The Court of Appeal has substantially upheld the first instance decisions in a lengthy piece of ongoing litigation relating to a joint business venture for the exploitation of oil-extraction technology, illustrating the potentially severe consequences fiduciaries face where they put themselves in a position of a conflict of interests: Gray v Global Energy Horizons Corp [2020] EWCA Civ 1668.

The decision emphasises that the liability of a defaulting fiduciary to account for unauthorised profits is a strict one. While there needs to be a “reasonable relationship” between the breach and the profits for which an account is ordered, there is no requirement for a causal link. It will normally be enough that the profit arose within the scope of the duty that was breached.

In ascertaining the profit for which the fiduciary is to account, the court will permit the deduction of expenditure properly incurred by the fiduciary. However, as the decision confirms, the court will only in exceptional circumstances exercise its jurisdiction to make an equitable allowance to reflect work undertaken by the fiduciary – not least because granting such an allowance might encourage fiduciaries to put themselves in positions of conflict.

The decision also shows that, in circumstances where a fiduciary has obtained a beneficial interest in certain assets in breach of its duties, it is not necessary for a judge to be able to identify who holds legal title to the assets before ordering the fiduciary to account. The court acknowledged that the enforcement of fiduciary duties would be “seriously impeded” if this were necessary, as in many cases the assets of a fiduciary may be held through a “complex network of corporate or trust vehicles”.


The underlying facts are complex. In simple terms, the defendant, Mr Gray, was accused by the claimant, Global Energy Horizons Corporation (”GEHC”), of breaching fiduciary duties and taking advantage of business opportunities which rightfully belonged to it.

GEHC was set up by Mr de Clare to exploit a new ultrasound technology which reportedly increased oil production in depleting wells. Mr Gray joined the team in 2004 on the basis that he and Mr de Clare would benefit equally from any income generated by the business. They worked in particular on trying to get access to the relevant technology and seeking funding to invest in testing the technology, with the ultimate aim of setting up a special purpose vehicle to acquire late life oil wells and use the technology to improve their production rates.

Separately, in December 2005, Mr Gray was appointed to manage a fund referred to as the “RegEnersys” fund, which was interested in funding such technology. At first it seemed as though Mr Gray would be able to use his involvement with the two companies to help GEHC and RegEnersys work together, and ensure that GEHC would get a share in the eventual corporate entity used to exploit the technology as a reward for its advisory role.

In fact it was Mr Gray who ended up with an indirect share of the vehicles set up to exploit the technology, along with payments of several million pounds as a fee for his role in managing RegEnersys. GEHC issued proceedings in December 2010, alleging that Mr Gray had owed it fiduciary duties and that he had acted in breach of those duties by benefiting personally from the opportunity presented by the ultrasound technology to the exclusion of GEHC.

At a liability hearing in December 2012 (the “Liability Hearing”), Vos J found that Mr Gray had taken advantage of a maturing business opportunity belonging to GEHC in breach of the no profit rule. Specifically, through his work for RegEnersys he obtained a personal interest in the corporate entity exploiting the technology which was exactly what GEHC had intended to obtain.

Mr Gray had at some point during 2006 indicated to Mr de Clare that he would be acting in the interests of RegEnersys (rather than GEHC) in a particular negotiation (the “Excluded Transaction”). However, Vos J held at the Liability Hearing that Mr de Clare had not understood that Mr Gray was acting against GEHC’s interests more broadly at this point. GEHC had not consented to Mr Gray’s breaches of his fiduciary duty in respect of anything other than the Excluded Transaction.

Vos J ordered that Mr Gray should account to GEHC in equity for all monies and benefits he had received directly or indirectly arising out of the breaches, except for the Excluded Transaction, and directed him to serve and file an affidavit setting out a full explanation of the arrangements giving rise to those benefits.

GEHC did not accept that Mr Gray gave a full and frank account of the benefits which he had received, and so a further hearing was held in May 2015 (the “Enquiry Hearing”) to determine the assets for which Mr Gray was liable to account. Asplin J held that Mr Gray was liable to account to GEHC for a proportion of the fees he had been paid to manage RegEnersys (the “Fees”) and the interests he had received in various companies related to the technology (the “Business Assets”). She refused to grant Mr Gray an equitable allowance for work done in relation to the assets for which he was liable to account.

There was then a separate hearing in May 2019 (the “Valuation Hearing”) to establish the value of the Business Assets. Arnold J held that the value was nil, and refused to grant an order that Mr Gray transfer them to GEHC.

Mr Gray appealed against Asplin J’s orders following the Enquiry Hearing. GEHC appealed against Arnold J’s refusal to grant an order for the transfer of the Business Assets.


The Court of Appeal (David Richards, Henderson and Rose LJJ) allowed the appeals in part. Not all of the grounds of appeal are discussed below, or indeed were fully considered by the Court of Appeal in light of its other findings. What follows is a discussion of some of the key points.

Connection between the breaches and the assets

Mr Gray challenged Asplin’s J’s conclusion that there was a sufficient connection between the breaches of fiduciary duty and his receipt of the Fees and Business Assets to make him accountable for those benefits.

It was common ground at the Enquiry Hearing that there needed to be “some causal link between the asset obtained and the breach of fiduciary duty”. The Court of Appeal stated, however, that (although it had heard no argument on the point and the point had been common ground before her) Asplin J was wrong to use the language of causation in this context. As the court put it,

“… the liability of a defaulting fiduciary to account for unauthorised profits is a strict one, which has always been jealously enforced by courts of equity. There needs to be some link or nexus between the breach of duty proved and the profits for which an account is ordered, such that there is a ‘reasonable relationship’ between them….  But the link or nexus does not need to be of a causal character.”

As stated in United Pan Europe Communications NV v Deutsche Bank AG [2000] 2 BCLC 461, it will normally be sufficient if the profit arose within the scope of the fiduciary’s breach. On the facts of this case, the Court of Appeal found that Asplin J was entitled to find there was the necessary link.

Breadth of carve-out from the order to account

As noted above, Vos J’s decision at the Liability Hearing explicitly carved out from Mr Gray’s liability to account for profits any amounts received in respect of the Excluded Transaction, to which he found GEHC had consented.

In the Court of Appeal, Mr Gray argued that Asplin J had at the Enquiry Hearing interpreted the Excluded Transaction too restrictively, and accordingly ordered him to account for profits which had been explicitly excluded by Vos J. However, the Court of Appeal agreed with Asplin J’s narrow interpretation of the Excluded Transaction, being only the specific transaction to which informed consent was given. The fact that this transaction may have been “inextricably linked” to a more widespread breach of Mr Gray’s duties to GEHC was irrelevant in circumstances where GEHC had not given its informed consent to the latter, especially where GEHC did not see this connection at the relevant time.

Allowance of expenditure

The court allowed Mr Gray’s appeal in relation to the deduction of legitimate expenditure from the Fees for which he was to account. Asplin J had initially held that Mr Gray was only able to deduct expenses incurred before he received the final tranche of the Fees from RegEnersys. The Court of Appeal held that the correct approach was to permit the deduction of all expenditure properly referable to the work for which the Fees were paid, whether incurred before or after payment.

Notably, the Court of Appeal emphasised that the deduction of expenses was not, as Asplin J had suggested, a matter of discretion for the court, but rather a necessary step in the ascertainment of the profit for which the fiduciary must account.

Equitable allowance

In contrast, the Court of Appeal confirmed Asplin J’s view that the court’s jurisdiction to make an equitable allowance in favour of a defaulting fiduciary (in other words to deduct from the profits for which the fiduciary must account an equitable sum to reflect payment for work undertaken) is a matter of discretion. As Asplin J observed, the jurisdiction is “well established, but it should be exercised only in exceptional circumstances”.

The court rejected Mr Gray’s appeal of Asplin J’s decision not to allow an equitable allowance in this case. It referred to “the serious adverse findings about Mr Gray’s credibility” from the Liability Hearing and said that the facts fell well short of the kind of exceptional circumstances in which an allowance may be justified. Further, in terms of the underlying policy, the court expressed the view that granting an equitable allowance in this case could encourage fiduciaries to put themselves in positions of conflict.

Identifying the assets

Mr Gray was also unsuccessful in his challenge to Asplin J’s order on the basis that it was too uncertain as it did not identify the nominee who legally held the Business Assets on behalf of Mr Gray. The Court of Appeal rejected the argument that it was necessary to identify with precision the nominee who held the fiduciary’s interest in an asset before the court could make an order that the fiduciary account for the asset.

The court commented that the “enforcement of fiduciary duties by the court would be seriously impeded” if this were necessary, particularly where the assets of a fiduciary are held through a “complex network of corporate or trust vehicles”. This reduces the potential burden on beneficiaries seeking an order to account for a beneficial interest in circumstances where that interest has been obtained in breach of duty, but is legally held in an opaque manner by various trust vehicles.

Order to transfer the assets

GEHC was however unsuccessful in its argument that Arnold J was wrong to decline to grant further relief requiring Mr Gray to transfer the Business Assets to GEHC.

Whilst it would be wrong to require a claimant to establish the current whereabouts of any beneficial interest held by a defaulting fiduciary before obtaining an order for the transfer of a beneficial interest, the judge was right to take into account the overwhelming obstacles facing any attempt to enforce any transfer order when exercising his discretion to refuse relief.

In this case, given that the value of the Business Assets had been held to be nil, and there was a real risk of the orders sought by GEHC being used in an “oppressive manner” against Mr Gray, the Court of Appeal found that Arnold J was right not to order the transfer of the Business Assets.

Rachel Lidgate

Rachel Lidgate
+44 20 7466 2418

Shula Parry

Shula Parry
+44 20 7466 2105