three-phase modular units supplied by Gamatronic Israel. Single-phase units continued to be sold on an occasional basis but these would be sourced from another manufacturer. The Defendants accept that Gamatronic UK sold such units on “rare occasions” but this is said not to give rise to any significant competition. As for maintenance services, the evidence was that Gamatronic UK did provide such services although this would be through third-party subcontractors and that this comprised around 20% of its business. Maintenance services were a significant part of Vox’s business. Notwithstanding that, the Defendants maintained that there was little or no overlap between the businesses. Mr Hamilton said that he “did not believe for a moment that there was any issue between Vox and Gamatronic UK”. Similarly Ms Mansfield stated that she could “see no conflict between Vox and Gamatronic UK. Vox intended to offer services which Gamatronic did not, maintenance contracts and non-modular UPS.”

Whilst the statements from both sides and the documents were thin on evidence of competition or the lack thereof, there was a substantial amount of cross-examination on the question of competition. Having considered all of the evidence I come to the following conclusions:

Taking all of these matters into account, I conclude that Vox was or was about to be in competition with Gamatronic UK. That would be the case whether one takes a “broad brush” approach to the question of competition or the more analytical approach described in Morris-Garner. The four questions identified in [95] above, may be answered as follows:

Having determined that Vox was in competition with Gamatronic UK I turn to consider whether the Defendants were in breach of the identified obligations.

The relevant findings of fact are set out in respect of the following periods:

October 2010 to January 2011

It is common ground that there were about four meetings between the Defendants and Mr Ward and Mr Flynn in late 2010. However, the purpose of the meetings is in dispute. The Defendants say that the meetings initially related only to the potential sale of the Defendants’ shareholding in Gamatronic UK to Messrs Ward and Flynn (or their company, TSE) and only subsequently developed into an informal and general proposal about the Defendants working for Vox once they had terminated their relationship with Gamatronic UK. The Claimants say that the meetings were mainly for the purpose of helping to establish Vox.

Ms Mansfield’s recollection, contrary to her pleaded case, was that there had not been any discussion about the sale of shares at all at these meetings. She also said that she did not take any of the discussions about the sale of shares seriously until the meeting at XPCC’s premises in Denver in February 2011. Mr Hamilton’s evidence in cross-examination was that the discussions were initially about the sale of shares but that they subsequently developed into other discussions. I accept that these meetings may have initially been about the purchase of shares but quickly progressed to other matters, in particular, the relationship between Vox and XPCC.

The Defendants were on good terms with Mr Segev, who had previously been employed by Gamatronic UK, and they were instrumental in introducing XPCC, for whom Mr Segev now worked, to Vox.

A meeting was arranged between the Defendants and XPCC on 18 November 2010. The Defendants say that the purpose of meeting with Mr Ebner of XPCC was to discuss the possible sale of their shares to him. However, the recovered email dating from just after that meeting appears to show that its purpose was about more than just the sale of shares:

There was a further meeting on 1 December 2010. The recovered emails in relation to this meeting suggest that it was to be an all-day meeting:

Ms Mansfield maintains that none of this was considered a serious possibility until after the meeting in Denver. Mr Hamilton suggested they were being taken out of context. The reality, as it seems to me, is that the meeting on 1 December 2010 was a substantial meeting at which further cooperation between Vox and XPCC was discussed. As it transpired, following the meeting in Denver (which I consider below), Vox did become XPCC’s distributor in Europe.

On 26 November 2010, Mr Ward wrote to Mr Hamilton and said as follows:

Nuco is set up on sage now. VAT number will be here next week. Bank account will be set up Monday. Just sorting out importing etc. need to pay Armcom to get started on the web site so I can import info etc. We need a founders agreement set up. We need a bus (sic) plan amended we need correct terms and conditions also for nuco. We also need payment terms sorted from gama to nuco to tse and nuco to others etc. We need to agree all of this soon so perhaps after our Tuesday morning meeting?

This was one of the emails which Mr Hamilton complained was being taken out of context. However, as can be seen from the exchange set out above [68], no other meaningful context was provided. The meaning of the email is clear enough, in my view, and shows that Mr Hamilton was or was about to become closely involved in steps relating to the establishment of Vox’s business.

On 13 December 2010, Mr Hamilton wrote to XPCC, Vox and Ms Mansfield, to give an “update”, and said:

Currently, we are putting together the new company website. This will go live in January 2011. We have also gone over the pricing and created new UK price lists. We have registered company now with registered number in the UK and VAT numbers. We have registered address details also. Noam we need to meet up again in Jan/Feb and run through your website as we will have to use some of the formats. In the meantime as things progress we will keep you all informed.”

Whilst not all activities relating to the establishment of a proposed business would necessarily give rise to a breach of duty, I find that at least one of Mr Hamilton’s activities at this time did ‘cross the line’ as it were. In particular, his involvement in reviewing the UK price lists would have been an act carried out on behalf of Vox and was potentially, if not actually, in conflict with his role as a director of Gamatronic UK. Mr Hamilton had no clear explanation for his conduct:

Day 5: 33/1

1 Q. But in commenting on the price list, for example, you

2 weren't commenting with your Gamatronic hat on at all,

3 were you?

4 A. Yes.

5 Q. You were commenting as one of the four partners in Vox,

6 weren't you?

7 A. Future opportunity, but yes and no. There is no -- if

8 I am to be -- anyway, yes and -- yes and no.

Vox was a potential competitor. Mr Hamilton as a director and senior employee was privy to sensitive information of Gamatronic UK including its pricing strategy. His involvement with the setting of prices for a potential competitor was undoubtedly in conflict with his duty to act in Gamatronic UK’s best interests, even if no sensitive information was used or disclosed in the process. Mr Sisley submitted that this involvement in the price lists amounted to no more than the making of a few remarks. However, the email referred to above suggests that Mr Hamilton went much further and was involved in the creation of new UK price lists. In any case, Mr Sisley’s submission was based on the premise that Vox was not a competitor. I have found that it was.

January to February 2011 – Various Emails

On 6 January 2011, Mr Seth Davis of Gamatronic UK sent an email to Forum International Marketing and copied in various persons within Gamatronic UK, including the Defendants. The email referred to the fact that sales of Gamatronic Israel had increased this year by 8% to $22.6m and invited “stories”, which presumably could be used for marketing purposes. Mr Hamilton sent a response to Mr Davis highlighting Gamatronic UK’s contribution. He also included a quote that could be provided. In a section beginning “Additional Notes”, he informed Mr Davis that UK’s purchases from Israel was around $2.25 million and that “Total sales of Gamatronic UK was US$5million (Still to be confirmed once audit complete)…”. Mr Hamilton then forwarded this email chain between him and Mr Davis to Mr Segev saying as follows:

This will interest you Noam old bean! The growth of Israel plc was actually only because the UK grew! Watch and learn! Call me when you have 10 mins. Text me first though. The funny thing is Sharon insists that we are rubbish! Bizarre! The figures speak for themselves! Very very very strange!

The Claimants complain that Mr Hamilton was thereby disclosing confidential information to Mr Segev. Whilst it is right that there is one unaudited figure mentioned in the email, it does not strike me as disclosing material which is sensitive:

One of the three elements to a claim for breach of confidence in the classic exposition of that area in Coco v Clark [1969] RPC 41 is that there must be an unauthorised use of the information “to the detriment of the party communicating it”: per Megarry J at 48. I note that Megarry J kept open the possibility that equity might intervene in some cases where there is nothing that could fairly be described as detriment. However, the circumstances in which equity would intervene in the absence of any detriment will be rare. There is certainly nothing in this case to suggest that the disclosure of this information to Mr Segev caused or even had the potential to cause any loss. It is perhaps conceivable that there was some sensitivity about the internal purchase figure being disclosed externally prior to publication, but that was not how the Claimants put their case and nor was that suggested to the Defendants. There does not appear to be any real detriment here at all.

For all of these reasons, I do not consider that the sending of this email amounted to a breach of confidence.

On 7 January 2011, Mr Hamilton received an email (apparently on his LinkedIn account) from a Jan Bubella inquiring about new challenges. The email was forwarded on to Mr Segev. It is suggested that this related to the business of Vox and therefore in breach. However, the details are very vague. Mr Hamilton says that this was just idle gossip between friends within the UPS market although it appears that Mr Segev is being provided with the name of a potential recruit. Vox is not mentioned and it is difficult to discern precisely what purpose the email is intended to serve. It certainly does not appear to relate to any business in which Gamatronic UK might be interested. In these circumstances, there is insufficient material here to conclude that the conduct revealed amounted to a breach of duty.

On 10 January 2011 Ms Mansfield wrote an email to Mr Segev referring to “interest from our disti [sic – distributor?] in Jordan”. It is alleged that this was a breach. However, it is difficult to know what to make of this allegation since the details are so vague and the meaning of the email is unclear. Ms Mansfield was not cross-examined about it directly (although it was raised with her as a prelude to a question about the purpose of the meeting in Denver). In the circumstances, as with the preceding allegation, it does not seem to me that there is sufficient material before me on which to conclude that the conduct revealed amounted to a breach of duty.

On 17 February 2011, Mr Hamilton received a sales inquiry from NTECH, a potential customer from Vietnam. Mr Hamilton forwarded this to Mr Segev stating that he had “not passed this on to Gamatronic”. Mr Segev responded by saying that he would approach the person concerned but also said, “Why don’t you sell him a P+ directly and screw Seth [Davis]”. The Defence states that this was not necessarily a business opportunity for Gamatronic UK because of the territorial restriction on its business and the difficulties for the Claimants in dealing with countries such as Vietnam. It is also said that the inquiry was eventually returned to Gamatronic Israel in any event. Mr Hamilton’s evidence in this regard was that when a lead came in for certain areas in which they did not deal it was for him to pass it on to the appropriate distributor, which is what he did.

Whilst superficially, this email suggests that Mr Hamilton was diverting a potential business opportunity to XPCC instead of referring it to Gamatronic Israel, upon closer inspection it is difficult to see that there was any benefit for Vox, potential or otherwise in doing so. There is no evidence that anyone other than Gamatronic Israel ultimately had the opportunity to make good on the order, directly or through a distributor, and it was not put to Mr Hamilton that any other party, or Vox in particular, had benefited. There was also no evidence to suggest that Mr Hamilton, as managing director and head of sales, was not authorised to make the decision that he did or that he was obliged to refer any such query directly to Israel rather than another distributor of Israel’s goods. In the circumstances, I am not satisfied that this email demonstrates a breach of duty on Mr Hamilton’s part.

The final email to emerge in this period is one dated 17 February 2011 sent by Mr Hamilton to a customer named Sunseeker, which appears to have had some faulty units. In it Mr Hamilton acknowledges that he would look at the units free of charge to assess whether they are reparable and gives the address to which the units should be sent. He also refers to what Gamatronic UK is able to offer and the price per module for these. The email concludes as follows:

Also I would very much like to visit you guys to talk to you about the relationship between:-

The UPS Company to Gamatronic to Potentia to Ammsett to Atlantis Marine to Sunseeker.

As you can see the chain is massive with each adding a margin on the units. Let me know when you have a free date next week.

The Claimants suggest that the final paragraph shows that Mr Hamilton was intending to propose that The UPS Company, i.e. Vox, might sell direct to Sunseeker thereby cutting out Gamatronic UK to the advantage of both those companies. Mr Hamilton rejected that suggestion although he did so in a somewhat rambling response which made it very difficult to understand what he intended to mean by the email. As I understood his evidence the reference at the end of the email was not about selling units at a lower price but about maintenance and that he wished to talk to the customer about making it quicker and easier for the end-customer to get the help it needed by cutting down the chain on maintenance when there is a call out. However, there was no clear explanation for the reference to the margin on the units, which seems to refer to sales rather than maintenance.

Although Ms Boase’s submission that I should infer that this was another attempt to divert business was attractive, I am ultimately not tempted to accept it. That is because the totality of the evidence in relation to this email weighs more heavily in favour of a conclusion that its purpose was not to divert business:

February 2011 – The trip to Denver

On 7 January 2011, Mr Segev wrote to the Defendants and Messrs Ward and Flynn inviting them to XPCC’s HQ in Denver. It was said that:

There is a lot to accomplish with this new wonderful partnership and Denver would be the right place for commercial discussions and technical training.

There is a dispute as to the purpose of the meeting in Denver. Ms Mansfield maintained that the sole purpose, as far as she was concerned, was the sale of her shares to Mr Ebner. She states that she had told Ms Rand about her visit and its purpose. Both Defendants attended the meeting in Denver in the first week of February 2011. When Ms Bar Zvi learned that both directors were absent she sent an email dated Wednesday, 2 February 2011, expressing her concern. Ms Mansfield sent the following response on Friday, 4 February 2011:

Sharon,

I was in the office on Monday morning and am back in today. I have been in touch with all the guys here daily and have only been one and a half hours drive away in case of emergency. There is no need for Rob to cut short his holiday. I had to have my phone off as I was in a hospital and my Mother lives in a remote area with no signal.

All was still supervised and it was a situation that could not be avoided and which took precedence for me over everything.

I will give you a ring on Sunday.

It was put to Ms Mansfield that in this email she had lied to Ms Bar Zvi about the reason for her absence and that she had actually gone to Denver to develop the relationship between Vox and XPCC rather than sell her shares. Ms Mansfield strongly disagreed.

My findings about this matter are as follows:

I find therefore that Ms Mansfield was seeking to conceal her trip to Denver from Ms Bar Zvi and that the primary purpose of the trip was not about the shares (although that may have been Ms Mansfield’s primary hope).

June 2011- Purchase of Vox Shares

On 18 June 2011, TSE transferred 240 ordinary A shares in Vox to each of Amanda Diamond and Susan Griffin. Ms Diamond is Ms Mansfield’s sister and Ms Griffin is Mr Hamilton’s mother. The Defendants claim that the shares were held for them on terms that they would not exercise any rights in respect of the shares and would not receive any dividends from them until they had concluded their employment with Gamatronic UK.

It emerged during cross-examination that the Defendants had paid £2,500 each for their shares. The Defendants say that the purchase was to show commitment to Messrs Flynn and Ward. It seems to me that whatever the purpose of this shareholding arrangement, the shares were held beneficially for the Defendants from 18 June 2011. As from that date, therefore, they would have had at least an indirect interest in Vox’s performance. Given my earlier finding that Vox was in competition with Gamatronic UK, that did create a potential conflict of interest. The fact that the shares were purchased in this manner suggests that the Defendants were aware that it was not consistent with their obligations to have such an interest in Vox at this time.

I deal briefly here with a further issue that arose as a result of the use of the name Amanda Diamond. Ms Mansfield’s case is that Ms Diamond played no part in the business. However, in March and May 2012, Mr Hamilton sent two emails, one of which has Ms Diamond as an addressee as well as Messrs Flynn and Ward, and another which refers to a meeting between “Ian Gerry and Amanda and I”. It was suggested that “Amanda” was being used as a pseudonym for Ms Mansfield to conceal her involvement. Ms Mansfield appeared genuinely surprised to see these references, which she had not seen before. Mr Hamilton said that it was done as a “joke” although the humour was not immediately apparent. Mr Sisley submitted that there cannot be any attempt to conceal given that Mr Hamilton’s name does appear on the two emails. It is also the case that earlier emails openly referred to Ms Mansfield and it does appear somewhat odd that there should be a sudden change. One explanation for the change perhaps is that by this stage, Mr Hamilton had already left Gamatronic UK but Ms Mansfield was still there and she had asked to be referred to in this way in order to conceal her continued involvement. However, I find, on balance, that this was not an attempt to conceal:

March 2011 to February 2012 and beyond - Dealings with Vox prior to departure from Gamatronic UK

Several emails were put to Mr Hamilton on the basis that they showed that he and/or Ms Mansfield were actively involved with Vox operations in this period. These included the following:

In my judgment, Mr Hamilton was being evasive. He clearly was doing at least some work on behalf of Vox at this point. Although not cross-examined on the contents of the other emails set out above, I find that these form part of a pattern of communications suggesting that, in these two weeks in the period from the SPA on 29 February 2012 to about 9 March 2012, Mr Hamilton was more extensively involved in Vox’s operations.

There is a specific allegation that Mr Hamilton had set up Gamatronic UK’s system such that any emails addressed to sales@gamatronic.co.uk would be automatically forwarded to his personal googlemail address.

On 3 July 2012, Ms Hollie Pearson of Power Systems International sent an email to sales@gamatronic.co.uk for the attention of the sales department, asking for quotes for modular UPS units. On 6 July 2012, Mr Briggs (who was by now working for Vox) wrote to Ms Pearson attaching specifications responding to the request for the quote. Mr Briggs’ email enclosed a copy of Ms Pearson’s request to Gamatronic. However, it had been doctored in that the “sent to” field had been deleted so as to remove any reference to the sales@gamatronic.co.uk address. Ms Pearson was naturally concerned that a query directed to Gamatronic UK should end up with Vox.

What transpired thereafter is set out in an email written by Mr Malinsky on 9 July 2012. Mr Malinsky said that Ms Pearson called Mr Briggs seeking an explanation as to why Vox had responded to a query intended for Gamatronic UK. Mr Briggs told Ms Pearson that he got the inquiry email from his boss Mr Hamilton. Ms Pearson then spoke to Mr Hamilton whose initial response was that he had received the email from Mr Briggs. When confronted with the fact that Mr Briggs had said the opposite, Mr Hamilton then said that he had in fact received the query from Ms Pearson’s MD a few days earlier. This was denied by Ms Pearson who then referred the matter to Gamatronic UK.

Mr Hamilton was closely questioned about this incident. His responses were not convincing:

The initial instruction to forward emails to Mr Hamilton’s googlemail address appears to have come from an email dated 3 February 2012 from Mr Malinsky addressed to “Support”, which I assume is a reference to Conquest. It states as follows:

As per your conversation with Jayne 10 mins ago all emails from / to sales@gamatronic.co.uk are to go to [Mr Hamilton’s googlemail address].

Also to confirm that everything in the deleted file should be permanently deleted after 1 day not 10.

It is claimed that Mr Hamilton had sent this email in Mr Malinsky’s name without his knowledge. The basis for so claiming is that Mr Malinsky did not commence work at Gamatronic UK until 22 February 2012. Mr Hamilton explained that although Mr Malinsky had not formally commenced work as at 3 February 2012 he was in the office at that time and that he and Mr Malinsky had sent this email together. Taking account of all of the evidence, I am unable to conclude that Mr Hamilton sent this email without Mr Malinsky’s knowledge:

The ticket history also shows that on 2 April 2012, all emails to sales@gamatronic.co.uk and info@gamatronic.net were to be forwarded to Mr Malinsky.

The upshot of all of the above, in my judgment, is that there was a legitimate forwarding arrangement of emails to the sales@gamatronic.co.uk address which commenced whilst Mr Hamilton was still at Gamatronic UK. After his departure, it appears that for some reason the forwarding arrangement with Mr Hamilton was not terminated when the instruction was given to forward emails to Mr Malinsky. Thereafter, Mr Hamilton received mainly forwarded spam emails. However, when an email that was of commercial value arrived in July 2012, he allowed Mr Briggs to act upon it. There was some suggestion that Mr Briggs was disciplined for his actions, as if to suggest that he did this entirely without Mr Hamilton’s knowledge. However, there was no direct evidence of such disciplinary action, and the more likely scenario, in my judgement, is that Mr Hamilton was aware of Mr Briggs’ approach to Ms Pearson. That would explain his changing stories when confronted with Ms Pearson’s queries and his inability to give a credible explanation for how Vox came to provide a quote. I therefore conclude that there was not a deliberate attempt to divert business whilst he was a director for the benefit of Vox either during or after his termination, but that he did subsequently seek to take advantage of Gamatronic UK’s failure to ensure that the forwarding arrangement had ceased.

I now deal with an email sent by Mr Briggs. The first is one he sent to Simon Docker, a Gamatronic UK customer, on 3 February 2012. Mr Briggs was still employed by Gamatronic UK at that stage. The email confirms a site survey the following week. It is copied to Mr Hamilton. Mr Hamilton responds a few minutes later to ask, “Am I supposed to be on this one too????”. Mr Briggs’ reply is, “I only included you so that you had the customer contact details”. Mr Hamilton replied, “I see!”

The suggestion is that as Mr Hamilton was aware by this stage that he would be leaving he was, through Mr Briggs, collating customer contact details for Vox’s benefit. Mr Hamilton rejects that suggestion as “utterly ridiculous”. He says that having the contact details enabled him to thank a contact, not Mr Docker, for passing on the lead in the first place. He goes on to say that this resulted in a successful job for Gamatronic UK. I accept Mr Hamilton’s explanation:

I refer to the findings of fact as to the Defendants’ conduct above.

In my judgment, in the period from October 2010 to December 2010, most of the Defendants’ conduct could properly be said to be merely preparatory and not such as to give rise to any conflict or breach of duty. Even though the initial meetings with Messrs Flynn and Ward and with XPCC in 2010, were about more than the sale of shares, they were about the proposed venture and the proposed nature of the relationship between XPCC and Vox once established. The Defendants’ involvement in the nascent Vox project included the matters set out in the email of 26 November 2010 from Mr Ward. However, being involved in discussions about the setting up of a Founders Agreement, establishing a business plan and so on did not, on the facts of this case, amount to a breach of duty at that stage. If all such preparatory steps were prohibited then the directors’ personal freedom to compete after leaving would be seriously curtailed. Insofar as some of these activities involved meetings which may have encroached on working hours at Gamatronic UK, there is little to suggest that the Defendants were neglecting their duties as a result. Even Ms West’s evidence, which for reasons already set out I considered to be largely unreliable, did not seek to suggest that in late 2010 there were any significant absences from work.

The Defendants’ acts during that period did not, in the main, fall on the wrong side of the line. The exception, in my judgement, is Mr Hamilton’s involvement in helping to create the price lists as evidenced by the email dated 13 December 2010. For the reasons set out above [113-114], I consider that that activity did amount to a breach of his duty of loyalty and to avoid any conflict of interest.

I reach a similar conclusion in respect of the period January and February 2011 and the various emails sent or received in this period upon which the Claimants rely. For the reasons set out above [115-125], I do not find that any of them establish any breach of confidence or breach of fiduciary duty.

The trip to Denver in the first week of February did amount to a breach of duty. In my judgment it was not necessarily the content of the meeting itself that reveals a breach but the steps taken to attend it and to conceal it from the Claimants that crossed the line. The Defendants were entitled to continue with preparatory commercial discussions. What they were not entitled to do, in my judgment, was to take substantial time off work under false pretences in order to do so. Ms Mansfield’s attempt to throw Ms Bar Zvi off the scent by her misleading email of 4 February 2012 was, in my judgment, a clear breach of the duty of fidelity.

Thereafter the breaches of duty gain pace. The purchase of shares in the names of nominees was, by the Defendants’ own admission a statement of commitment in the new venture. I find that from that stage there was an irrevocable intention to be part of the Vox business. Whilst the Defendants maintained that they did not consider Vox to be competitive, it seems to me that had the Defendants paused to consider the matter fairly and in good faith, and without allowing themselves to be blinded by the bright lights of the opportunity which Vox presented, they would have concluded that it was. Mr Sisley submitted that it is not enough that Vox might be in competition to fix the Defendants with any liability if there was no knowledge or intent to compete. However, I find it difficult to accept the notion that liability for breach could only arise if there was subjective intention to compete as that could potentially give rise to abuse where a deliberately blinkered approach is taken by individuals. It seems to me that the question of whether there is competition is one to be determined objectively, and that would appear to be consistent with the analysis of the Court of Appeal in Morris-Garner. I acknowledge that it is not always easy to determine whether there is actual competition (as was the case here). Insofar as that uncertainty over competition causes directors to take pause and perhaps adopt a more cautious approach before acting then it does not impose on them any undue burden or one that is inconsistent with their obligations as fiduciaries.

Most of the various matters referred to in [134] and occurring in the period from March 2011 to February 2012 did, in my judgment, amount to a breach of duty for the reasons stated. It was not consistent with the Defendants’ duties to Gamatronic UK to approach third party customers on behalf of Vox, to engage or continue engaging Vox’s services for Gamatronic UK’s business, to hold oneself out as a director of Vox, or to be actively involved, even to a limited extent, in operational matters concerning Vox. Each of these matters was potentially contrary to the best interests of Gamatronic UK and therefore in breach of the Defendants’ fiduciary duties and their obligations of fidelity.

As against Mr Hamilton, the Claimants rely on evidence showing that he acted in breach of his ongoing obligations as an employee after he had ceased to be a director on 29 February 2012. As stated above [134] I find that Mr Hamilton was more extensively involved in Vox’s operations in that period thereby placing him in breach of his obligations of fidelity as an employee.

The Defendants rely on a number of defences to the claims for breach of duty:

The Defendants’ pleaded position was that the release clause had the effect of releasing all claims against them relating to alleged acts or omissions occurring before the completion of the SPA. Mr Sisley did not pursue a general release and accepted that the clause only operated in respect of all liabilities and claims arising under or in connection with the Founders Agreement. However, it was argued that, by virtue of the fact that the Founders Agreement itself comprised a suite of agreements including the Employment Agreements, then liabilities arising out of a breach of the latter would also fall within the scope of the release. Ms Boase submitted that it would be incorrect to treat the release as covering such liabilities because the parties to the SPA also entered into a separate Compromise Agreement in respect of the Employment Agreements which only contained a release of claims which the Defendants might have against Gamatronic UK.

The principles to be applied in construing release clauses are well-established:

The natural and ordinary meaning of Clause 6.2 of the SPA is clear: It is not a general release of all claims but only those arising under or in connection with the Founders Agreement. Clause 6.1 of the Founders Agreement provides that “concurrent with the signing of the [Founders Agreement] the Shareholders shall procure the Board approve and the Company enters into the following documentation… 6.2.2. The Directors Service Agreements”. The question is whether the natural and ordinary meaning of clause 6.2 of the SPA is that the claims and liabilities released should also include those arising under the Employment Agreements. If the SPA were the only agreement concluded on 29 February 2012, then it might have been reasonable to construe the release clause as encompassing such claims under the Employment Agreements as well. After all, it is clear from the terms of the Founders Agreement that the Employment Agreements themselves were agreements “in connection with” the Founders Agreement. However, it is necessary to have regard to all of the relevant circumstances at the time of entering into the SPA to discern what the parties must have understood by its terms:

I consider first the proper construction of this release. In construing this provision, as any other contractual provision, the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties' relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties' intentions the court does not of course inquire into the parties' subjective states of mind but makes an objective judgment based on the materials already identified. The general principles summarised by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 , 912-913 apply in a case such as this. Per Lord Bingham in BCCI v Ali (ibid) at [8]

One relevant contextual matter in the present case is the fact that the Defendants also entered into Compromise Agreements with Gamatronic UK at the same time as the SPA. Clause 10 of the Compromise Agreements, which is headed, Full and Final Settlement, provides:

Save as set out at clause 10.1(a) below, and without any admission of liability by the Company or any Group Company, the Employee accepts the terms set out in this Agreement and the terms of the [SPA] in full and final settlement of any and all claims, complaints, demands or rights of action of any nature which the Employee has or may have against the Company or any Group Company…

That is a one-way release. It has no effect on any potential claims that the Claimants may have had against the Defendants. It seems to me that to interpret the release clause in the SPA as encompassing all claims arising out of the Employment Agreements would be to disregard this limited one-way release entered into at the same time as the SPA. If the intention had been to compromise all employment-related claims then the Compromise Agreement could easily have so provided. Accordingly, I find that the release clause did not have the effect of releasing all employment-related claims.

If I am wrong about that and the release clause does have wider effect, it would still not operate so as to release the Defendants from claims in respect of which the Claimants had no knowledge. Mr Sisley submitted otherwise and referred me to another passage in in BCCI v Ali:

A party may, at any rate in a compromise agreement supported by valuable consideration, agree to release claims or rights of which he is unaware and of which he could not be aware, even claims which could not on the facts known to the parties have been imagined, if appropriate language is used to make plain that that is his intention. Per Lord Bingham at [9]

However, it is clear from [32] in the same judgment that Lord Bingham was referring there to the case where both parties were unaware of a claim and that the situation is materially different where the party to whom the release was given knew that the other party had or might have a claim of which he was unaware. I was also referred to the judgments of the Court of Appeal in Mostcash Plc v Fluor Ltd [2002] EWCA Civ 975 and Priory Caring Services Ltd v Capita Property Services Ltd [2010] EWCA Civ 226. Both of those cases considered whether, at the time of entering a release, a claim later sought to be relied upon was within the contemplation of the parties and therefore within the terms of the release. Mr Sisley submitted that the Claimants’ complaint in this case about setting up in competition was something that would have been within the parties’ contemplation and so should also fall within the terms of the release. I do not accept that submission. There is a difference between cases where a claim might have been within the parties’ contemplation and those where one party is specifically aware of a potential claim. In the present case, the Defendants were aware at the time of the SPA that they had invested in and were involved in the operation of Vox. That was something of which the Claimants were not aware. If the Claimants had wanted to compromise even those claims of which they had no knowledge then the SPA could have been drafted accordingly. It was not. Moreover, the very fact that the Compromise Agreements expressly included only a one-way release tends to suggest that the Claimants were not intending by the SPA to release all potential claims of which they had no knowledge.

For these reasons, I conclude that the release clause does not have the effect of releasing the Defendants from all claims against them in respect of the breach of their fiduciary and contractual obligations.

It is not sustainable on the facts that there was any acquiescence in or waiver of the Defendants’ conduct. The mere fact that the Claimants might have been aware or would have expected the Defendants to continue working in the UPS industry does not mean that the Claimants had full knowledge of the Defendants’ conduct such that a waiver could be given. In any case, there is nothing before me to demonstrate that there was anything said or done by the Claimants that could amount to an unequivocal representation that they would forgo their rights.

Section 1157(1) of the Companies Act 2006 provides:

If in proceedings for negligence, default, breach of duty or breach of trust against–

(a)

an officer of a company, …

it appears to the court hearing the case that the officer or person is or may be liable but that he acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused, the court may relieve him, either wholly or in part, from his liability on such terms as it thinks fit.

I can deal with this defence very shortly. Having regard to all the circumstances in the present case, I do not consider that the breaches of duty were the result of the Defendants having acted reasonably. The Defendants’ sense of grievance as to how they believed they were being treated caused them, over time, to lose sight of some of their duties as directors. Had they paused to consider and reflect on their intended acts before carrying them out, they would have recognised that these were potentially against UK’s interests.

Before going on to consider the consequences of those breaches of duty, I digress slightly to deal with the allegation made by the Defendants that they were victim to a campaign to force them out of the business. There was a mass of evidence in relation to this part of the Defendants’ case which arises out of paragraph 33 of the Defence:

It was made clear to Mr Hamilton and Ms Mansfield during the course of the meetings in Israel in March 2010 [sic – this is intended to refer to 2011] that they were being forced out of Gamatronic UK as shareholders, directors and employees.

The legal significance of this allegation is not entirely clear. Mr Sisley did not pursue in closing submissions any argument that the Defendants were “forced out” in the manner suggested above. However, he does rely on various matters said to amount to a breach of the implied duty of trust and confidence between employer and employee. That alleged breach of the implied duty forms part of the Defendants’ argument, relevant to rescission, that had the SPA and Compromise Agreements not been entered into, the Defendants would have considered themselves constructively dismissed and claimed unfair dismissal. I shall address that argument when dealing with the claim for rescission of the SPA below. But, apart from that, the “forced out” argument does not affect the primary legal issues to be considered, namely whether the Defendants were in breach of their duties or whether the SPA should be rescinded. As such, I do not propose to deal with the relevant factual allegations under this head in any detail. The principal disputes of fact relevant to this issue would appear to be as follows:

My conclusions on these issues, very briefly, are as follows:

Having determined that the Defendants were in breach to the extent described above, I turn now to consider whether any remedy is due in respect of those breaches.

This is claimed on two bases:

In principle, a fiduciary may be liable to repay fees paid to him by a principal in the event of a breach of duty: See Snell’s Equity, 33^rd ed at 7-062. However, a fiduciary’s fees may not be forfeit if the breach has not been in respect of the entire subject matter of the fiduciary relationship and where forfeiture would be disproportionate and inequitable. The application of that principle to long-term relationships (as opposed to one-off transactions under which the fiduciary is asked to perform a single task) was considered by Vos J in Governor and Company of the Bank of Ireland v Jaffery [2012] EWHC 1377 (Ch), where Mr Jaffery, whom the Bank of Ireland had employed as a senior executive, was found to have committed various breaches of fiduciary duty:

371 This is not a case such as Imageview supra , where an agent has betrayed the trust of his principal in relation to the sole subject matter of the agency. As I have already said, Mr Jaffery was employed by the Bank in a senior position and betrayed the Bank's trust in respect only of the transactions involving the RGC Customers. In other respects, he seems to have been a valuable and diligent employee promoting the Bank's interests successfully. Of course, the Bank must be compensated on normal principles for the breaches of duty that I have found. The law applies the rules as to breach of fiduciary duty strictly for the reasons given by Jacob LJ in his judgment in Imageview , but it does not do so unfairly.

372 [Counsel for the Bank] argued that the equitable solution would be to require Mr Jaffery to forfeit his bonuses, since they would not have been paid had his breaches been uncovered. That was the clear benefit that [counsel for the Bank] said he obtained from his failure to disclose his wrongdoing. Whilst it might be true, as I have said, that, had he given a true certificate of compliance (or rather non-compliance) with Code of Conduct in 2010, he would have been dismissed and lost a large part of his bonuses, that does not mean that it is equitable for him now to have to repay them. The bonuses were paid for the good job he was doing to improve and promote the Bank's business generally. The Bank can be fully and properly compensated by requiring Mr Jaffery to disgorge his profits or paying equitable compensation.

373 It would be unfair in my judgment, even taking into account the nature of Mr Jaffery's breaches, to require him to repay his salary and bonuses, or indeed any part of them. The breaches must, as I have already said, be looked at in the context of his employment as a whole. Mr Jaffery worked long hours over several years for the Bank. It would be both disproportionate and inequitable in the circumstances of this case to require Mr Jaffery to repay some 5 years of salaries and bonuses in addition to disgorging his profits or paying equitable compensation

Jaffery was considered by Newey J in Avrahami and others v Biran and others [2013] EWHC 1776 (Ch):

344 The present case involves a relationship that endured for a number of years: the fiduciary duties that Mr Biran accepts that he owed to CLP, Mr Avrahami and Be-Ready must have lasted from 2002 to 2009. On the other hand, Mr Biran was guilty of dishonest conduct throughout this period. He misappropriated some of the money Mr Avrahami and Be-Ready lent in December 2002, and the last of the misappropriations took place in 2009. In the interim, there had been numerous other misappropriations amounting, in total, to substantial sums. It is also relevant to note that Mr Biran (or, rather, the trust to which Mr Biran has transferred his interest in CLP) stands to benefit from the success of the Farringdon Road project regardless of whether the management fees are forfeited: the claimants have not pursued their attempt to forfeit the 32.5% stake now vested in the Amos Trust.

345 In these circumstances, it seems to me that the present case is readily distinguishable from the Jaffery case. On the particular facts, forfeiture of the management fees would be neither disproportionate nor inequitable; to the contrary, it would accord with the case law and the policy underlying it. I hold, accordingly, that the management fees have been forfeited. I also consider that it would not be appropriate to order any other payment (whether by way of equitable allowance, quantum meruit or otherwise) to be made to Mr Biran or CLP (UK) for their services.

The approach taken by the Court in the Jaffery case was that the long-term nature of the relationship between fiduciary and principal militated against repayment of salary, in particular where the employee had, in respects other than in connection with the transactions in breach, continued to be a valuable and diligent employee promoting his employer’s interests successfully. That approach was not followed by Newey J in Avrahami in part because of the dishonest conduct that had existed throughout the period that fiduciary duties were owed.

In my judgment, the facts in the present case are such that the approach in Jaffery is more apt. I have not found that the Defendants were dishonest throughout the period from October 2010 onwards. The Defendants were not spending the whole of their time from October 2010 onwards on Vox; far from it.

I have found that whilst there were breaches of duty, the amount of time spent on Vox-related matters was quite limited. I am not satisfied that the Defendants spent increasingly long periods away from work in 2011 as alleged by Ms West, whose evidence about hours worked and attendance is not accepted. Ms Bar Zvi’s evidence in support of a lack of attention is limited to a suggestion that the number of emails exchanged with her fell off in the latter part of 2011 and there was a failure to reply to emails. The fall-off was not evidenced by any supporting analysis of the number of emails in any period. Furthermore, by this stage, Ms Rand was playing an increasing role as a contact point between Israel and UK which would account for some fall-off in the direct communications with Ms Bar Zvi. Ms Bar Zvi’s intervention during the Denver visit in early 2011 indicates that she kept a close eye on matters regarding UK’s management. Had there been any serious concern about dilatoriness on the part of the Defendants in the latter part of 2011, I have no doubt that Ms Bar Zvi would have taken steps to intervene. The fact that she did not do so supports my conclusion in this regard.

It is also quite apparent that throughout 2011 and into 2012, although the Defendants were spending some time on Vox-related matters, they continued diligently with their duties for Gamatronic UK and brought in the substantial proportion of the company’s turnover. The figures for individual sales people in 2010 and 2011 were set out in Mr Hamilton’s statement and these were not challenged by Ms Bar Zvi in her reply evidence. These show that Mr Hamilton was by far the most successful sales person within the company and brought in more orders than all of the other sales people combined, accounting for about two-thirds of turnover or more. Insofar as there was a reduction in turnover from 2010 to 2011 of about £1m it was apparent that a considerable proportion of this was due to the cessation of income from a project in Saudi Arabia which Ms Bar Zvi thought to be worth several hundred thousand pounds. It seemed to me that the highest that Ms Bar Zvi put the case in this regard was that Mr Hamilton could have brought in even more. But the case that, as a result of a want of attention, sales suffered a substantial fall-off, was not made out, in my judgment.

The fact that Gamatronic UK tilted into loss in 2011 does not conclusively demonstrate any dereliction of duty either. As mentioned already, the removal by Israel of the Sensys account had an impact on UK’s figures as did the increasing costs of addressing product-related issues. I was referred to several hearsay statements from a range of customers and distributors attesting to problems with the quality of products. Whilst none of these witnesses could be questioned about their evidence, some weight may be attached to their statements given that they are third parties and it seems unlikely that they would engage in fabrication merely to assist a supplier. I make no findings as to whether there were quality problems, but it is self-evident that the Defendants spent a considerable amount of their time dealing with customer concerns.

I note that Ms Mansfield did admit to losing all enthusiasm for Gamatronic UK from September 2011. However, that lack of enthusiasm did not, on the evidence, translate to any or any significant reduction in attending to the day-to-day management needs of the business. Ms Mansfield’s continued commitment (albeit unenthusiastic) to Gamatronic UK is also evidenced by the fact that, after signing the SPA, she remained for over three months to address handover issues.

I find therefore that although the Defendants were in breach of their duties in the respects identified, the evidence does not establish that they failed to dedicate proper time and attention to their work for Gamatronic UK. The Defendants’ breaches did not affect the entirety of their relationship with Gamatronic UK. As stated by Vos J in Bank of Ireland v Jaffery at [373], the breaches must be considered in the context of their employment as a whole. Looked at in that context, it would be unfair and inequitable, in my judgment, to require the Defendants to repay their salaries for the whole of the period from October 2010.

As for the contractual basis for the claim, Ms Boase relied in her closing submissions principally upon Clause 3.5 of the Employment Agreement which requires the Defendants to “devote [their] best efforts, entire productive time, ability and attention to the business of Gamatronic UK”. The argument is that by reason of a breach of this clause the Defendants should be required to pay damages equivalent to their salaries for the period from October 2010. I was not taken to any authority where contractual damages have been awarded in such a situation. In the two cases cited where this question was considered, damages were refused. These were Horcal Ltd v Gatland [1984] BCLC 549 and Brandeaux Advisers (UK) Ltd and others v Chadwick [2010] EWHC 3241 (QB); [2011] IRLR 224.

In Horcal, the defendant managing director had entered into an agreement to terminate his employment under which he would receive a £5,000 golden handshake and a salary of £435 per week until his termination date. After the agreement but before termination he made a secret profit. After termination, his secret profit was discovered and he accounted for it. The employer also claimed repayment of the golden handshake on the grounds that the termination agreement was vitiated by mistake. That claim failed as there was no mistake on the date of the agreement and the wrongdoing occurred later. The employer also claimed back the salary payments on the grounds that if they had learned of the wrongdoing sooner, they would have dismissed him immediately. That claim succeeded at first instance but was overturned on appeal. The reasons were given by Robert Goff LJ at p.555a-e:

I turn then to the cross-appeal. The position is as follows. There was a binding contract for the termination of the Respondent's services. After the making of that contract there was an undoubted breach of duty committed by the Respondent in that he received the cash paid by Mrs. Kingsbury in respect of the work done by the Appellant Company on her house, and he did not account for that cash to the Appellant Company; furthermore he concealed the existence of the contract with Mrs. Kingsbury from the Appellants. There can be no doubt that that was a breach, and a serious breach, of the Respondent's contract of service with the Appellant Company and had the Appellant Company become aware of it at the time they would have been entitled then and there to terminate the contract between them and the Respondent under which he was continuing to serve the Appellants as managing director. But they did not become aware of the Respondent's misdoings at that time. The Respondent's contract of service was worked out in the ordinary way. He continued to serve as managing director up to 31st October, and he received his salary in respect of that period of his service.

In those circumstances I myself can see no ground upon which the Appellants can recover the salary cheque which they paid him. It was paid under a binding contract. That contract was never terminated. It was paid in respect of work done by the Respondent under that binding contract. There was no failure of consideration. Quite simply there is no basis upon which that money could be recovered. So on this point I find myself differing from the learned Judge. For these reasons, I would allow the cross-appeal and hold that no sum is recoverable by the Appellants from the Respondent.

In Brandeaux, there was a claim by the employer for repayment of salary as damages on the similar basis that if the employer had discovered the wrongful conduct sooner, she would have been dismissed. Jack J refused that claim as no loss was shown and the employer had had the benefit of her work.

Ms Boase sought to distinguish these cases from the present on three grounds:

Firstly, it was said that neither case involved any breach of fiduciary duties. However, it does not seem to me that that would be a sufficient basis for distinguishing those cases in respect of the contractual aspect of the claim here. In any case, the “serious breach” referred to in Horcal could be said to be a breach of fiduciary duty even though not expressly referred to as such.

Secondly, it is said that the claimants in those cases did not rely upon any specific contractual obligation which was breached. However, whether or not there was an express contractual duty that was breached also does not appear to me to be a sufficient basis on which to distinguish these cases. It seems to me that the approach taken in those cases might well be applied in another case if the facts allow it whether the breach was of an express or implied term of the contract.

Finally, it is said that there was no causal connection between the wrongful act and the loss claimed. This would only be a distinguishing feature if I were to find that there had been a breach and that there was some causal connection between the breach and loss claimed in the present case. In my judgment, given the finding of fact that there was no significant failure to devote time and attention to work, the Claimants’ claim fails on the more fundamental basis that there is no breach of the contractual provision on which they rely.

Although Ms Boase relied specifically on clause 3.5 of the Employment Agreements, it is right to say that the breach of contract claim as pleaded ranged more widely and also included breaches of the duties under the Employment Agreements not to compete, not to solicit, and to inform the board of material information adverse to the company. However, insofar as the conduct found amounts to a breach of any of these obligations, it has not been established that the loss flowing from such breach is the salary paid to the Defendants. Gamatronic UK has had the benefit of substantial valuable work from the Defendants for the period in question and for that they were entitled to receive their salaries.

The basis on which these amounts are claimed is that a fiduciary in breach of his duties must account for his profits. However, the profits for which the fiduciary must account “must bear some reasonable relationship to the breach of fiduciary duty”; See Snell’s Equity, 33^rd ed at 7-055. I was also taken to Murad v Al-Saraj [2005] EWCA Civ 959 which said this in relation to the burden of proof:

Again, for the policy reason, 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”. Per Arden LJ at [77].

Ms Boase submitted that the money that the Defendants drew out of Vox by way of salaries amounted to profit. That profit is said to bear a reasonable relation to the breaches because Vox was given a head start and an advantage by their financial support and work over the preceding 12 to 18 months.

Mr Sisley submitted that there was no reasonable relationship between the salaries earned from late 2012 onwards and the breaches of duty relied upon, that there was no real explanation as to why all of the salary is being claimed, and that there was nothing to suggest that Vox’s establishment was materially accelerated by the Defendants’ activities. It was also submitted that the shifting of the burden would only arise if there is a serious allegation made with some loss in consequence and that in this case there is neither.

I do not accept Mr Sisley’s final point. The claim for loss of profit is not dependent on the Claimants showing a loss as such and the findings of breach of duty are, of themselves, sufficient in my judgment to give rise to the shift in burden. Were that not the case then the deterrent effect of liability for breach of fiduciary duty would be seriously diminished. I am satisfied that it is for the Defendants to establish that they should not have to account for their Vox salaries.

Bearing that burden in mind, I am satisfied that the Defendants have discharged it in that they have shown that there is no reasonable relationship between the Vox salaries and the breaches of duty for which they are liable:

The claim for Vox salaries is also sought on the alternative basis of restitutionary damages for breaches of contractual duty. The breaches of duty are those set out in [183] above. This remedy was not strongly pursued either in the skeleton argument or in closing. The remedy is only appropriate in exceptional circumstances where the ordinary remedies of damages, specific performance and injunction are inadequate and justice demands it: Attorney-General v Blake [2001] 1 AC 268 at 284G to 285C. I do not consider that the circumstances of this case are so exceptional as to warrant such a remedy.

There is a claim in respect of the profits made by Vox in the sum of £10,248. Gamatronic UK relies upon the same reasonable relationship as in the claim for Vox salaries. [Day 6: 108/8] However, the breaches of fiduciary duty in this case, as I have found them, did not involve the diversion of business from Gamatronic UK or the making of any secret profit which has been placed into a company that had been created for that purpose. In my judgment, for reasons similar to those expressed above in relation to the claim for Vox salaries, it has been established that there is no reasonable relationship between the breaches of duty and these profits.

Even if any such relationship had been established, the claim for profits as against Vox was settled for the sum of £20,000. The Defendants were of course not party to that settlement. However, in the absence of any evidence that any element of the profits claimed were specific to the Defendants as opposed to Vox generally, then it seems to me to be right to take that settlement figure into account. That would extinguish the profits claim in its entirety.

Ms Boase submitted that I should not take the settlement into account because the Amended Defence did not seek to rely upon it and it is too late to do so now. However, this is not a point that was raised for the first time at trial. Reference to it was made at the summary judgment hearing in February this year. It raises no new issues of fact and does not require to be addressed with evidence. The fact of the settlement is not in dispute. In these circumstances, I consider that it is a matter that may be taken into account as being relevant to the claim for Vox profits notwithstanding the fact that it has not been pleaded.

The Claimants rely upon two grounds for rescission. These are: (a) misrepresentation and (b) non-disclosure.

Misrepresentation

The representations relied upon are the statements contained in clauses 11.1(d) and (e) of the Compromise Agreements, namely that:

These representations were made by each Defendant to Gamatronic UK (the counterparty to the Compromise Agreements). The Claimants say that the Defendants knew that the representations would be conveyed (through Ms Bar Zvi and Mr Goren) to Gamatronic Israel and relied upon by both companies. The Claimants also say that the Defendants made these representations knowing them to be false.

The requirements for misrepresentation as a ground of rescission are that:

The key issue is whether the representations made in the Compromise Agreement were made knowing them to be false. As to the first representation, namely that there had been no breach of confidentiality, the Claimants say that there were four breaches of confidence that were not disclosed:

Accordingly, I find that there was no breach of confidence as at the date of the SPA. As such the representation that there was no breach of confidence was true. It must have been true in Ms Mansfield’s case in any event since all of the alleged breaches of confidence (save for the one which is after the date of the SPA) are said to have been committed only by Mr Hamilton.

As for the second alleged representation, namely that the Defendants had not done anything which would entitle Gamatronic UK to dismiss them summarily, Ms Boase submits that the representation was clearly false as any employer would have been entitled to dismiss on the spot employees who had secretly been holding shares in another company and which they were actively promoting. Mr Sisley submits that it is not as simple as that and that one has to be careful to bear in mind that the summary dismissal would have to be in respect of acts done as employees rather than as directors. However, the Defendants were the most senior managers in the company having control over most of its affairs and with access to all of its information. In those circumstances, it is clear that they would have fiduciary obligations, even as employees, akin to those which they had as directors: See QBE Management Services (UK) Ltd v Dymoke [2012] EWHC 80 (QB) at [169]. The difference between fiduciary duties owed as a director and those which are owed as employee are therefore not materially different in this case.

In order to be entitled to dismiss summarily without compensation, the conduct giving rise to the dismissal would have to amount to a repudiation of the contract or an act of gross misconduct: See Neary v Dean of Westminster [1999] IRLR 288. Mr Sisley submitted that Gamatronic UK sought to define what would entitle it to dismiss without notice and that it should be held to that definition. Clause 7.1 of the Employment Agreement provides that :

The Company may at any time terminate your employment for Cause, without prior notice. Without derogating from the generality of the aforesaid, any one or more of the following events shall, for purposes of this Agreement, constitute Cause:

7.1.1

Commission of an act deemed by the Company in its sole discretion to be an act of dishonesty, fraud, misappropriation of Company’s funds, misrepresentation or other act of moral turpitude that would reflect negatively upon the Company or compromise the effective performance of your duties.

7.1.2

Misconduct or unlawful conduct resulting in material injury to the Company, as determined by the Company in its sole discretion.

…

Mr Sisley submits that only the second of these is relevant and that in the absence of any “material injury” the Company would not be in a position to terminate for Cause. I disagree. The examples of Cause which are set out are not exhaustive. That much is apparent from the sentence beginning, “Without derogating from the generality of the aforesaid…”. Even though Gamatronic might not be in a position to establish any financial loss or material injury as a result of the breaches, it might well conclude that the breaches of duty amounted to repudiatory conduct or acts amounting to a breach of the implied duty of trust and confidence.

However, it is of course not enough that there might be conduct which entitled the company to dismiss; in order to obtain rescission in the circumstances of this case, it would also need to be shown that the Defendants made the representation that there was no such conduct knowing it to be false. In my judgment, the relevant mental element has not been established. The conduct in question, whilst amounting to a breach of duty, was not necessarily such that the Defendants must have regarded it as warranting their summary termination. This was not a case of theft or, as I have said, of making a secret profit or diversion of a business opportunity. Rather, this is a case where there was involvement with a competing business giving rise to a conflict of interest, but where no actual loss appears to have been caused by such involvement as at the date of the SPA. Whilst that conduct would be likely, as a matter of law, to entitle the employer to dismiss without notice (see e.g. Chitty on Contracts, 32^nd ed at [40-184]), it is not conduct of the most serious kind where immediate dismissal would be considered by the layman to be the obvious and only outcome. It was put to Ms Mansfield that the representation was false:

Day 4:87/11

11 Q. Gamatronic UK was insisting upon and relying upon these

12 statements and in reading it and signing it, you knew

13 that?

14 A. I don't think they were relying on these statements.

15 No. I think they put them in there but -- I think they

16 were put in there for sure, but the company just wanted

17 the SPA signed and us to leave.

18 Q. Let's look at the signature. Could you turn to

19 page 934. It has been signed by Joseph Goren in his

20 capacity as chairman of the board of Gamatronic UK.

21 A. Yes.

22 Q. You knew he was also the CEO of Gamatronic Israel?

23 A. Yes.

24 Q. The representations that I have just read out were not

25 true, were they?

Page 88

1 A. What page were they again?

2 Q. 923.

3 A. So are we just referring to (d) and (e)?

4 Q. (d) and (e) are the ones I am concerned with. I am

5 suggesting those statements by you were false.

6 A. Well, I didn't breach any confidentiality obligations

7 and I don't believe I had done or omitted to do anything

8 that would have entitled the company to dismiss me.

9 Q. You know they are false and you knew then that they were

10 false, didn't you?

11 A. No.

12 Q. On 29 February 2012, you were under a duty to disclose

13 any wrongdoing by you or Rob, weren't you?

14 A. Yes.

15 Q. You acted with disloyalty towards Gamatronic Israel by

16 getting involved with Vox, didn't you?

17 A. No, I don't believe I did.

18 Q. You were in clear breach of duty?

19 A. No.

20 Q. You knew that?

21 A. No.

22 Q. And you kept silent, deliberately?

23 A. No.

Ms Mansfield’s evidence in this regard was clear and unwavering. Mr Hamilton was also questioned about this and, in an unusual departure for him, gave a clear and concise answer that the representations were true. Of course, it might be said that the Defendants would say that. However, taking all of the above matters into account, including the nature of the breaches in question, I am not satisfied that the Defendants made these particular representations knowing them to be false, or that they were made recklessly without regard to whether or not they were true. The Claimants here pinned their colours firmly to mast of fraudulent representation. Innocent or negligent misrepresentation was not pleaded. Accordingly, this route to rescission of the SPA is not made out. This renders it unnecessary to determine whether the misrepresentations induced the Claimants into entering the contract.

Non-Disclosure

The alternative basis for seeking rescission is non-disclosure.

While non-disclosure does not normally give rise to a right to rescind, it will do so where there is an obligation to disclose the relevant information. The Defendants owed the following duties of disclosure:

Notwithstanding these obligations, the Defendants, in my judgment, failed to disclose their breaches of duty. These non-disclosures were material in that they might have affected the Claimants’ decision to enter the SPA. Whilst the Defendants may have genuinely not regarded their conduct to be such as to warrant summary termination, I am satisfied that they were aware that they were in breach of their duties as described. That means that this route to rescission is potentially available.

However, whether or not it would be appropriate in all the circumstances to order rescission is a separate question, which I consider next.

The Defendants say that rescission should be refused because restitutio in integrum is not possible. The relevant principle is summarised in Snell’s Equity, 33^rd ed at 7-053:

Rescission is only possible where restitutio in integrum is provided. Both sides of the transaction must be undone…

The requirement that restitutio in integrum be made means that rescission is generally unavailable where it is impossible for both sides of the transaction to be undone, e.g. where property transferred pursuant to the transaction has passed into the hands of third parties and cannot be recovered. However, where rescission is impossible through no fault of the principal the court may be willing to order rescission on terms which require a pecuniary payment that places the parties, as nearly as money is able, in the position they would have occupied had the transaction been fully rescinded.

Mr Sisley referred me to a case of some antiquity which made the point that where it was impossible to restore the defendant to his original position, the plaintiff should not be permitted to rescind only one part of a deed of dissolution; Urquhart v Macpherson (1878) 3 App Cas 831.

The Claimants propose that in the event of rescission only one side of the transaction should be undone, namely the payment made to the Defendants for their shares. The Claimants are not willing to return the shares. That proposal is contrary to the principle and authority above that rescission is generally only available where restitutio in integrum is provided. Ms Boase sought to persuade me, by reference to two authorities in particular, that the modern approach is that restitutio in integrum is not always necessary and that the Courts should seek to achieve practical justice where a defendant is not restored to his original position.

The first authority is Cheese v Thomas [1994] 1 WLR 129. The plaintiff, aged 85, entered into an agreement with his great-nephew for the purchase of a house in which the plaintiff would live out his days. The plaintiff paid £43,000, which was all of his capital, as his contribution towards the house with the balance being paid by way of a mortgage obtained by the defendant. The defendant failed to keep up mortgage payments. When the plaintiff found out, he sought to set aside the transaction for undue influence and claimed repayment of his £43,000 with interest. Unfortunately the value of the property had fallen sharply in the meantime. The judge found that the transaction was manifestly disadvantageous for the plaintiff and set it aside. The judge ordered a sale of the property and that the parties should bear the loss on the sale in the same proportions as their original contributions. The issue was whether the plaintiff should have had back his £43,000 irrespective of the fall in value. The Vice Chancellor, Sir Donald Nicholls said as follows:

Restitution has to be made, not damages paid. Damages look at the plaintiff's loss, whereas restitution is concerned with the recovery back from the defendant of what he received under the transaction. If the transaction is set aside, the plaintiff also must return what he received. Each party must hand back what he obtained under the contract. There has to be a giving back and a taking back on both sides, as Bowen L.J. observed in Newbigging v. Adam (1886) 34 Ch.D. 582, 595. If, for this purpose, the transaction in this case is analysed simply as a payment of £43,000 by Mr. Cheese to Mr. Thomas in return for the right to live in Mr. Thomas's house, there is a strong case for ordering repayment of £43,000, the benefit received by Mr. Thomas, regardless of the subsequent fall in the value of the house. In the ordinary way, if a plaintiff is able to return to the defendant the property received from him under the impugned transaction, it matters not that the property has meanwhile fallen in value. This is not surprising. A defendant cannot be heard to protest that such an outcome is unfair when he is receiving back the very thing he persuaded the plaintiff, by undue influence or misrepresentation, to buy from him.

In my view the present case stands differently. Mr. Cheese paid Mr. Thomas £43,000, not outright, but as part of the purchase price of a house in which both would have rights: Mr. Cheese was to have sole use of the house for his life, and then the house would be Mr. Thomas's. Mr. Thomas was not free to dispose of the house, or use it, until then. In fact the money was handed over by Mr. Cheese in the form of a bankers' draft, made payable to the solicitors acting for Mr. Thomas in the purchase of 4, Jonson Close. For his part Mr. Thomas also contributed to the purchase of the house. He contributed £40,000, by obtaining a building society loan of this amount. In other words, the transaction was that each would contribute a sum of money to buying a house in which each was to have an interest. This is the transaction which has to be reversed. Doing so requires, first, that the house should be sold and, second, that each party should receive back his contribution to the price. There is no difficulty over the first requirement. Mr. Cheese sought an order for sale, the judge so directed, and the sale has taken place. The second requirement is more difficult. Indeed, it cannot be achieved, because under the transaction the money each contributed was spent in buying a house which then lost one third of its value.

This difficulty, rightly in my view, has not been allowed to stand in the way of setting aside the transaction. It is well established that a court of equity grants this type of relief even when it cannot restore the parties precisely to the state they were in before the contract. The court will grant relief whenever, by directing accounts and making allowances, it can do what is practically just: see Erlanger v. New Sombrero Phosphate Co. (1878) 3 App.Cas. 1218, 1278–1279, per Lord Blackburn. Here justice requires that each party should be returned as near to his original position as is now possible. Each should get back a proportionate share of the net proceeds of the house, before deducting the amount paid to the building society. Thus the £55,400 should be divided between Mr. Cheese and Mr. Thomas in the proportions of 43:40. Mr. Cheese should receive about £28,700 and Mr. Thomas £26,700. To achieve this result Mr. Thomas should pay £11,033 on top of the net proceeds, of £17,667, remaining after discharging the mortgage. This was the view of the judge, and I see no occasion to disturb his conclusion. On the contrary, I agree with him. It is interesting to note that this result accords with the primary relief sought by Mr. Cheese in the action. His primary claim was that the house belonged to them both in the proportions of 43:40. Had the claim succeeded, Mr. Cheese would have borne a proportionate share of the loss on the sale of the house.

Restitution for both parties

We were much pressed with an argument that there is no decided case in which a court has ever directed a sharing of the loss in this way. This is a principle unknown to English law. The court has no discretion in this regard. I have two observations on this argument.

First, when considering what was the original position of the parties it is important to identify, and properly characterise, the transaction being set aside. In a simple case of a purchase of property there is no difficulty. Before the transaction the plaintiff had a sum of money and the defendant owned the property. By the transaction the money passed to the defendant, and the property was transferred to the plaintiff. That is the transaction which has to be reversed. Likewise there is no difficulty with a simple case of a gift. The present case, as already noted, is not so straightforward. Here the transaction involved both parties making a financial contribution to the acquisition of a new asset from which both were intended to benefit. This was so even though Mr. Cheese's only interest in the house was as a contractual licensee, and even though Mr. Thomas regarded the house as an investment. It is axiomatic that, when reversing this transaction, the court is concerned to achieve practical justice for both parties, not the plaintiff alone. The plaintiff is seeking the assistance of a court of equity, and he who seeks equity must do equity. Under the transaction Mr. Thomas parted with money, albeit borrowed, as well as Mr. Cheese.

This situation is to be contrasted with the facts in Newbigging v. Adam, 34 Ch. D, 582; (1888) 13 App.Cas. 308. There the plaintiff was induced to enter into a partnership with the defendant by misrepresentations about the state of the business. The business foundered. On having *137 the transaction set aside, the court held the plaintiff was entitled to the return of the capital introduced by him and to an indemnity against the liabilities he had assumed as a partner. In that case the transaction was akin to a sale of property, there a share in a partnership. The defendant had to return the capital sum introduced and reassume the burden of partnership debts which under the contract the plaintiff had taken upon himself.

My second observation is this. The basic objective of the court is to restore the parties to their original positions, as nearly as may be, consequent upon cancelling a transaction which the law will not permit to stand. That is the basic objective. Achieving a practically just outcome in that regard requires the court to look at all the circumstances, while keeping the basic objective firmly in mind. In carrying out this exercise the court is, of necessity, exercising a measure of discretion in the sense that it is determining what are the requirements of practical justice in the particular case. It is important not to lose sight of the very foundation of the jurisdiction being invoked. As Lord Scarman observed in the Morgan case [1985] A.C. 686, a court in the exercise of this jurisdiction is a court of conscience. He noted, at p. 709:

“There is no precisely defined law setting limits to the equitable jurisdiction of a court to relieve against undue influence… Definition is a poor instrument when used to determine whether a transaction is or is not unconscionable: this is a question which depends upon the particular facts of the case.”

As with the jurisdiction to grant relief, so with the precise form of the relief to be granted, equity as a court of conscience will look at all the circumstances and do what fairness requires. Lord Wright adverted to this in Spence v. Crawford [1939] 3 All E.R. 271, which was a misrepresentation case. He said regarding rescission and restitution, at p. 288:

“The remedy is equitable. Its application is discretionary, and, where the remedy is applied, it must be moulded in accordance with the exigencies of the particular case.”

The law reports are replete with examples of the way courts have applied this principle. These, and the reasoning underlying them, afford valuable guidance when fairly comparable situations arise in the future. They are not immutable rules of law which must be applied irrespective of whether in the particular case they will assist in achieving an outcome which is practically just. A few examples will suffice. If the defendant has improved the property he is ordered to return, the plaintiff may be required to compensate him. On the other hand, if the plaintiff has improved the property he seeks to return, he will not necessarily be entitled to a further payment from the defendant; it may not be just to require the defendant to pay for improvements he does not want. If the plaintiff has permitted the property to deteriorate, he may be required to make an allowance to the defendant for this when seeking an order compelling him to retake the property. If a joint business venture is involved, such as an agreement between a pop star and a manager, and the agreement is set aside and an account directed of the profits received by the defendant under the agreement, the court in its discretion may permit the defendant to retain some profits, if it would be inequitable for the plaintiff to take the profits without paying for the expertise and work *138 which produced them. In O'Sullivan v. Management Agency and Music Ltd. [1985] Q.B. 428, 468, Fox L.J. observed it was clearly necessary that the court should have power to make an allowance to a fiduciary. He continued:

“Substantial injustice may result without it. A hard and fast rule that the beneficiary can demand the whole profit without an allowance for the work without which it could not have been created is unduly severe. Nor do I think that the principle is only applicable in cases where the personal conduct of the fiduciary cannot be criticised. I think that the justice of the individual case must be considered on the facts of that case. Accordingly, where there has been dishonesty or surreptitious dealing or other improper conduct then, as indicated by Lord Denning M.R., it might be appropriate to refuse relief; but that will depend upon the circumstances.”

What is true of profits must also be true of losses. In the ordinary way, when a sum of money is paid to a defendant under a transaction which is set aside, the defendant will be required to repay the whole sum. There may be exceptional cases where that would be unjust. This may the more readily be so where the personal conduct of the defendant was not open to criticism. Here, having heard the parties give evidence, the judge acquitted Mr. Thomas of acting in a morally reprehensible way towards Mr. Cheese. He described Mr. Thomas as an innocent fiduciary. Here also, and I return to this feature because on any view it was an integral element of the transaction, each party applied money in buying the house. In all the circumstances, to require Mr. Thomas to shoulder the whole of the loss flowing from the problems which have beset the residential property market for the last year or two would be harsh. That is not an outcome a court of conscience should countenance. (Emphasis added).

The usual rule that parties should be restored to their original position upon rescission and must give back that which they obtained was displaced in that case because both parties had paid to acquire rights in an asset and there had not been a simple exchange of money for property. The Court was clear that in a simple case of a purchase of property in exchange for a sum of money, that is the transaction which has to be reversed.

The second authority relied upon is Mahoney v Purnell [1996] 3 All ER 61. There the parties to a share transaction could not be restored to their original position because the company had gone into liquidation. On the question of remedy, the Court held that taking an account would not do practical justice since the value of what had been surrendered had been lost through no fault of the claimant, and practical justice required an award which is akin to damages.

In my judgment, the present case is not one where the usual rule that parties be restored to their original position should be displaced. In both Cheese and Mahoney it was not possible to return the parties to their original positions because of the particular circumstances (such as, in Mahoney, the company having gone into liquidation). There is no such obstacle in the present case. It is possible for the parties to be restored to their original positions insofar as the SPA transaction is concerned. The only obstacle is the Claimants’ unwillingness to return the shares. In fact, the SPA may be characterised as a simple money for property exchange. As the Court of Appeal stated in Cheese, in such cases, that transaction is the one that ought to be reversed.

The Claimants have suggested that the appropriate route would be to give to the Claimants the value of the shares as at the date of the SPA. However, the effect of this would be that the parties would not be placed in their original positions or anything near it.

The Claimants have given two reasons for refusing to return the shares in the event of rescission. The first is that they would prefer not to as they see no point as the parties would simply be back in the position they were in back in February 2012. That is not a valid reason given that the whole point of rescission is to return the parties to their original position.

The second reason is that there has been an irretrievable breakdown in relations. It was submitted that as the relationship between the parties has irretrievably broken down it would make no practical sense to “force it back together by requiring the transfer of shares and resurrecting the Founders Agreement”. No authority was cited for the proposition that a breakdown in relations between shareholders should be a bar to rescission of the SPA. I do not consider the breakdown in relations to be such a bar in the circumstances of this case. The parties as shareholders would not be required to work together on a day-to-basis. They could, as Mr Sisley submitted, simply sit back and enjoy the ownership of their shares in the hope that some dividends are paid. Whilst some cooperation between the parties might be required in the event that the Defendants wished to dispose of their returned shares, it does not appear to me that this could not be achieved or that there would be any insurmountable obstacle in having to secure a third party to buy out the other.

I have had regard to the fact that the Defendants are in breach of their duties. If the shares have diminished in value such that they are now worth less than the purchase price obtained then that is something about which the Defendants can hardly complain. However, that is not a sufficient basis, in my judgment, to displace the usual rule and to deprive the Defendants of the shares altogether in the event of rescission. If I were to make an order for rescission, I would have no hesitation in ordering the return of the shares as well as the return of the sum paid for them. That would be what practical justice would demand in a case such as this where there is no insurmountable obstacle to rescission other than the Claimants’ reluctance to return the shares.

However, the Claimants made it clear at the outset that if rescission were to be ordered, they would not pursue that remedy:

“The question is simply what does “fairness” or “practical justice” require of Gamatronic Israel as a condition of rescission of the SPA. If the answer is return of the shares to the Defendants, then Gamatronic Israel will not pursue the remedy.” (Claimants’ Skeleton Argument at [85]).

In my judgment fairness or practical justice in the circumstances of this case does call for the return of the shares to the Defendants in the event of rescission. The Claimants’ refusal to return the shares means that the fair and just outcome is that rescission should be refused. Alternatively, the Claimants’ claim for rescission is treated as having been withdrawn in light of the Court’s conclusion that return of the shares would be a necessary condition of rescinding the SPA.

In light of the refusal of rescission, it is not necessary to deal in detail with the other defences raised in respect of rescission. However, I do so briefly for completeness:

It is alleged that the Claimants cannot rescind the SPA because they have affirmed it. The Defendants rely on the fact that, although reference was made to the SPA in the letters before action of 7 August 2012, rescission was not sought in the original Particulars of Claim. In order for the defence of affirmation to succeed, the Defendants would need to show that the Claimants, at a time when they had knowledge of the relevant facts and of their right to rescind, acted in a manner which is “consistent only” with having chosen to affirm the contract, such affirmation being in “clear and unequivocal terms”: Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391 (HL) at 398. In my judgment, the Claimants’ conduct in the litigation is not “consistent only” with an election having been made to affirm the SPA. Neither the letters before action nor the original Particulars of Claim asserted a right to damages for breach of the SPA, and the mere failure to seek rescission is not “unequivocal” evidence of an intention to affirm.

The Defendants say that the Claimants do not come with clean hands because (a) Mr Goren made threats and negotiation with the Defendants on a false basis and (b) the Claimants appear to have engaged in hacking as evidenced by the Claimants obtaining emails sent through Mr Hamilton’s LinkedIn account. I reject both arguments. Mr Goren, as I have found, did not put the Defendants under any undue pressure to leave in the run up to the SPA. His conduct, born of frustration at how long things seemed to be taking, was perhaps somewhat brusque and impatient but well within the rough and tumble of a fraught commercial negotiation. I see nothing improper in that. As to the second allegation of hacking, this is a matter on which I am unable to reach any conclusion because there is insufficient evidence. There was an attempt to question Mr Goren about the LinkedIn email but he evidently knew nothing about it. There was no other evidence about this matter save for Mr Hamilton’s assertion (rejected by Ms Boase during cross examination) that there must have been hacking. There is no evidence for example as to the circumstances in which the Claimants obtained the email or as to whether the technical restrictions were such that it could only have been obtained through hacking. It would be wholly inappropriate, in my view, to draw any conclusions about the LinkedIn material from such a paucity of evidence.

The Defendants also deny that the representations induced the Claimants to enter into the SPA. They contend that the Claimants entered the SPA for their own commercial reasons. This is more relevant to the misrepresentations rather than the non-disclosures, the latter being the only potential route to rescission in this case. As to non-disclosure, I was referred to GHLM Trading Ltd v Maroo [2012] EWHC CH 61 in which Newey J said as follows at [194]:

A company complaining of a director’s failure to disclose a matter must, I think, establish that the fiduciary subjectively concluded that disclosure was in his company’s interests or, at least, that the director would have so concluded had been acting in good faith.

Mr Sisley submitted that the Defendants in this case believed that there was no competition and could not, therefore, have subjectively concluded that disclosure was in UK’s interests. However, as my findings above demonstrate, if the Defendants had considered the matter fairly and in good faith they would have concluded that Vox was, at least potentially, a competitor. (See [151] above). As such the Claimants have, in my judgment, established the subjective element necessary in a claim of non-disclosure.

This issue falls away in light of the conclusions above. In particular, it is not necessary to consider Mr Shear’s expert report or make any findings as to the value of the shares as at the date of the SPA.

The Claimants claim damages in respect of expenses said to have been improperly claimed. The sums claimed total £1,794. These claims, which are of the ‘kitchen sink’ variety, were not established on the evidence.

The Defendants were entitled, pursuant to their Contracts, to reclaim reasonable out-of-pocket expenses incurred in the performance of their duties. Mr Hamilton made a claim for expenses incurred in obtaining replacement tyres for his car after these were damaged on company property by nails discarded by another Gamatronic UK employee. The evidence as to the damage caused was not challenged. It was admitted in the Defence that this sum should really have been claimed as compensation from Gamatronic UK for damage caused by the negligence of one of its employees rather than as an expense. Mr Hamilton also made a claim for a contribution to his car insurance on the basis that his car was used for Gamatronic business.

During cross-examination on this issue, which was kept proportionately short by Ms Boase, Mr Hamilton maintained that the claim for tyres was a properly claimed expense and that it actually resulted in a saving to the company as a claim for compensation could have resulted in higher insurance premiums. He denied that he was cavalier about expenses. He gave unchallenged evidence that the claim for this sum was signed off by Ms Bar Zvi. At any rate, it was approved and paid by the company at the time without complaint. Ms Bar Zvi did not suggest during questioning that the claim was improper and it has not been suggested that there was any deception or concealment on the part of Mr Hamilton in making this claim. In the circumstances, whilst the claim might not have been labelled correctly, it does not appear to me to have been a claim that was improper in any respect and, ultimately, it was one that was likely to have been met by the company in any event. As such there was no loss.

The Defendants’ evidence that their cars were used by others for business purposes was not seriously challenged. There is nothing inherently implausible in the suggestion that this might be the case in a small company such as this with a small group of employees well-known to each other. In the circumstances, I accept that the claim for additional insurance was a business expense within the meaning of the contract.

These claims both fail.

The Claimants have paid HMRC in respect of the tax and National Insurance (“NI”) liabilities of the Defendants and claim to be entitled to restitution of such sums.

The relevant principles are not in dispute:

The relevant statutory provisions which establish the Defendants’ liability in respect of income tax are contained in the Income Tax (Earnings and Pensions) Act 2003:

It is quite clear that the Defendants (and others) claimed business mileage expenses in respect of their private vehicles and also claimed for the costs of their mobile phones. Following the Defendants’ departure from Gamatronic UK, HMRC conducted an investigation into those expenses claims. The Claimants took no steps whatsoever to involve the Defendants in dealings with the HMRC and they were given no opportunity to explain their expenses claims. Eventually, Gamatronic UK entered into a settlement with HMRC whereby a large proportion of the mileage claims and a third of the mobile phone costs were disallowed as being for private non-business purposes and/or not properly evidenced. This gave rise to an additional tax liability which the Claimants seek to recover from the Defendants. The sums claimed are £15,411 and £14,217 against Mr Hamilton and Ms Mansfield respectively.

The evidence in support of these claims emerged in a highly unsatisfactory manner. The principal evidence relied upon by the Claimants initially was correspondence from HMRC to which some schedules were attached summarising the mileage claims which were not accepted. These schedules had obviously been produced from records provided by the Claimants. However, these records were not in the bundle. When this was queried, the Claimants undertook a further search and, on Day 5 of the trial, disclosed a batch of expense claim sheets submitted by the Defendants between 2008 and 2012. The explanation for the late disclosure was that earlier searches had been for electronic documents without a sufficiently wide search being undertaken for hard copy documents. That explanation is wholly unsatisfactory for two reasons: First, it ought to have been obvious from the face of the HMRC correspondence, upon which heavy reliance was placed, that there would be other documents relevant to the issues raised. The search ought to have encompassed those documents. Secondly, it would appear that the Claimants were prepared to make serious allegations to discredit the Defendants without first checking the evidential basis for those allegations. The Claimants had suggested, through the evidence of Ms West, that these newly disclosed expense records (contained in a “separate folder”) were missing and that the Defendants were responsible for their loss / destruction. The records clearly were not missing at all as any proper search would have established.

Mr Sisley submits that this claim is “too rickety” to be allowed. I agree that the claim is substantially undermined by the paucity of evidence and the manner in which further evidence has emerged. But I do not consider that it should be rejected on that basis alone.

Notwithstanding the circumstances in which they emerged, the expense records were admitted and Mr Hamilton was cross-examined about them, albeit that he had had little opportunity to consider them and was seeing them for the first time in over 8 years in some cases.

The Claimants alleged that the mobile phone expense claims were inappropriate because no attempt had been made to separate out personal calls. Mr Hamilton explained that he used his phone mainly for business calls, and that no separate charges would be incurred for personal use because of the terms of the mobile phone contract which would include free calls within the fixed monthly contract price. He also said that insofar as any larger sums were incurred those were mainly due to calls made to Israel. That, in my judgment, is a perfectly credible explanation for claiming the entirety of the phone costs as business expenses. Ms Mansfield explained that she had two phones and kept her business phone separate making only the very occasional private call on it. There was nothing to contradict that evidence, which I accept.

Two other points are of significance in considering the evidence, such as it is, relating to this issue. The first is that Mr Hamilton gave unchallenged evidence that he submitted supporting documentation with his expense forms and that this would have included his mobile phone bills. The Claimants have not disclosed this supporting documentation. There was therefore no evidence to contradict Mr Hamilton’s and Ms Mansfield’s reasonable assertions as to the way in which their phones were used primarily for business. The other relevant consideration is that the Defendants’ expense forms were submitted to the financial controller, Ms Davidson, and were also submitted to Ms Bar Zvi each month as well as to the company’s accountant. The Defendants submitted a statement from Mr Di Lorenzo, the managing partner of Haines Watts, the former auditors of Gamatronic UK. He confirms that the Defendants completed expense sheets each month for “any appropriate business expenditure and business mileage” and that these were completed “with invoices attached”. He also states that as far as the auditors were aware, these expense sheets were forwarded to Ms Bar Zvi “for approval”. None of this evidence was challenged.

Based on this evidence, it is my judgment that the claims made by the Defendants in respect of their mobile phones were entirely appropriate and were treated as such by the Claimants at the time. The paucity of material provided to the HMRC during the tax investigation probably led to it making an incorrect assumption as to the level of private use of the Defendants’ phones. At any rate, I am satisfied that had the HMRC been provided with appropriate material at the time of the investigation and/or had the Defendants been asked about these matters and given an opportunity to explain, it is highly likely that the HMRC would have been satisfied that the private use of mobiles was not as high as had been assumed.

As for the mileage claims, HMRC concluded as follows:

I have transferred the mileage claim details onto spreadsheets (copies enclosed) and note that the directors have claimed mileage at both the private motor vehicle rate (40p) and company car rate (14p/16p). In the absence of mileage records to support these claims I am unable to accept that the expense has been incurred wholly and exclusively for business purposes. The claims made for use of private car” appear to be “round-sum” amounts and may well include “home to work travel”. In view of the number of company cars that been unavailable it is unclear why the directors would be using their own cards for business travel. As there is no evidence that the payments made to the directors have been made as reimbursement for business expenditure I must treat the payments as extra pay which should have been included in gross pay for PAYE tax and Class 1 NICs. As the employer is responsible for operating PAYE and deducting Class 1 NICs I must seek payment from you.(Emphasis added).

It is clear from the above that HMRC’s primary reason for seeking payment from Gamatronic UK was that it had not been shown that the mileages claimed were all business mileages and that the sums “may well include home to work travel”. However, both Defendants were adamant before me that all mileage claimed was for business only. The only evidence from the Claimants to contradict that assertion came from Ms West and even that was based on what she had allegedly overheard Ms Davidson say rather than on any direct knowledge. The weaknesses in Ms West’s evidence have already been set out. There was also hearsay notice evidence from Ms Davidson confirming that the Defendants did not claim home to work mileage and that she had not had any discussion with Ms West about such matters. I accept the Defendants’ evidence in this regard that home to work mileage was not claimed by them in the expense sheets submitted. The HMRC’s assumption that it may have been undermines its conclusions in respect of mileage expenses.

Much was made during cross examination of the fact that most of the mileage claims comprised two parts: The first contained “round sum” mileages which were largely similar from month to month and which were claimed at the higher rate of 40p per mile (the rate for the use of a private vehicle for business use). The second was made up of varying mileages claimed at the lower rate of 14p per mile (the rate for company cars). It was suggested that these claims were unjustified. The Defendants rejected that suggestion but gave slightly different explanations for making mileage claims in two parts. Ms Mansfield said that the higher rate claims were made up to the maximum permitted threshold for such claims and that the remainder of her mileage claims were made up at the lower rate (“the threshold explanation”). Mr Hamilton, on the other hand, whilst not expressly disagreeing with the threshold explanation, claimed that he did make regular trips to the same destinations, and also said that there was a reconciliation process at the end of the year whereby he would either get a rebate (if he had paid too much) or would pay any additional tax that was due.

Ms Boase submitted that the threshold explanation should be rejected because if it were correct it would have been made at an earlier stage. I do not accept that submission. The Claimants’ claim was not pleaded on the basis that the “round-sum” figures were the principal concern so as to demand an answer to that question in the Defence. Indeed, the details of the Claimants’ concerns really only emerged during cross-examination.

Ms Boase also submitted that it was inherently unlikely that the actual mileages covered each month would be precisely the same or in as round sum figures as shown. However, whilst there may be some force in that argument, the reason for HMRC’s rejection of the mileage claims was not that they appeared to be false or inaccurate but that “in the absence of mileage records”, it was unable to accept that the expense has been incurred wholly and exclusively for business purposes. By contrast, having heard the evidence (such as it is) I do accept that all of the mileage claimed was business mileage. The precise mileages claimed, and thresholds relied upon have may not have been wholly accurate. However, in the absence of the actual mileage records (which is not the fault of the Defendants) it is not possible to determine, some 4 to 8 years after the event, what precise mileages were properly claimable and/or at which rates. Had those records been available then it might have been possible to assess whether the round-sum claims did represent a threshold approach (albeit that the threshold apparently applied by the Defendants appears to have been higher than the 10,000 mile statutory limit applicable at the time), an approximation of actual mileages and/or inaccurate claims. All that can be said with confidence, in my view, is that on the question of private mileage, HMRC made the wrong assumption and that undermines its overall conclusions in respect of the mileage claims.

In the circumstances, I am satisfied that had HMRC been provided with appropriate material at the time of the investigation and/or had the Defendants been asked about these mileages and given an opportunity to explain, it is likely that HMRC would have been satisfied that all of the mileage was business and not private mileage. Accordingly, on the basis of the available material, I conclude that in reaching the settlement with HMRC, Gamatronic UK was not discharging the Defendants’ personal tax liabilities, there was no unjust enrichment and no restitution is due.

For the reasons set out above, my conclusions in respect of the Issues set out in [83] above may be summarised as follows:

Finally, I would like to thank both Counsel for their very considerable assistance in this matter. The detailed opening skeleton arguments and closing submissions, as well as the various schedules produced, have made my task immeasurably easier than it would otherwise have been. I would also like to record, once again, my gratitude to all those concerned with the case for making it possible to complete the hearing within the very tight timetable available.