Jersey Unreported Judgments

Companies - Group 2 issues arising from proceedings.

[2014]JRC257

Royal Court

(Samedi)

23 December 2014

Before     :		W. J. Bailhache, Q.C., Deputy Bailiff, and Jurats Le Cornu and Morgan
Between	Wolfgang Anton Werner Vilsmeier		Plaintiff
And	AI Airports International Limited PI Power International Limited		Defendants

Advocate J. M. P. Gleeson for the Plaintiff.

Advocate N. M. Santos-Costa for the Defendants.

judgment

the deputy bailiff:

Introduction

1.        This judgment concerns what have been called the "Group 2 issues" arising from proceedings originally brought by Mr Bjorn Pirrwitz against the defendants in which Mr Pirrwitz claimed monies asserted by him to be due by the defendants pursuant to certain contracts made with those companies while he was a director and payable on his ceasing to hold office.  Apart from denying liability for those claims, the defendants asserted that if they were liable, they were entitled to an indemnity from Mr Vilsmeier, identified in this judgment as the plaintiff, but who was a third party in those earlier proceedings.  Judgment in the earlier case is to be found at Pirrwitz-v-AI and PI and Vilsmeier [2013] JRC 017.  The matter went to appeal and the appeal judgment is at AI and PI-v-Pirrwitz [2013] JCA 177.  The judgment of the Royal Court on the Group 1 issue contains a number of findings of fact on the evidence which the Court then heard, which is not entirely the same as the evidence we have heard in the current proceedings.  We return to this point later. 

2.        The Group 2 issues are these:-

(i)        The plaintiff has brought a claim for unpaid fees for overtime and unpaid expenses connected with his role as chairman of the defendant companies.  This is broken down as follows:-

(a)       Against the first defendant €30,875 in relation to overtime, and €13,330.13 plus CHF106,245.45 plus €2,511.20 for expenses. 

(b)       Against the second defendant the sum of €30,375 for overtime, and €13,162.11 plus CHF106,245.45 plus €2,511.20 for expenses. 

(ii)       The defendants bring a claim against the plaintiff for monies which they have paid to two security companies Alp Services SA ("Alp") and Diligence SARL ("Diligence") in relation to security services provided by those companies which the defendants say were procured by the plaintiff ostensibly on the companies' behalf, but in fact in his own interest.  The first defendant claims €439,500.58 and the second defendant claims €440,898.59. 

(iii)      The defendants also claim against the plaintiff for fees which have been charged to the defendants by Pan Amp AG ("Pan Amp"), an internet forensic investigative firm incorporated in Germany, whose Chief Executive Officer was Mr Bert Weingarten.  It is contended that the plaintiff wrongly retained Pan Amp on behalf of the companies to engage in illegal and/or improper activities by hacking into a website called Meinl Airport Rebellen ("the Rebellen website").  Under this head, the first defendant claims €678,756.56 and the second defendant €144,819.26. 

3.        It is convenient to commence first of all with a summary of background facts which indeed appears in the earlier judgments of this Court or the Court of Appeal.  The first defendant ("AI") and the second defendant (PI") are public limited companies incorporated in Jersey.  They were established as investment funds by an Austrian bank, Meinl Bank AG ("Meinl Bank") and were formerly called Meinl Airports International Limited and Meinl International Power Limited respectively.  They had raised substantial sums: AI had raised €700 million by April 2007 and PI only slightly less.  However, a scandal associated with another Meinl company meant that investors lost confidence in all Meinl related stocks and the share prices of AI and PI fell, to the extent that they were trading below their net asset values.  This made the companies attractive to a number of hedge fund investors who began buying the stock in them with a view to replacing the directors with their own nominees, the plan being that the new boards would cut all ties with Meinl entities, realise the investments and return cash to the shareholders, thereby generating a substantial profit to those investors. 

4.        EGM's were requisitioned in July 2008.  The EGM of AI held on 28^th July, 2008, resulted in success for the hedge fund investors and they duly replaced the board.  In the case of PI, a similar attempt was narrowly defeated, but they were successful at a further EGM held on 14^th November, 2008.  It is not inappropriate to record that following the US sub-prime financial crisis of 2007 and the collapse of Lehmann Brothers in September 2008, the international banking crisis was at this time in full flow such that any organisation had difficulty raising loans; which no doubt made the cash realisable from AI and PI potentially all the more valuable in real terms. 

5.        Following the EGM's the boards of the companies were as follows:-

(i)        AI - Mr Wolfgang Vilsmeier (Chairman), Mr Pirrwitz, Mr Hans-Peter Dohr, Mr Richard Boleat, Mr George Baird, Mr Fred Duswald, Mr David Pascall;

(ii)       PI - Mr Vilsmeier (Chairman), Mr Pirrwitz, Mr Dohr, Mr Boleat, Mr Baird, Mr Duswald, Mr Wilfried Hassler.  

6.        The composition of the boards was thus the same with the exception of Mr Pascall (AI only) and Mr Hassler (PI only).  We shall refer to the boards of the two companies as herein above described as "the middle boards".  The middle boards were joined by Mr James Shinehouse whose appointment became effective on 24^th February, 2009, and there were later significant changes introduced at EGM's held respectively on 21^st April, for PI and 22^nd April for AI when only the plaintiff, Mr Boleat and Mr Baird of the middle boards were re-elected, together with Mr Shinehouse and Mr Murdoch McKillop.  Mr Shinehouse was appointed managing director of the defendant companies at that time. 

7.        This case raises both factual and legal issues.  The plaintiff gave evidence himself over a period of nearly three days, and called both his wife and Mr Pirrwitz as witnesses in his claim and in his defence to counter-claim.  We were told that as a result of an immediate family bereavement, the plaintiff's wife was unfortunately not able to come to give evidence personally.  However it was agreed that her witness statement should stand as her evidence in chief, as the defendants did not feel the need to cross-examine her upon it, so it is unchallenged.  Mr Pirrwitz did give evidence and was cross-examined.  The defendants called largely different witnesses from those they had presented to the Court on the last occasion when the Group 1 issues were heard.  Mr Shinehouse, the Managing Director of the two defendant companies was the only witness for the defendants who gave evidence in both sets of proceedings.  None of the other witnesses called in the first proceedings gave evidence before us on the second occasion.  However we did have before us the witness statements of the plaintiff, Mr Pirrwitz and Mr Shinehouse in relation to the Group 1 issues, and we did have the trial transcripts of the evidence of Mr Boleat and Mr Baird, both of whom are and have at all material times been directors of the two defendant companies.  This gives rise to a question as to the evidential value of what was said on the Group 1 issues, because, particularly in relation to the security arrangements for the plaintiff's family, Mr Baird did give evidence which might be thought to be relevant on the Group 2 issues as well.  We add that the Group 1 issues were heard before a Court which was constituted with two of the same members as constitute the present Court, and as was said to Advocate Santos-Costa early in the present hearing, those members of the Court will inevitably carry forward some recollection of the credibility of the witnesses and of what was said in relation to the relevant issues on the last occasion.  One difficulty which arises from that is that the third member of the Court did not hear those witnesses give evidence.  Another difficulty is that what they did say may not have represented all their evidence because the Group 2 issues as a whole were not before that Court for determination.  Nonetheless, certainly in relation to security, as we will see, the knowledge of individual board members at relevant times might be treated as material. 

8.        In these unusual circumstances we think the right way of dealing with the issue is this.  The parties before the Court on the Group 1 issues were not identical in the sense that Mr Pirrwitz is not a party to the Group 2 issues, but both the plaintiff and the defendants were parties to the earlier proceedings.  Accordingly, if, and only if, a finding of facts in the earlier proceedings was a necessary part of the Court's reasoning in relation to the decision it then gave, it appears to us that there is an issue estoppel which prevents that issue being litigated afresh.  Where the Court on the first occasion made findings of fact which were not essential for the purposes of the decision at which it arrived, then it seems to us that issue an estoppel does not arise, and that the evidence before the Court on the second occasion needs to be considered afresh.  In addition, the transcripts of what the directors Boleat and Baird said on the first occasion amount to documentary evidence before the Court which falls to be taken into account as all the other documentary evidence which is before the Court - and to the extent that inferences, adverse to either party, can be drawn from those transcripts, neither can complain because it would have been open to both plaintiff and defendants to have called the two witnesses to give evidence personally had they so wished.  This is obviously true of the defendants, because Messrs Boleat and Baird remain directors, but it is also true that the plaintiff could either have called those witnesses himself or could have made an appropriate application to the Court whether for an order against the defendants that they do present them for cross-examination, or for an order that the Court issues a witness summons and allows cross-examination in that way.  However, we add that there are numbers of documents before the Court, and if the detail of the evidence of those two directors is not mentioned in this judgment, it has not been taken into account as material to our conclusions. 

9.        The assessment of the actions of individual directors has to be made against the matrix of facts already found by the Court to exist.  At paragraphs 31 and 32 of the Court's judgment in relation to the Group 1 issues, the Court said this:-

"31.    In his witness statement, Mr Vilsmeier confirms the ever increasing shareholder pressure in relation to the TAV issues and the proposed sale of shares in AI and PI to Mr Pecik.  The pressure was such that on 7th December 2008, after a series of hostile telephone calls with Mr Roehrig, Mr Vilsmeier says that he received a telephone call from Elliott's Austrian lawyer informing him that his life was in danger and that Russian agents had been dispatched to Switzerland with a view to kidnapping his 11 year old daughter.  At the same time, Elliott's security personnel informed Mr Vilsmeier that security agents employed by Kroll were travelling from London to St Gallen in Switzerland with a view to protecting Mr Vilsmeier and his family.  Kroll installed two agents at Mr Vilsmeier's house and offices, and the St Gallen police were informed.  Kroll also suggested some security installations such as permanent cameras in the house and in the garden for the purposes of surveillance.  Mr Vilsmeier says that he received confirmation from Mr Roehrig that Elliott would cover all of the costs associated with the security measures and security installations, if the security costs were not met by the companies.  Mr Vilsmeier said, quite understandably, that security issues of this kind left him in an unacceptable position.  If they had continued, he would have had to consider resignation, and in those circumstances, his view was that he deserved to be rewarded as originally intended if his stepping down resulted from security threats of this kind. 

32.  As we indicated earlier in this judgment, we have not heard evidence from the hedge fund investors, nor indeed from anyone able to dispute the evidence put before us by Messrs Pirrwitz and Vilsmeier.  However, we found them both to be careful and credible witnesses, and what is more their evidence is supported by contemporaneous emails and correspondence.  AI and PI are public funds registered in Jersey.  Shareholders include not only the hedge fund investors but also private retail investors.  The Pecik and TAV deals as proposed would pretty clearly have benefited a few individual shareholders, but not the company at large.  We are satisfied that the professional advice given to the Boards of AI and PI in how to deal with these issues was good advice, and we are equally satisfied that the Board acted properly in following it.  This is an important conclusion for the purposes of considering what is really in dispute in relation to Mr Pirrwitz's contractual claim against the companies, to which we now turn."

10.      The factual conclusion there was expressed to be important for the purposes of considering what was really in dispute.  Accordingly, we approach the present case upon the basis that there was inappropriate shareholder pressure on the middle boards which the middle boards correctly resisted.  That pressure arose not only in connection with the TAV issue but also in connection with at least the possibility of Meinl Bank being behind the Pecik deal and seeking to reach a settlement of the issues between the defendant companies and the Meinl Group by negotiation with individual but significant shareholders in them. 

11.      The defendants have called Mr David Pascall, a former director of the first defendant.  Like Mrs Vilsmeier, Mr Pascall did not attend Court, albeit for different reasons.  Advocate Gleeson agreed that he had no wish to cross-examine Mr Pascall, and his evidence, like that of Mrs Vilsmeier, stands in the form of his witness statement as his evidence in chief, and is thus unchallenged. 

12.      The defendants have called a number of other witnesses and amongst them Mr Lawrence Cohen, a partner in the defendants' London legal advisers Messrs Latham and Watkins (London) LLP, and Dr Richard Wolf, an Austrian lawyer who is a partner in the firm of Wolf Theiss, lawyers in Austria for the defendants.  Mr Cohen carried out a detailed enquiry in 2009 on the question of the security issues affecting the plaintiff.  His report to the Board results from a number of conversations he had with third parties, some of whom gave evidence before us, but none of which took place in Mr Vilsmeier's presence.  Dr Wolf gave evidence of various matters on which he was engaged on behalf of the defendant companies, but in particular he gave evidence of attending meetings, which the plaintiff did not attend, at which Mr Weingarten, who was not called to give evidence before us (perhaps because he would have been an unwilling witness), is alleged to have made various admissions both as to his own conduct and as to the conduct and knowledge of Mr Vilsmeier.  A good deal of this evidence from Mr Cohen and Dr Wolf would formerly have been inadmissible on the grounds that it was hearsay evidence.  That position has been altered by Article 3(1) of the Civil Evidence (Jersey) Law 2003 which provides that evidence is not to be excluded on the ground that it is hearsay.  However, leaving aside evidence which would be admissible under the exceptions to the hearsay rule, the legislature has given to the Court and to litigants some guidance under Articles 4 to 8 of the Civil Evidence Law.  In this case, the parties have not served a notice of the proposal to adduce hearsay evidence as required by Article 4, but neither party takes any point in relation to that failure.  We therefore assume that they have either excluded that requirement by agreement or waive that requirement respectively, pursuant to the terms of Article 4(3).  By Article 6, the Court is given directions as to estimating the weight to be given to hearsay evidence.  We set out our views of this evidence when later reviewing the defendants' counter-claims on the security issues and on the Pan Amp claim. 

13.      Lest it should be thought that the plaintiff is the innocently aggrieved victim in relation to hearsay evidence, we also record that one of the key witnesses on the security issues would have been a Mr Klaus Roehrig of Messrs Elliott Associates ("Elliott"), a hedge fund investing in the two defendant companies.  Mr Roehrig no longer works for Elliott, and his family have been longstanding friends of the plaintiff's family.  We understand that the plaintiff may have wanted to avoid embarrassment by calling Mr Roehrig but the fact remains that on the evidence we have heard, his evidence might well have been of some significant value.  As was said in relation to the Group 1 issues, we have had to proceed on the basis of the evidence before us, recognising that we have not heard from all the board members at the relevant times, nor from all the hedge fund personnel directly involved nor from the other significant investors. 

The Plaintiff's claims

14.      We take first the claims for overtime and expenses.  The plaintiff brings this claim pursuant to his appointment as Director and Chairman of AI and PI respectively the terms of which are set out in the Director's service agreement of 6^th March, 2009.  Pursuant to that agreement, he claims to be entitled to submit invoices for additional fees because he worked in excess of five days per month for each defendant.  Clause 4.1(c) of the March agreement is in these terms:-

"(c) An additional fee at the rate of (i) Euros 2,000 per week or part thereof and of (ii) Euros 3,000 plus applicable VAT if any (per weekend day or public holiday or part thereof) for time spent in excess of the Minimum Time Commitment, payable monthly in arrears.  You will invoice the Funds [AI and PI] in arrear for time spent per month over the above five days per month which shall be paid in additional to the monthly fee; and"

15.      The fees claimed by the plaintiff are for the months of May, June and July 2009.  In that connection we note that a further service agreement appears to have been executed by the plaintiff on 23^rd June, 2009, which, although in slightly different terms, contains the same provisions in relation to remuneration.  Accordingly, although the June service agreement might be thought to apply to the claims for overtime for at least part of the period covered by the June invoice, and the whole of the period covered by the July invoice, there is no material difference for the purposes of our assessment of the claim. 

16.      The plaintiff's claim is in respect of invoices to PI dated 19^th June, 2009, 10^th July, 2009, and 11^th September, 2009.  They were in the sum of €17,750, €10,500, and €2,125 respectively, making the total of €30,375.  The same basis of claim applies to the claim against AI, and the invoice dates and months to which the invoices relate are the same.  The amounts vary slightly, being €15,750, €10,500 and €4,625, making a total of €30,875 in respect of AI. 

17.      Clause 2 of the Director's service agreement provides for the time commitment of the plaintiff as follows:-

"2.1 Overall we anticipate a time commitment initially of up to but not exceeding sixty working days per annum or five working days per month (the "minimum time commitment") which shall include, inter alia, days in regular and emergency board meetings, days in annual general meetings, days in extraordinary general meetings, days for preparation of meetings, days spent on the analysis and review of documents, travel days and days spent on any other matters relating to the operations of the Fund that you shall be entrusted with;

2.2 For the purposes of paragraph 2.1 the working day is eight hours in a single day. The 8 hour day is divided into four 2 hour periods with each 2 hour period constituting a quarter.  Time should be recorded and invoiced on this quarter day basis.  If less than eight hours is worked in a single day then time shall be recorded and invoiced on a quarter day basis with time being rounded down to the nearest quarter.  For example if 3 hours are worked in a single day then this shall constitute one quarter of a day.  If more than 8 hours are worked in a single day then such overtime shall be recorded and invoiced on a quarter day basis with time being rounded down to the nearest quarter.  For example if 13 hours are worked in a single day then this will constitute six quarters;

2.3 By accepting this appointment, you have confirmed that you are able to allocate the time set out in paragraph 2.1 above.  The Fund should be notified should you form the view that other commitments might affect such ability."

18.      We note that the time commitment provisions in the June Director's service agreements are the same. 

19.      The invoices submitted by the plaintiff set out a breakdown of the dates upon which the time was spent, the hours spent on that date, a fee per hour (reflecting the different rates between weekday and weekend work) and a description of the work done.  There is a column for the total due for the months' work, from which is deducted €10,000 representing the basic Director's fee which covers forty hours a month, or five 8 hour days, as provided by the time commitment. 

20.      As far as we can tell, the invoices submitted for May, June and July followed a similar pattern of invoices submitted for the period during which the middle board was in control of each company.  AI and PI defend the claim for additional fees upon the basis that on 29^th April, 2009, at a meeting of the board of Directors of each company, in which the plaintiff participated, the board assigned responsibilities to various Directors and other responsibilities to the executive management team, consisting of Mr Shinehouse, the managing director, Mr Pike and Mr Hassler.  The board agreement gave exclusive responsibility for communication with shareholders to Mr Shinehouse, required that operational executives would report to Mr Shinehouse and Mr Pike, and gave the executive management team the responsibility for the sale process and litigation, including that Mr Shinehouse would be responsible for all instructions to lawyers and related professionals unless otherwise agreed.  The board resolved that all statements to the press were required to be approved by each of Mr Shinehouse, the plaintiff and one other director. 

21.      AI and PI plead in their defence that the plaintiff had no specific responsibilities, which is consistent with the role of a non-executive director.  It is asserted that the majority of what he did during the period for which he claims overtime fees represented time spent on activities in which he was not authorised to engage; and indeed in respect of some of which it is said he had been specifically instructed not to engage.  In his amended reply to the defendants' answers to the counterclaim, the plaintiff asserts that he was reappointed as chairman of the two companies on terms that he executed an undated letter of resignation.  He avers that this was at the instance of the active investor's, and Elliott in particular, which had been frustrated by the opposition from the middle board of AI to the requests to sell the investment in TAV.  Furthermore, the plaintiff goes on to assert that within eight days of his appointment as managing director, Mr Shinehouse in fact negotiated the sale of approximately 40% of the TAV investment to Elliott without having obtained unanimous board approval thereto, which caused the plaintiff to have significant concern as to the management style and approach of Mr Shinehouse. 

22.      When he came to give evidence before us, the plaintiff said that he was required to be involved in the affairs of both companies notwithstanding the board meeting resolutions of 29^th April, 2009.  He said that dealings with the Austrian media involved dealings with German speaking journalists writing in German, people who knew him well, and with whom he had liaised through the companies' public relations consultants since August 2008.  He had personally been in communication with a number of potential purchasers of the assets of AI and PI.  In his witness statement he said "it is ... unclear how the companies can now suggest that it was improper for me, as chairman, to continue to contribute to matters of executive management.  It would have been unrealistic, and not in the interest of the funds, to simply discard my services in an executive capacity with effect from 23^rd April, 2009, onwards.  The issues on which I was involved for AI and PI during the period of the disputed overtime fees, namely May through to July 2009 inclusive, included complex issues regarding the following matters:  TAV, Parma, Bydgoszcz, Sochaczew, and the wind farms in Alsleben and Hohenloe.  In many cases, I had been dealing with these issues, and the principals for the relevant third parties, for many months prior to 25^th April, 2009."

23.      The plaintiff went on to say that not only was he the only German speaking board member after 22^nd April, 2009, but also the only Italian speaking board member.  This was particularly relevant to one of AI's assets, Parma Airport.  The contracts in relation to Parma were written in Italian and whereas previously he had been assisted on Italian aspects by Mr Pirrwitz who was multi-lingual, Mr Shinehouse and Mr Pike spoke neither German nor Italian.  He asserted that the third parties with whom he dealt expected to deal in their native tongue and it was necessary for him to be engaged notwithstanding the board resolution of 29^th April, 2009. 

24.      We consider the companies' objections to payment of some of the additional fees to be both understandable and unfounded.  They are understandable because we have no doubt that the combination of the board resolution of April 2009 and the undated letter of resignation is such that the executive management team, and perhaps the whole board to the extent the board was aware of the undated letter of resignation, might have understood that the plaintiff would not participate in any detailed respect in relation to the operations of the companies.  However, we consider that approach to be unfounded.  The plaintiff was the chairman of two public funds with total assets in the order of €1.4 billion.  Unless clearly agreed, it is in our judgment unreasonable to expect even a non-executive chairman to sit back and let an executive management team get on with the business without any participation from the chairman at all, but this is especially so given the hands-on executive work the chairman had performed since his appointment.  Furthermore, the chairman would carry responsibility in the eyes of shareholders and media if something went badly wrong - and by this we do not mean legal responsibility but practical business responsibility, which would damage his reputation if it came to pass.  For our part, we tend to think it was unfortunate that, required as he was to sign an undated letter of resignation, the plaintiff did not in fact resign immediately in April 2009.  His reasons for not doing so, he said, were to protect both himself and the companies, but they are irrelevant for present purposes.  In our view, the director's service agreement provided a mechanism for payment, and it is inappropriate to look at the board resolution as inhibiting the chairman from carrying out the sort of work which a chairman might be expected to carry out, especially given that he had done so since his appointment.  If the plaintiff was required to do nothing of substance, then that should have been the content of the board resolution and a different director's service agreement should have been put in place.  It seems to us, however, that a resolution framed in that way would have prompted a discussion of quite a different nature around what the obligations of the chairman might be.  It is particularly unfortunate that such a discussion does not appear to have taken place because until April 2009, the chairman was expected to conduct a good deal of work personally on the administration of the investments.  Undoubtedly he realised after April that his role had changed, but we would accept that his perception of that change was not the same as that of Mr Shinehouse. 

25.      On 19^th June, 2009, the plaintiff issued the first of the disputed invoices in respect of his work in May.  We have not been shown any document which suggests that contemporaneous objection was taken by the companies to the amount of his claim.  We were not informed in evidence that the issue was raised with him.  We are surprised that that should be the case.  We would have expected the matter to be raised immediately with him, and that this would have affected his approach to the work which he was doing during the rest of June and during July of that year.  It is clear that the amount of work done by him during those months reduced, but if there had been a true objection at that time by the companies to his engaging in the work he did, we would have expected him to have done no work at all after 19^th or 20^th June, 2009, over and above that appropriate for his regular fee.  The invoices show that was not the case. 

26.      Before leaving the question of overtime fees, we note that in his evidence before us, the plaintiff emphasised that he could not simply remove himself from all work on behalf of AI and PI given the level and intensity of his work for those companies up to the date of the board meeting.  We accept that many of those employed in the companies in which the two Funds had invested were used to dealing with the plaintiff, and would naturally contact him after the board meeting of April 2009 not least because they would be unaware of the resolutions which had been passed.  In our view, particularly given the absence of Mr Pirrwitz from the board after that EGM in April, much of the institutional memory in relation to the investments of the two Funds would have been vested in the plaintiff.  We accept the general premise that he could not have been expected, in the interests of the companies, simply to withdraw as a result of the April board meeting, even if that resolution had meant what it is now said by the two companies it did mean, which is not our view of it in any event. 

27.      We go on to consider the events surrounding a press conference which took place on 25^th May, 2009.  It is convenient to describe first the culmination of those events, which was a letter dated 29^th May, 2009, sent to the plaintiff by Messrs Latham and Watkins on the instructions of the remaining members of the board.  The letter said this:-

"Dear Wolfgang,

We are writing to you, at the request of all of your fellow directors, in your capacity as Director and Chairman of the Boards of both AI Airports International Limited ("AI") and PI Power International Limited ("PI"). 

In the light of recent events we have been instructed to write to you in formal terms to express your colleagues' serious dissatisfaction with your conduct.  The boards of AI and PI each made a clear decision on 22nd May, to which you were party, that no comments or interviews were to be given in relation to the Stock Exchange announcement dated 25th May without the prior agreement of the relevant Board.  You have blatantly disregarded that decision by undertaking personal interviews with journalists which have fuelled inaccurate press coverage. 

This follows the pattern of other instances of unilateral action on your part, where you have acted contrary to board decisions.  Such conduct is unacceptable and must cease immediately. 

The Boards will consider the position further at the board meetings scheduled for 8 June.  Separate Board meeting will be convened earlier if you fail to comply with the terms of this letter.  In the meantime all the other members of the Boards require that you do not communicate with anyone except them or us regarding AI, PI or their respective affairs without the prior consent of a duly convened meeting of the relevant Board.  In particular, but without limiting the foregoing, you have no authority, and are required not to communicate with the press or other media, investors or anyone connected with Meinl Bank AG or its subsidiaries or affiliates, the companies' staff, consultants, advisers (including Wolf Theiss, Goldman Sachs, Carey Olsen, Crill Canavan and Hochegger), other service providers, portfolio companies or prospective purchasers."

28.      The events leading up to this letter were these.  According to Mr Shinehouse, it was apparent to him after the board meeting of 29^th April, 2009, that the plaintiff considered that he was to have a role that was more than that of a non-executive.  Mr Shinehouse describes in his witness statement how he heard from several individuals during the first few months of his engagement as managing director of AI and PI that the plaintiff had told them that he remained in charge of the companies subsequent to the EGM.  This was of concern to the executive management team, namely Mr Shinehouse himself, Mr Pike, Mr Neil Robson, Chief Financial Officer of AI and PI and Mr Dohr in respect of AI and Mr Hassler in respect of PI.  There were examples where in his view the plaintiff stepped over the bounds of what he should be doing - one such example related to the Alsleben investment of PI, a wind farm.  There the developer had a timetable within which he should meet certain milestones.  He failed to meet them and asked for extra time.  In Mr Shinehouse's view, there was no advantage in any extra investment and his goal was to avoid triggering the requirement for PI to put in more capital.  Against the wishes of Mr Shinehouse, the plaintiff attended a meeting where extra time was being sought, and Mr Shinehouse arranged for his own representatives to attend the meeting as well.  That is part of the background; but what particularly led to the Latham letter of 29^th May was that for various reasons it was necessary to make Stock Exchange announcements for each of AI and PI on 25^th May, 2009, indicating in the case of AI reduced repayments to certificate holders in each company.  This would naturally be unwelcome news for investors, and the matter had been considered at a board meeting of AI on 22^nd May.  The middle board had indicated to certificate holders that a cash distribution of €3.50 would be paid out, but this was adjusted downwards to €2.25.  At the board meeting of 22^nd May, the board resolved as follows:-

"no individual director will communicate independently to the Press and that the release of the Announcement will be the only press communication.  After the release of the Announcement, the Board discussed that it would consult with Hochegger and if it was thought advantageous to follow up with a statement from the Board, this would be reviewed and agreed on by all directors.  It was also agreed that a final option may be a telephone press conference with JS and WV."

29.      According to the plaintiff, he discussed the issue with Mr Shinehouse on 23^rd May, when it was agreed that in the light of the potential for adverse publicity arising from the press statement, media handling was important in circumstances where journalists would expect immediate access to board representatives.  The plaintiff gave evidence that the interviews, which would be conducted with the Austrian press in the German language, would be given by him, with Mr Shinehouse listening and assisted as necessary by an interpreter.  The plaintiff considered that procedure was consistent with the resolution of 22^nd May. 

30.      There was difficulty in arranging such interviews taking into account the time differences between the United States where Mr Shinehouse was resident and Vienna where the Austrian press would be interviewing the plaintiff.  It appears that there were discussions between Hochegger, the media consultants and Mr Shinehouse because the former sent him an email at 11:57 on 25^th May, 2009, in these terms:-

"Dear Mr Shinehouse,

so far we have not been able to reach you and to connect you to the planned telephone interviews with Wolfgang. 

As the editorial deadlines here in Austria are getting closer and our simultaneous translator will be only available until 13.45 Vienna time we want to inform you on behalf of Wolfgang that we will start telcos with journalists at 13.15 Vienna time (already postponed for more than 1.5 hours).

Please let us know if you still want to dial-in as discussed with Mick last weekend."

31.      The interview with the press went ahead without any participation by Mr Shinehouse.  The plaintiff took the view, he says on advice from the PR consultants Hochegger, that the press needed to be spoken to immediately and it was no good waiting until there was a convenient moment for Mr Shinehouse.  His evidence was that he called Mr Dohr who agreed to the plaintiff holding the conference call.  Mr Shinehouse denies reaching any agreement with the plaintiff over the telephone on 23^rd May as to the conduct of the press interviews.  That denial does not seem entirely consistent with the last paragraph of the Hochegger email of 25^th May, and we also note that the plaintiff sent an email on 26^th May to his fellow board members in which he said, inter alia:-

"... The main problem did refer to the timing.  Jim is 6 hours behind and unfortunately couldn't join the calls.  I agreed with him on Saturday that we would do the interviews together and that we first ...: 

1)        Wait for the reactions to come from the journalist side after our morning press release (and they came immediately)

2)        Prepare adequate answers to all those questions

3)        Coordinate them with WT and decide what questions we would answer

4)        Do the interviews and explain why we decided not to pay out 3,50, without saying something really new and confidential and create a positive atmosphere of trust and respect towards the Austrian press. 

Unfortunately Jim could not join the calls due to timing; but editorship conclusion in Austria is at 3pm CET and calls were therefore made from 11.30am until 2.45pm.  We simply could not not communicate!  That would have been a disaster!  I also would have preferred to having had also Jim joining the conference, because we did not really have good news to communicate, but unfortunately he did not take Hochegger's calls."

32.      So the contemporaneous record from the plaintiff supports the evidence which he gives to us in Court five years later. 

33.      Unfortunately Mr Shinehouse did not dispute with the plaintiff that alleged agreement at the time.  It is true that by an email of Monday May 25^th timed at 16:50, Mr Shinehouse did indicate to some of his co-directors that "of course, I can only say that there is no chance that my conversation with Wolfgang over the weekend in any way suggested that he should handle the press.  We spoke primarily about Holger and security matters.  I received the full history of Wolfgang's security issues.  At the end of the conversation I reiterated that we will see what the press says on Monday and get together with the board to determine what we should do next.  I emphasised the agreed procedure - not changed it."

34.      As the preceding emails in the email stream had been copied to the plaintiff, it is surprising that Mr Shinehouse did not copy his email also to the plaintiff.  In our view it demonstrates that the lack of trust between the plaintiff and Mr Shinehouse as at May 2009 was completely mutual. 

35.      We regard the Latham letter of 29^th May, 2009, as remarkable.  It is, in our view, a constructive dismissal letter.  There is in our view no doubt that he had not appreciated the outcome of the meeting of 29^th April, 2009, in the same way as Mr Shinehouse and it may be that his understanding of the board discussions of 22^nd May was also at variance with that of his colleagues.  However the landscape clearly changed with the Latham letter, which while it clearly has no impact upon the plaintiff's claim for expenses during May 2009, makes it impossible for the plaintiff to succeed in his claims for additional fees for June and July 2009.  This part of his claim therefore fails.  However, for the reasons given in paragraphs 24 to 26 above, we find the claims for overtime fees and expenses for May 2009 succeeds. 

Security Issues

36.      The security issues have two strands for the purposes of this judgment.  In summary, a number of security costs were incurred in protecting the plaintiff's home in St Gallen, and in providing personal security for the plaintiff and members of his family, during the period from December 2008 through until mid-2009.  Some of these expenses were met by the plaintiff and he submitted invoices for reimbursement by each of AI and PI in respect of those expenses.  These have not been paid and form part of his claim and we will return to them after our review of the evidence.  The second strand is that either or both of AI and PI paid a number of expenses in relation to the same security during the period February to September 2009.  It is asserted that those payments were made because they were legally due by those companies, the companies having been committed to the service providers Alp and its sister company Diligence on the instruction of the plaintiff.  AI and PI assert that the plaintiff acted in breach of his duty to the defendant companies in giving those instructions, and therefore they seek reimbursement of expenses which they have paid during that period.  The counterclaim by AI is for €439,500.58 and by PI is for €440,898.59.  To deal with these claims and counterclaims require us to analyse the circumstances which gave rise to the security costs, the instructions given, the type of security provided, the information available to the middle board and the new board, and the circumstances under which the various payments were made.  

37.      We have to consider whether the obligations incurred by AI and PI were properly incurred on their behalf by the plaintiff and the extent to which the payments were made with the knowledge and approval of the boards, and of course this also involves a limited review of the procedures for payment approvals. 

The circumstances giving rise to security costs

38.      It is right to commence with a reference to the Court's judgment in relation to the group 1 issues because at paragraph 31 of that judgment, set out at paragraph 9 above, the Court referred not only to the ever increasing shareholder pressure in relation to the TAV issues and the Pecik deal but also to issues of security for Mr Vilsmeier and his family. 

39.      The first question is whether this paragraph in the Court's earlier judgment amounts to a finding of fact which was a necessary part of the Court's reasoning in relation to the decision which it then gave.  If it was, then it seems to us that on the application of the test which we have set out earlier, an issue estoppel arises which prevents further enquiry into those facts.  At paragraph 129 of the Court's earlier judgment, when considering the issue as to whether it was relevant that the same exit payment was due where a director resigned as where he was dismissed, or not confirmed in office at a general meeting of shareholders, and assessing the plaintiff's approach in that respect, the Court said this:-

"We have no doubt that Mr Vilsmeier was influenced by the threat to the safety of his own family.  For him, there was the possibility therefore that he might have to resign rather than see his family put at risk.  In those circumstances, the success fee component of the exit payment might have been regarded as more significant than the other components.  For the purposes of this judgment, the fact that the exit payment is the same whatever the cause of the director losing that position within the company is relevant only to the good faith of those involved because in this case Mr Pirrwitz' claim is not based on resignation but is based on the fact that he was not retained in office following a vote of the company in general meeting.  We are satisfied that Mr Vilsmeier acted in good faith in fixing the same resignation payment as he did the payment due on dismissal.  The resignation arguments therefore seem to us to be a non-point in the circumstances of this case."

40.      We take from these extracts that the Court has already expressed itself satisfied, as between these parties, that the plaintiff was influenced in his actions by the threats to the safety of his own family.  We do not think that is open to reappraisal.  However, the Court has made no findings on the detailed points raised by the plaintiff in his witness statement as described in paragraph 31 of its earlier judgment.  We consider that theoretically it is open to us, if that is the way we see the evidence, to acknowledge that there were threats to the safety of the plaintiff's family but at the same time to reach different conclusions as to how the threats came about, without therefore accepting the detail of the evidence of the plaintiff.  We have approached the evidence in that way. 

41.      We start with the evidence directly from the plaintiff and his wife in relation to the security threats.  According to the plaintiff, he was called by Mr Roehrig in early December 2008.  The call was part of a series of calls from Mr Roehrig and Mr Adametz, the lawyer for Elliott, putting pressure upon the plaintiff in respect of the TAV and Pecik deals.  It will be recalled that the plaintiff was concerned that Meinl were behind the Pecik deal as the silent partner and that he believed Elliott knew this.  During one of these conversations, the plaintiff asserts that he was told by Mr Roehrig that his personal security and that of his family was under threat from Kazakhstan based specialists who had been hired by Meinl Bank to solve "the Vilsmeier problem".  Mr Roehrig told the plaintiff that he should seek immediate professional security assistance.  He was also informed by Mr Adametz that his life was in danger and that foreign agents had been dispatched to Switzerland, and that his 11 year old daughter was at risk of being kidnapped by those agents.  According to the plaintiff, Mr Adametz made it clear that if he did not agree settlement terms, Elliott would not be able to guarantee the safety of his daughter.  The suggestion was made by Mr Roehrig that the plaintiff contact Mr Bill Goodall, Elliott's employee responsible for security in Europe.  According to the plaintiff, in a subsequent discussion, Mr Goodall informed him that security agents employed by Kroll were on their way to St Gallen in Switzerland with a view to protecting him and his family.  The plaintiff met a Mr Nick Doyle from Kroll at his home on Sunday 7^th December, 2008.  Kroll specialised in all sorts of security advice and later that day Mr Doyle emailed the plaintiff with Kroll's letter of engagement setting out the services which could be offered and the absolute minimum price which he could manage.  The plaintiff's evidence was that Kroll immediately installed two agents at his house and offices and that the St Gallen police authorities were informed.  No invoice was ever issued to him or to AI or PI in relation to this security.  The plaintiff assumes that Elliott must have paid for it. 

42.      The plaintiff considered Kroll's costs as set out in the letter of engagement to be extremely high.  He asked Mr Goodall whether he could recommend a Swiss company which would be cheaper, and he gave evidence that Mr Goodall recommended the Swiss firm Alp and its sister firm Diligence, which from that time (December 2008) until the end of August 2009 provided a range of security services but in particular by way of personal protection. 

43.      Mrs Vilsmeier, the plaintiff's wife, completed a witness statement which was put before the Court, but was not challenged.  She described how in November 2008 a strange vehicle followed their daughter, then aged 11, home from school.  At that time, neither Mrs Vilsmeier nor the plaintiff made any connection between that incident and the work which the plaintiff was undertaking for AI and PI. 

44.      In early December 2008, according to her belief on Friday 5^th December, 2008, Mrs Vilsmeier received a telephone call in the morning.  She was told that the caller worked for the security firm Kroll and that he had some information which was of very high importance.  He said that there was reason to fear that her daughter was at risk and he was going to take steps to arrange for surveillance of both her daughter and of the family.  The caller explained that he was on his way to visit their home in St Gallen.  She spoke to her husband, who tried to reassure her.  Kroll agents then arrived at their home, she believes on a Saturday or Sunday, and they surveyed the house for points of weakness.  They recommended the installation of about eight closed circuit television cameras.  Mrs Vilsmeier explained that she was horrified by that suggestion and she rejected it out of hand.  She valued her privacy. 

45.      According to Mrs Vilsmeier, Mario Brero and his companies Alp and Diligence provided security guards as from a Monday shortly thereafter.  It was agreed with her husband that their daughter would be guarded from the beginning of Tuesday the following day.  The first invoices from Alp and Diligence suggest that security was provided with effect from 13^th December, 2008, which was a Saturday, and that is not in accordance with their recollection.  She believes that Alp and Diligence started work on 9^th December. 

46.      Mrs Vilsmeier described an incident which took place on 16^th December, 2008.  On that day, their daughter reported that a man had asked her for help to find a phonebook and had invited her to get into his car.  She had politely informed him that there was a telephone booth next to the bus stop in front of the school gates in which he would find a telephone directory and she did not get into the vehicle.  Mrs Vilsmeier and her husband considered this was an attempt to kidnap their daughter and were understandably petrified that if anyone dropped his guard or made the slightest mistake, the consequences could be catastrophic for their family.  Mrs Vilsmeier was also worried about the security of her sons who were older.  The eldest son was at university in Zurich, and as a result of the security threats, he turned his back on his family, focussed on his studies and carried on as if nothing was happening.  The younger of the two boys, aged 18 at the time, resisted the suggestion that he should have security guards as well.  He was upset that people in the city of St Gallen were talking about the goings on within the family and he stopped bringing friends home.  He became angry and frequently challenged his father about the threats and the security measures, and he held his father responsible for it. 

47.      There were other events.  The plaintiff refers to the theft of a set of keys in relation to his offices in St Gallen, which led them to decide that the door locks should be changed.  He described an incident on 17^th December when a gentleman believed to be of Eastern European origin with dark hair was in St Gallen driving a Smart car, which was from time to time parked on the street where his offices were located.  The matter was reported to the St Gallen police.  Although no conclusions can be drawn from the incident, the plaintiff contends that it provided an insight into the level of anxiety they all felt at the time.  While the plaintiff was on holiday in Brazil between 20^th December, 2008, and 5^th January, 2009, - where he used other security measures - there was an attempted break in at his company's factory in Weinfelden. 

48.      We turn next to the security measures themselves, and to the period of time during which they were in force.  We have mentioned already that Alp and Diligence provided security staff from a date somewhere between 9^th and 13^th December, 2008, until the plaintiff's Brazilian family holiday over Christmas, and continued to provide security on their return.  On 12^th January, 2009, the plaintiff received a security report which recommended not only the employment of security guards but the fitting of security cameras at his home given its particular vulnerability.  This repeated therefore the Kroll recommendation.  Once again, Mrs Vilsmeier ruled this out as being too intrusive.  As a consequence, it was suggested that considerable other works should be carried out at the plaintiff's home.  The windows were not sufficiently secure, and neither was the main door nor the garage, nor the door between the garage and the house.  The plaintiff told us that the St Gallen police recommended the installation of security windows and blinds, electronic security locks, the strengthening of the door between the garage and the entry to the house, the replacement of the wooden electric garage doors with steel and aluminium and the installation of a new alarm system connecting directly to the police station.  Access to the home by an intruder would be easy because there are no fences around it.  At the back of the property there is merely a low hedge, and this was a concern which Alp highlighted.  Having an agent installed at the front of the property offered some protection, but the risk of intrusion at the back remained and accordingly it was suggested by Alp that the number of agents be increased to four agents serving 12 hour shifts, to give protection both at the front and the back.  The plaintiff gave evidence that his home was in very good condition and there was no need to replace high calibre doors, windows and the like with reinforced glass, steel and aluminium, which is something which neither he nor his wife welcomed.  The house was only 13 years old, and the changes were only introduced because of the security threats. 

49.      The plaintiff told us that Mr Mario Brero, President of Alp and Diligence, also recommended that a security driver should be provided to him.  This was thought to be an expensive option and the plaintiff told us that Mr Brero came up with the idea of using an armoured car.  Accordingly an armoured Audi A6 was rented on a six month contract at a rate of €6,300 per month.  Other services charged to the defendants on the instructions of the plaintiff included the cost of the lease of an office for Alp agents, protection for the plaintiff's factory (released at the request of the factory manager on 5^th January, 2009,) and background checks in respect of certain individuals and entities, including Mr Weingarten and Pan Amp, referred to below.  Security contracts dated 13^th December, 2008, had been executed by the plaintiff on behalf of the defendants with Alp and an addendum to those completed on or about 24^th March, 2009.  The amount actually spent on security guards did tend to vary slightly from month to month, but it was clearly a considerable amount of money.  By way of example, AI paid the sum of €24,340 to each of Alp and Diligence for the period March 2009 to 7^th April, 2009, in respect of the provision of security guards, and for the same period, PI paid each of those companies the sum of €24,593.  Monthly expenditure seems to have been broadly speaking of this order in relation to the retention of security staff. 

50.      Mr Vilsmeier in his evidence was clear that he discussed with board members the existence of the threats to his security and to the security of his family.  He gave a presentation of the security issues at a dinner meeting of the board, including Mr Shinehouse who was potentially coming onto the board, on 10^th February, 2009.  Mr Pirrwitz, Mr Boleat, Mr Baird, Mr Duswald, Mr Shinehouse and the plaintiff were present.  The plaintiff gave evidence that he set out the background including shareholder pressure and he mentioned the bodyguard arrangements and the involvement of Elliott in establishing the services of Alp and Diligence.  He said that he referred to the modifications to his family home and the use of the armoured vehicle.  He remembered Mr Shinehouse sympathising with his plight, and he did not recall Mr Shinehouse as having been surprised by these matters being mentioned - which he put down to the fact that Mr Shinehouse's involvement in the companies was as a result of activity by Elliott, and that firm was of course well aware of the threats and security measures being taken in any event. 

51.      Mr Vilsmeier asserted in evidence that members of the middle boards of the two defendant companies witnessed some of the security arrangements first-hand.  The Audi A6 was used to transport Messrs Pirrwitz and Duswald from Zurich airport to St Gallen on 2^nd February, and for several journeys from St Gallen to Zurich for the plaintiff and Mr Pirrwitz to attend meetings with UBS dealing with investment strategy.  Bodyguards were stationed outside the meeting room of the Radisson hotel in St Gallen on 2^nd February.  Similarly there was bodyguard protection at the extraordinary meetings held in Vienna in April 2009 and all members of the boards of AI and PI except for Mr Pirrwitz and Mr Pascall attended those meetings.  By contrast, Mr Shinehouse said in his evidence that he did not recall seeing any bodyguards present at the meetings of the middle board in February 2009, nor at Klosters in March 2009, nor in Jersey on 14^th April, 2009.  He did recall seeing some bodyguards present at the EGM. 

52.      The Court heard evidence from Mr Albert Adametz, a partner in the Austrian law firm of Broich Partnerschaft Von Rechtsänwalten.  Mr Adametz has acted for some time as legal counsel for Elliott, the hedge fund investors in the defendant companies.  His witness statement was to the effect that the plaintiff spoke to him over the telephone when he, Mr Adametz was attending Elliott's Christmas party in London.  According to Mr Adametz, the plaintiff told him that his, the plaintiff's, life was in danger and asked if Mr Adametz could guarantee the safety of his daughter.  Mr Adametz replied that he could not give any such guarantees because he is a lawyer and not a security person, and he suggested that Mr Vilsmeier should contact a security person which Mr Adametz understood he subsequently did. 

53.      When he came to give his evidence before us, Mr Adametz said some rather different things.  He said initially that he did not know the plaintiff had a daughter.  Subsequently he said that "the daughter issue did not come up at that time", i.e. in December 2008.  In questions from the Court, he said that he believed that what he described as the daughter issue might have come up in a conversation between the plaintiff and himself some five months later either in his firm's offices or in the Sky Bar in Vienna.  Mr Adametz told us that when the plaintiff telephoned in December, it may have been that he called either the cell phone of Mr Adametz or of Mr Klaus Roehrig, and he also said that numbers of other persons at the party, including his partner, Josef Breuk, heard this discussion.  As it was the Elliott Christmas party, Bill Goodall was around, and accordingly Mr Goodall was called over and asked to give some advice.  Mr Adametz had no idea if Elliott was prepared to pay for any security costs which had been incurred.  He was sure that he did not give any advice himself about how to handle security issues, which we accept.  He was also sure that he did not pass on or make any threats to the security of the plaintiff or his family and that he had made no commitment on behalf of Elliott to assume responsibility for the security costs. 

54.      Although Mr Adametz had acted for some time as Austrian legal counsel for Elliott, he was not involved in the TAV arrangements, and so he told us he was not able to say anything about that.  He did emphasise however that the smaller shareholders in the funds wanted their cash back to mitigate their losses, and this was true also of the hedge funds.  They collectively felt that this board was not interested in them, and that is why, he said, the shareholders wanted a change.  They had not lost confidence in the board by December, but within the next couple of months, that position changed. 

55.      Unfortunately, we found the evidence of Mr Adametz to be inconsistent and in some respects, we thought, selective and incomplete, and we have not found it to be wholly reliable. 

56.      No arrangements had been made by the parties for the provision of an interpreter for Mr Brero and as he expressed some hesitation, the Court provided Mr Christopher Thérin, an Assistant Judicial Greffier, who was able to assist when needed.  In fact, this did not occur frequently.  The Court made its assessment of Mr Brero's evidence, given in English, having regard to his expressed linguistic uncertainty.  Mr Brero told us that he was introduced to the plaintiff by Mr Bill Goodall of Elliott Management.  The two security companies took instruction from the plaintiff until late in the summer of 2009 at which time they took direction from Mr Shinehouse.  His firm was responsible for the preparation of what has been called the Bugatti memorandum.  It was prepared on 2^nd July, 2009, and we will return to this shortly.  In his evidence in chief Mr Brero said that he was not aware of any event or occurrence that would give rise to a concern for the physical harm to Mr Vilsmeier or his family.  He said that he never told the plaintiff that he or his family was in danger or physical harm.  As far as his evidence goes, Alp did not suggest that bodyguards should be provided or were necessary; did not recommend modification of fortified doors and bullet-proof windows to the plaintiff's home; did not recommend the use of an armoured vehicle; and would try to suggest that additional security was unnecessary whenever the plaintiff requested more.  In particular, he said that Alp agents had not been involved in any altercations at the plaintiff's workplace or home, had not witnessed anyone following the plaintiff during his family holiday; had not been involved in car chases with third parties; had not told the plaintiff to "get down" because there were Kazak sharp shooters outside trying to shoot him; had not told the plaintiff that Russian assassins were coming to kill him; had not suggested that anyone was going to kidnap the plaintiff's daughter; had not witnessed or become aware of (other than from Mr Vilsmeier himself) a break-in at the plaintiff's workplace or home, and had not had a copy of the plaintiff's daughter's school and ballet schedule to give her protection from any third party threat.  In all these respects, the evidence of Mr Brero contradicted what Mr Vilsmeier and Mrs Vilsmeier have said in their evidence. 

57.      If not directly contradictory, the overall thrust of Mr Brero's evidence in chief has a definitely different focus from the information contained in what is entitled the Bugatti memorandum of 2^nd July, 2009, which his firm produced.  This document was addressed to Mr Bill Goodall, who also gave evidence before us, although he said he could not recall ever receiving it and did not ask Mr Brero to produce it.  There has unfortunately been some duplication of paperwork within the extensive files put before us for the hearing, but the copy of the Bugatti memorandum to which we were referred in evidence has certainly not been signed.  The memorandum is consistent with the concerns which the plaintiff described in his evidence, and provides confirmation that the factual matters raised by the plaintiff had been raised as early as July 2009, and have not been subsequent inventions.  The reasons for the preparation of the Bugatti memorandum are indeed strange.  According to Mr Goodall he neither procured it nor saw it, as far as he recalls.  Mr Brero, whose firm produced it, does not seem to recall why or to whom it was sent.  According to Mr Shinehouse's evidence, following a discussion with Mr Roehrig of Messrs Elliot on 16^th June, 2009, Elliott asked their head of security (Mr Goodall) to get a briefing on the use of Mr Brero's services and the current assessment of the risk affecting the plaintiff.  In his evidence in chief, Mr Shinehouse suggests that at about the same time he spoke to Mr Brero who gave him a version of events which was inconsistent with Mr Vilsmeier's, and Mr Shinehouse invited Mr Brero to send him the briefing memorandum that was to have been prepared to update Mr Goodall, the memorandum being that to which Mr Roehrig referred at the meeting on 16^th June.  As the memorandum is dated 2^nd July, either Mr Shinehouse was referring to a different memorandum, or the dates attributed to the discussions must be incorrect.  What is clear is that there is nothing inconsistent in the Bugatti memorandum from the complaints of the plaintiff in relation to this matter, and indeed the fact that it was sent to an Elliott employee in July 2009 could be taken to support the view which the plaintiff expressed that Elliott were closely connected with the retention of Alp and Diligence in the first place.  It would seem surprising that, as an investor in AI and PI, Elliott should have thought fit to procure a report on security arrangements made for the chairman of the two companies, if it had not been engaged in the retention of those companies in the first place, and equally surprising that, had there been no such involvement, Mr Brero would have thought it appropriate to discuss security arrangements for the plaintiff with a third party, let alone prepare a report in writing on that subject.  As a person whose business is the provision of security, we are confident that Mr Brero was well aware of the need to observe client confidentiality. 

58.      In cross examination, Mr Brero made it plain that both insofar as the Bugatti memorandum was concerned and indeed insofar as his own witness statement is concerned, several people had worked on the documents.  He checked them and gave them some direction.  The documents were prepared by case managers, and he did not know if they had spoken personally to the agents.  He supposed that they must have done so and thought they would have used their own memory and their notes.  Alp sub-contracted some of their security activity, and it followed that some of the individuals who attended at Mr and Mrs Vilsmeier's home might have been employed by other companies.  He agreed that at the beginning they took Mr Vilsmeier's complaints very very seriously.  The immediate concern when Alp were first instructed was Mr Vilsmeier's daughter.  As he put it, "where kids are involved, everyone takes that very seriously."

59.      At the outset, Mr Brero believed that Mr and Mrs Vilsmeier did have something to fear.  He considered the threat did reduce.  He considered that at the beginning Elliott was his client.  He had known Mr Goodall for many years, and indeed Mr Goodall had been a sub-contractor for Kroll.  Mr Brero remembered that he went to Mr and Mrs Vilsmeier's house on a Saturday, having received a call from Mr Goodall a day or two before.  He was asked to move quite rapidly.  Normally for a client who was unknown to them, Alp would ask for a retainer - but they knew Mr Goodall well and in those circumstances they would take action at his request and accept his word. 

60.      Mr Brero thought that a prudent person in Mr Vilsmeier's position would have put in some security measures.  He thought it was probably true that the security measures which were applied to the property would have reduced the number of security staff employed.  He was adamant that the provision of an armoured vehicle was the plaintiff's idea and not his own.  He did not recall having any discussion about providing a driver.  As to the division of the invoices between Alp and Diligence, he said that they were separate companies which provided the same services, and he agreed that the splitting of invoices between the two might have been his idea. 

61.      He did not think that Alp had ever issued an invoice for Elliott to pay.  That certainly seems to be consistent with his firm's first invoices which relate to a period commencing on 13^th December, although it is slightly surprising that as his firm's practice was to send monthly bills, the first was not sent until February 2009. 

62.      Mr Brero had met Mr Weingarten of Pan Amp on a couple of occasions.  Mr Weingarten gave them what he described as worrying internet information.  The information allegedly contained threats against Mr Vilsmeier and his family, discussed in meetings of the Meinl Group.  Mr Brero had no doubt that the plaintiff believed what Mr Weingarten told him, but he added, in our view entirely appropriately, that it is easy to be convincing when talking about security to someone who is being threatened.  He was aware that the plaintiff had spoken to the St Gallen police about the security threats and he accepted that the plaintiff might well have been following recommendations from that police force insofar as alterations to his property were concerned. 

63.      The fee notes of Alp and Diligence remained outstanding for quite some time after they were due.  In cross examination he was asked when the invoices were paid.  He did not know when, but he thought it would have been in 2009/2010.  There was an implication in the cross examination that Mr Brero had only agreed to give evidence before this Court once his bill had been paid by the companies.  In that context, therefore, we want to make plain that we considered Mr Brero to be an honest witness giving evidence to the best of his ability, and not motivated by improper considerations.  We do, however, consider that in some respects his evidence represents a mixture of what he has been told by employees and what he believes must have been the position because no contrary report was made to him.  It is apparent that his direct knowledge of the security arrangements was incomplete and that his witness statement represents a collection of conclusions reached by employees and sub-contractors of Alp.  We do not necessarily criticise him for this, but we note that it is difficult to treat the statements which he makes as a convincing repudiation of the evidence which the plaintiff and his wife have given as to their own dealings with security staff who were actually present on their property. 

64.      In re-examination, Mr Brero claimed that Mr Vilsmeier was his client from the beginning.  That would seem to be surprising given the invoices which were addressed to the defendant companies. 

65.      Mr William Goodall described himself as Head of Research at Elliott, a person who has previously worked in business intelligence who over the years has got to know contractors who provide security.  At the Elliott Christmas party in December 2008, Klaus Roehrig and Albert Adametz called him over and said that they should call Mr Vilsmeier urgently.  Apparently his daughter had been on the way to or from school and had been approached by two men who asked her to get into their car.  He said that they called the plaintiff and offered immediate comfort.  It was potentially upsetting for him, and he put the plaintiff in touch with Mr Brero who he described as being a good friend of his.  He, Goodall, had previously done some work for Kroll, and he knew that they were expensive, with a 60% mark up.  Kroll tended to use Mr Brero's firm, and it was with that in mind that he advised the plaintiff to cut out the middleman.  He was adamant that Elliott never made any undertaking to pay Mr Brero and he did not recall any conversation with Mr Vilsmeier to the effect that Elliott would pay for the security expenses incurred.  His approach was simply that as Mr Vilsmeier was running Elliott's company, the threats as a result of his position in that company were serious and help and comfort needed to be given.  He confirmed that at no point did either Mr Roehrig or Mr Adametz indicate that the threat assessment had originated from them or that they were in possession of any intelligence or information that would indicate that such a threat existed.  When they had briefed him, they indicated that the threat information had come from Mr Vilsmeier. 

66.      According to Mr Goodall, when he spoke to Mr Vilsmeier, the latter had already commissioned a security audit from Kroll Associates.  It was that information which led Mr Goodall to suggesting Mr Brero's firm. 

67.      Sometime after the Elliott Christmas party, Mr Goodall said that it became apparent that many of Mr Vilsmeier's assessments of the threats he was under were based on information he was obtaining from a security consultant called Mr Bert Weingarten.  Mr Goodall had not heard of Mr Weingarten and he undertook some due diligence on him which he provided to the plaintiff.  The content of the due diligence did not suggest Mr Weingarten's contributions would be reliable.  The plaintiff apparently refuted this and for some reason there was at one point a heated conversation over the telephone which took place when Mr Goodall had been on the pavement in Geneva. 

68.      We found Mr Goodall's evidence to be surprising.  It was not at all clear to us why Elliott should have maintained a continuing interest in the security arrangements for Mr Vilsmeier during the first six months of 2009, even if the circumstances in December 2008 were as described to us by Mr Adametz and Mr Goodall. 

69.      We did not find the evidence of Mr Goodall to be either convincing or reliable.  The premise of the Goodall/Adametz evidence is that the plaintiff invented the question of security threats in December 2009.  Having heard the evidence and in particular having listened to the plaintiff, we do not think that is credible.  We are entirely satisfied that the plaintiff and his wife would not have chosen to have bodyguards escort their 12 year old daughter to and from school, nor have their relationship with their sons put under pressure nor have their house made into a fortress unless they at least believed there was good reason to do so.  If the plaintiff and his wife believed they had good reason, they cannot have invented these threats.  If they did not invent the threats, then the most likely source of them was Mr Roehrig and/or Mr Adametz (which is not to say either of those gentlemen ever intended or expected such threats to be carried out).  We considered that Mr Goodall's approach was influenced by loyalty towards his employer.  On the evidence we have heard, we are satisfied that the monies that were spent on the plaintiff's security arrangements were not unreasonably spent, having regard to the advice which was given to him at the time and that if the matter had been formally put to the boards of each company, those boards could reasonably have concluded that it was in the interests of each company respectively to approve the assumption of responsibility for the security charges.  Indeed Mr McKillop accepted in his evidence that if there had been a proper process, the acceptance by the defendant companies of responsibility for the security costs of their Chairman was in principle in order.  We are satisfied that the commitment of the companies to Alp and Diligence for these security costs cannot be said to be a commitment for an improper purpose.  In our view, this reflects what the position would have been up until May 2009 when Mr Shinehouse became aware of the payments which were being made, and, as he described in his email of 25^th May, was fully briefed on the plaintiff's security issues, and clearly reflected the position thereafter. 

70.      The question which then arises is as to whether the failure formally to put the matter before the board for approval is sufficient to defeat the plaintiff's claims for reimbursement and to establish the defendant companies' counterclaims for recovery of monies which have been paid out on his behalf.  We will look next at the knowledge of both the present boards and the middle boards. 

The knowledge of the present boards

71.      The plaintiff accepts, sensibly, that the matter of the security expenses was not raised in any formal manner at meetings of the board until the summer of 2009.  He appears to have considered that it was enough that board members knew of the security threats, and the broad measures that were being taken to counteract them.  Indeed this continued until as late as May 2009.  Thus it was that payments were made as late as 13^th May by AI to Alp and Diligence and on 14^th May by PI to the same two companies, in each case authorised by the plaintiff only.  In all, there were three payments authorised by the plaintiff alone after 29^th April, the board meeting at which the new executive arrangements were put in place following the EGM of each company.  No doubt it was that process of sole authorisation, which included various other payments made by the companies on the plaintiff's sole instruction which led to Mr Shinehouse sending an email on 14^th May, 2009, to the plaintiff to remind him that the approach adopted by the board on 29^th April had to be adhered to by everybody.  Mr Shinehouse must have known something about the underlying payments because in that email he also said "... I understand your concern to have your security company paid but we must follow proper procedure."

72.      We note however that up until this time, the plaintiff had sole signing authority up to €100,000 on each of the companies' bank accounts.  The fact that the plaintiff had this authority externally as far as the bankers were concerned did not logically mean that he did not have to follow internal procedures for having payments authorised, but it is possible that this was a distinction which passed the plaintiff by, and we certainly had that impression from him when he came to give his evidence.  This indeed is consistent with the evidence of Mr Shinehouse that when he joined the middle boards, the payments process was "a mess".  The signatory permissions attached to the companies' bank accounts were subsequently changed so that two signatures would be required to authorise disbursements above €25,000.  Ultimately indeed the plaintiff was removed from the banking mandate altogether. 

73.      There is no doubt that whatever the position was before 23^rd May, 2009, Mr Shinehouse was well aware of the security issues from and after that date, on which he discussed the matter in some detail with the plaintiff.  The issue was elevated to board level and on 18^th June, after substantial debate, the board agreed to pay the invoices for bodyguards through April 2009 while investigations continued.  That investigation included what was described as the Bugatti memorandum, referred to below.  At all events, what is plain from the investigation that Mr Shinehouse conducted between June and September 2009 is that he reached the conclusion that there was no evidence that any of the "threats" related in any way to the plaintiff's position as Chairman of AI and PI and indeed that he was sceptical about whether there were ever any threats in the first place. 

74.      Mr Murdoch McKillop is a chartered accountant and was a former licensed insolvency practitioner.  He was appointed to the boards of PI and AI respectively at their EGM's on 21^st and 22^nd April, but as his appointment did not take effect until approval had been given by the Jersey Financial Services Commission, he did not vote in any resolution until that approval had been received on 7^th May, although he did attend the relevant board meetings.  He said in his evidence that he was aware of the plaintiff's security concerns during the April EGM's because he was accompanied by bodyguards at that time, but he was not aware of the background to these concerns or that the boards had not previously been consulted until a meeting which occurred on 15^th May, 2009, at the offices of Talbot Hughes McKillop in London on 15^th May, 2009.  He agreed that he was reluctant to cut off security protection until the executive management team had fully investigated the matter.  He indicates in his evidence that he supported the board's decision to follow the recommendation of the Cohen report that the companies should meet the security costs up until 2^nd February, 2009.  In that connection he had not been impressed with the February cut-off date, but he was looking for a compromise in a messy situation.  His approach generally was that if there was a perceived risk which ought to be taken seriously, a board, acting reasonably, would provide some sort of security but it should have been properly organised and the proper procedures followed.  He was clear that he was aware of security guards being paid for by early May. 

75.      Mr Neil Robson was appointed Chief Financial Officer on an interim basis of AI and PI in or about early May 2009.  He is a chartered accountant and a partner with Messrs Talbot Hughes McKillop.  He first became aware of security costs from discussions with Ms Amy Leichner an employee of Atlantic Financial Advisory Partners LLC, a specialist financial management and advisory firm in which Mr Shinehouse and Mr William Pike are partners.  He was certainly aware by about 12^th May, 2009, because he recommended that the bank mandate should be altered to require two signatories on all payments. 

76.      Mr Pike is also an accountant by profession.  He has acted as Chief Operating Officer of AI and PI since 29^th April, 2009.  He gave evidence that he first met the directors of AI and PI in Vienna when he attended a lunch meeting involving several of the directors on 26^th February, 2009.  He did not notice any bodyguards on that occasion.  He did notice bodyguards for the EGM for AI on 22^nd April.  This was the first occasion that Mr Pike recalled hearing Mr Vilsmeier mention security issues.  He became aware of the security payments authorised by the plaintiff when he was so informed by Ms Leichner on 5^th May, 2009.  He first discussed the security threats with Mr Shinehouse in late May 2009.  It is clear from his evidence as well that the board discussed security concerns at various times during the summer of 2009.  It was agreed in July that the plaintiff should relinquish the security measures voluntarily by the end of August 2009. 

77.      Mr Cohen of Messrs Latham & Watkins was instructed to assist both the middle boards and the new boards on various matters from time to time.  His witness statement dated 22^nd April, 2014, contains much material which is inadmissible, being his opinion on matters in respect of which opinion evidence is not appropriate - for example, he is asked to comment upon shareholder pressure, and he expresses his view that the shareholder pressure was of the middle boards' own making.  Inadmissible opinion evidence of this kind is unhelpful. 

78.      In September 2009 Mr Shinehouse apparently asked Mr Cohen to carry out an investigation into the security expenses incurred by the plaintiff.  Messrs Latham and Watkins carried out this work, some of it conducted by Mr Cohen and some by one or more Latham associates.  He prepared a report which was put before us in which his advice to the board was that the companies should not have paid any expenses after 2^nd February, 2009.  Indeed it is on that basis that AI and PI have brought their counterclaims in this respect.  He deposes in his evidence not only his own view, which is inadmissible, but even less acceptably, the view of his associate.  

79.      In his supplementary witness statement dated 21^st May, 2014, Mr Cohen goes further in relation to security matters, in effect reaching a conclusion that there was no hard evidence of any threats at all.  In the third witness statement which is dated 30^th May, 2014, he gives an explanation as to why material which could have been produced earlier on discovery had only been found at a relatively late stage. 

80.      Mr Cohen and his associate apparently had a number of conversations with persons who are not witnesses.  To the extent that their conclusions are based upon material which has not been tested in this Court, the conclusions are inevitably difficult to assess with any degree of fairness to the plaintiff.  The short answer, however, is that it is opinion evidence which is irrelevant save to the extent that it explains why AI and PI may have formulated the counterclaim in the way they have.  In our view the Latham conclusions as to the strength or otherwise of the threats which the plaintiff claims were made against him are neither admissible nor relevant because these are matters for this Court to determine on the basis of the evidence which is provided to us. 

81.      What is contained in the Latham report by way of summary of what particular persons may or may not have said to Mr Cohen's associate is hearsay upon hearsay.  To the extent that the report contains a reference to what third parties not before us may or may not have said to that firm, we find it impossible to place any credibility on such statements.  To the extent that witnesses who did give evidence before us were interviewed by Mr Cohen and the accounts of those interviews do appear in the Latham report, then there was the opportunity of testing the statements made by those witnesses to Mr Cohen against anything they might or might not be saying before us.  We are entitled to have regard to any disparity in that connection if we think fit. 

82.      The direct evidence which Mr Cohen was able to give was limited. 

83.      Mr Cohen said that he had been part of the team advising AI and PI from approximately mid-September 2008 in respect of AI and mid-November 2009 in respect of PI.  He was not aware of any hint or threat of physical violence against any of the directors at the relevant time (December 2008 and January 2009) as nobody mentioned this to him.  He did not think any board member was aware of such threats, and he was close enough to Mr Pirrwitz and to Mr Boleat to think that if they had been aware of such threats, they would certainly have told him.  He attended the board meeting at St Gallen on 2^nd February, 2009.  There was no word from anybody about the plaintiff's fears of him being in danger, and although he recalled one or perhaps two security men in and around the hotel area where the board meeting was taking place, he thought little of it, because he thought this was hotel security for an important meeting.  He recalled that the board attendees went out to lunch and there was a 30 minute walk to the restaurant including a short tour around the University of St Gallen with the plaintiff acting as a tourist guide, but without any security people coming with him.  He recalled being told by a board member that security was only present to stop intruders coming into the board meeting at the hotel.  Mr Cohen also told us that he attended the EGM in April 2009, and there was tight security with two or three security guards in a private area behind the stage.  He was told that the guards were requested by the plaintiff to protect him but he did not know more than that.  The thrust of his evidence was rather different from his conclusions in 2009. 

84.      We did not find Mr Cohen's evidence to be particularly reliable.  At a time when security measures were undoubtedly being taken, we have no doubt that the plaintiff would have told all those close to the Board, like Mr Cohen, of why they had come about.  We noted that following a conversation with Mr Shinehouse his report was ultimately rather different from the content of his earlier email to him and others dated 29^th September in which he said:-

"Laura and I have just finished with Mario [Brero].  We think Mario is more likely to be honest than not. 

The headlines are:-

1.        There was a real threat from December '08 through April '09.  2. Both the personal security and the making of the house into a fortress appear to have been justified in this period.  3. The threat subsided after the EGM.  How quick is open to debate.  4. WV acted on advice.  Marios and the Police.  We need to find some way of checking with the local police.  5. Bill Goodall was heavily involved.  He is or was at Kroll.  He is now at Elliott.  We should speak to him.  6. After the direct threats ceased but Weingarten wound WV up.  We need to get to the bottom of what Bert Weingarten knew or told WV.  We do not know yet whether and how he sustained the threat

....."

85.      It is not obvious from the work Mr Cohen did after this date as to why he should have so significantly changed his mind from the headline conclusion set out.  

The knowledge of the middle boards

86.      Mr Richard Boleat and Mr George Baird, directors of both the middle board and the new board were not called as witnesses to the group 2 issues.  However we did have the transcripts of their evidence before us on the group 1 issues.  As to the weight we give to that evidence, it is right to remember that at paragraph 100 of the Court's decision on the group 1 issues, the Court expressed the view that Mr Boleat and Mr Baird gave evidence of what they would have liked the board to have done rather than what they actually did and that the result was a series of inconsistencies, some major and some minor, both within their own testimony and between their evidence and the rest of the evidence including the contemporaneous material which reflects what they knew or said at the time. 

87.      There is nothing in the evidence of Mr Boleat in the group 1 issues which appears to us to be relevant.  He does not indicate the state of his knowledge as to the security issues and there is therefore an evidential gap before us insofar as that is concerned.  The companies AI and PI have determined not to call Mr Boleat, who as we understand it remains a director, which is in this context perhaps unfortunate. 

88.      Mr Baird did give some evidence in relation to the security issues.  When being cross-examined by Advocate Gleeson in relation to the pressure under which the board and especially the plaintiff was operating, Mr Baird said this [at File 14, tab 35 page 9629 of the bundle]:-

"And there was also the fact that when we talk about the high pressure, was that we discovered that Wolfgang had to hire bodyguards as well, and that his wife and family were at danger.  And I can recall vividly having a personal discussion with Wolfgang saying to him that you know if you're under this kind of pressure in terms of potentially something happening to him and he's having to bring in bodyguards that - and, and I remember saying to him, "Look Wolfgang you are only a non-executive Director Chairman.  If that was me I would resign" and I don't know if Wolfgang remembers that but I remember that vividly and that's the kind of pressure he was under. 

Mr Gleeson - It is a question that will definitely need to be put to Mr Vilsmeier why did he not just resign, but we will leave it there because you have mentioned the security issue, did you understand who might have been tracking my client?  What sort of powerful group have the means to do that in your knowledge having spoken.

Mr Baird - In terms of, in terms of the pressure that was being exerted on Wolfgang which resulted in him having to bring in bodyguards and armoured plated cars and having his house reinforced etc, I have got to be absolutely honest here and I never really got to the bottom of where it was coming from, but I knew that he had told me he was in danger. 

Mr Gleeson - Did he said who he felt was doing this to him? 

Mr Baird - I,  I'm struggling with the actual detail here but I think it was, there was a connection with Meinl but I'm not absolutely sure on that, but I remember at the time it was a very stressful time for Wolfgang and for which I genuinely was quite concerned for his health. 

Judge - Can you put a timetable to this, what time are we talking about? 

Mr Baird - I can't recall offhand Your Honour but

Judge - Well if you cannot recall you cannot recall

Mr Baird - It was, I recall that in St Gallen on 2nd February there were bodyguards standing outside the door of the board meeting so that was 2nd February, and I would guess it would be round about that time. 

Judge - Thank you."

89.      Mr Baird then went on to give evidence that on his return from the St Gallen meeting on 4^th February, he was checking-in at the airport with British Airways, and his briefcase had been stolen.  He was concerned because his laptop and all the papers were in that briefcase.  He reported it to the police, but subsequently the airport police contacted him to say they had found the bag, the money within it was gone, but everything else was still intact.  In summary therefore Mr Baird's evidence was that by the St Gallen meeting in February 2009, he was well aware of the threats made against the plaintiff because the plaintiff had had a full discussion with him about them. 

90.      Mr Pirrwitz told us that in December 2008 he was speaking with the plaintiff several times on a daily basis.  They were both subject to numerous irate telephone calls from Mr Roehrig and Mr Adametz, each seeking to achieve Elliott's desired outcome.  According to Mr Pirrwitz the calls became so numerous and heated that he refused to take them anymore.  However, as a result of the frequent telephone conversations with the plaintiff, he became aware that through the offices of Elliott the plaintiff had engaged bodyguard protection.  Mr Pirrwitz thought he was told this early to mid-December 2008.  He recalled the plaintiff telling him that Mr Goodall of Elliott had told the plaintiff that Meinl Bank had sent specially trained agents from Russia to threaten him with physical harm or even kidnap, and that that there was a threat to the plaintiff's youngest child, his then 12 year old daughter.  According to Mr Pirrwitz, these issues were common knowledge amongst the other members of the board from December 2008 onwards.  He was clear that the intention behind the threats, whoever was making them, was to frighten the plaintiff into carrying out the objectives of those persons who were applying the pressure.  In his evidence in chief, Mr Pirrwitz indicated that he knew about the bullet proof windows on the Audi A6; and in cross examination he was asked what the security arrangements were and said that they included security guards protecting the plaintiff and his family, and later on there was discussion about the introduction of CCTV, which was refused, and extra security for the windows at the plaintiff's home. 

91.      Having regard to all the evidence, we are completely satisfied that the members of the middle boards were aware of the existence of the security threats from at least early February 2009, and very probably from December 2008.  We are also satisfied that they were broadly aware of the arrangements that were being made to combat these threats by the retention of security guards, the hiring of an armoured vehicle and the improvements, in general terms, to the plaintiff's home. 

92.      Nonetheless, it is probably the case that the middle boards were unaware of the extent of the commitment which the defendant companies had taken on.  Indeed it may have been the case as far as the middle boards were concerned that those board members considered that the security arrangements were being paid for by Elliott who, after all, had been responsible for the recruitment of the plaintiff from July 2008.  Mr Pirrwitz told us that he was not aware of the detail of the costs nor of precisely all the security work that was carried out at the plaintiff's home.  He told us that he thought it was odd that Elliott was paying for it but he thought perhaps it was because Mr Roehrig felt responsible and wanted to compensate.  When he later discovered that the security costs were being paid by the companies, he thought that demonstrated a deterioration in the relationship between Elliott and the board, and that maybe Mr Roehrig had overstepped his authority within Elliott.  He agreed that the proper process would have been for the plaintiff to bring the invoices to the board for approval. 

93.      The Court called for copies of the original boardroom packs that were prepared in advance of meetings of the board, and we have been provided with the packs for the St Gallen meeting on 2^nd February, 2009, and the Klosters meeting on 8^th/9^th March, 2009.  The third agenda item is headed "conflicts of interest" and the fourth agenda item is headed "Minutes of previous meeting, matters arising, corporate governance, directors duties and corporate social responsibility".  At agenda item 9 there are a series of bullet points which include "fees paid and outstanding" and "schedule of outstanding payments" and "list of payments".  In neither the February nor the March boardroom packs is there mention of payments to Alp or Diligence, although there is mention of substantial monies paid to the internet forensic company Pan Amp, and there is included a payment of €92,500 to Kroll in respect of "person background investigation".  However, it is clear that the original boardroom packs are not in the form they were at the time of the board meetings, and we do not consider there is much by way of concrete conclusion that we can draw from these packs. 

The Law

94.      The plaintiff was director and chairman of AI and PI and as such he owed each company fiduciary duties.  The fiduciary duty is itself set out in statutory form in Article 74(1)(a) of the Companies (Jersey) Law 1991 ("the Law").  There are other duties also set out in Article 74.  In full, the Article provides as follows:-

"Duties of Directors

(1)       A director, in exercising the director's powers and discharging the director's duties, shall -

(a)       Act honestly and in good faith with a view to the best interest of the company; and

(b)       Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. 

(2)       Without prejudice to the operation of any rule of law empowering the members, or any of them, to authorise or ratify a breach of this Article, no act or omission of a director shall be treated as a breach of paragraph (1) if -

(a)       All of the members of the company authorise or ratify the act or omission; and

(b)       After the act or omission the company will be able to discharge its liabilities as they fall due."

95.      It is also material to refer to Article 75 of the Law the material parts of which are as follows:-

"Duty of Directors to Disclose Interests

(1)       A director of a company who has, directly or indirectly, an interest in a transaction entered into or proposed to be entered into by the company ... which to a material extent conflicts or may conflict with the interests of the company and of which the director is aware, shall disclose to the company the nature and extent of the director's interest.

(2)       The disclosure shall be made -

(a)       At the first meeting of the directors at which the transaction is considered after the director concerned becomes aware of the circumstances giving rise to his or her duty to make it; or

(b)       If for any reason the director fails to comply with sub-paragraph (a), as soon as practical after that meeting, by notice in writing delivered to the secretary

...

(2B)     Any disclosure at a meeting of the directors shall be recorded in the minutes of the meeting.

(3)       A disclosure to the company by a director in accordance with paragraph (2) that he or she is to be regarded as interested in a transaction with a specific person is sufficient disclosure of his or her interest in any such transaction entered into after the disclosure is made. 

(4)       Nothing in this Article prejudices the operation of any rule of law restricting directors of a company from having an interest in transactions with a company."

96.      The starting point of the director's fiduciary duty is that as a matter of general law he is not permitted either to enter into a transaction with the company which gives him a personal benefit or procure that the company enters into a transaction with a third party the result of which is to confer a personal benefit on the director save with the informed consent of the company.  This rule is a fixed rule of equity which, if breached, automatically entitles the company, subject to any defences which exist at law, to have the relevant transaction set aside without an enquiry as to whether the transaction was a fair and proper one and in the best interests of the company.  As was noted in 1000 Neptune (Vehicle Washing Equipment) Limited -v- Fitzgerald (No. 2) [1995] BCC 1000, this general self-dealing rule is almost invariably excluded today by the Articles of Association of the company in question.  Indeed that is the case with the defendant companies at Articles 140 and 141.  It is to be noted that Article 140(a) of the Articles require disclosure to the board of the nature and extent of any material interest of the director, and that Article 141 in its relevant parts provides as follows:-

"141    For the purposes of Article 140: 

(a)       A general notice given to the board that a director is to be regarded as having an interest of the nature and extent specified in the notice in any transaction or arrangement in which a specified person or class of persons is interested shall be deemed to be a disclosure that the director has an interest in any such transaction of the nature and extent so specified ..."

97.      We note that these provisions were not substantially amended, other than for a minor typographical cross reference at the extraordinary general meeting of the two companies in April 2009.  We also note that it is common ground that there was no disclosure to the board of the particular contracts entered into by the companies with Alp and Diligence. 

98.      Accordingly it follows that although these contracts were plainly within the self-dealing rule, because the contracts were at least arguably for the benefit of the plaintiff even if, as we have found, he would not have chosen to enter into them were it not for the circumstances in which he found himself the plaintiff was not prohibited from procuring that the companies enter into them.  He was thus in a position where his duty to the company was in potential conflict with his personal interest. 

99.      In Regent Crest Plc (In Liquidation) v Cohen and another [2001] 2 BCLC 80, Jonathan Parker J put the matter thus:-

"The Nature of a Director's Fiduciary Duty

[120] The duty imposed on directors to act bona fide in the interests of the company is a subjective one (see Palmer's Company Law para 8.508).  The question is not whether, viewed objectively by the court, the particular act or omission which is challenged was in fact in the interest of the company; still less is the question whether the court, had it been in the position of the director at the relevant time, might have acted differently.  Rather the question is whether the director honestly believed that his act or omission was in the interests of the company.  The issue is as to the director's state of mind.  No doubt, where it is clear that the act or omission under challenge resulted in substantial detriment to the company, the director will have a harder task persuading the court that he honestly believed it to be in the company's interest; but that does not detract from the subjective nature of the test. 

[121]   As Lord Greene MR put it in Re Smith and Fawcett Limited [1942] 1All ER 542 at 543, [1942] CH 304 at 306: 

"The principles to be applied in cases where the Articles of Association of a company confer a discretion on directors... are, for present purposes, free from doubt.  They must exercise their discretion bona fide in what they consider - not what a court may consider - to be in the interests of the company, and not for any collateral purpose." (my emphasis)

[122]   To similar effect is the following passage from the judgment of Millett LJ in Bristol and West Building Society -v- Mothew (T/A Stapley & Co) [1996] 4 All ER 698 at 712, [1998] CH 1 at 18:

"The various obligations of a fiduciary merely reflect different aspects of his core duties of loyalty and fidelity.  Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity.  Mere incompetence is not enough.  A servant who loyally does his incompetent best for his master is not unfaithful and is not guilty of a breach of fiduciary duty." 

[123]   The position is different where a power conferred on a director is used for a collateral purpose.  In such circumstances it matters not whether the director honestly believed that in exercising the powers he did he was acting in the interests of the company; the power having been exercised for an improper purpose, its exercise will be liable to be set aside (see, eg, Hogg -v- Cramphorn Limited [1966] 3 All ER 420, [1967] CH 254)."

100.   In Extrasure Travel Insurances Limited and Another v Scattergood and Another [2003] 1 BCLC 598, Jonathan Crow QC, sitting as a Deputy High Court Judge, put the matter this way:-

"87.    It is trite law that a director owes to his company a fiduciary duty to exercise his powers (i) in what he (not the court) honestly believes to be the company's best interests and (ii) for the proper purposes for which those powers have been conferred on him.  Mere incompetence is not a breach of fiduciary duty:  it might give rise to a claim for breach of a tortious or contractual duty of care, but the claim in this case was based entirely on alleged breaches of fiduciary duty."

We interpose to note that in the instant case we have already found the security costs were incurred for proper purposes. 

101.   The judge then went on to consider the argument that a director could be in breach of his fiduciary duty if he honestly but unreasonably believed that he was pursuing the company's best interests.  The judge continued:-

"89.    I reject that proposition.  Fiduciary duties are not less onerous than the common law duty of care:  they are of a different quality.  Fiduciary duties are concerned with concepts of honesty and loyalty, not with competence.  In my view, the law draws a clear distinction between fiduciary duties and other duties that may be owed by a person in a fiduciary position.  The fiduciary may also owe tortious and contractual duties to the cestui que trust:  but that does not mean that those duties are fiduciary duties.  Bearing all that in mind, I find nothing surprising in the proposition that crass incompetence might give rise to a claim for breach of duty of care, or for breach of contract, but not for a breach of fiduciary duty."

102.   Later on the judge when considering the nature of the fiduciary duty said this at paragraph 90:-

"Those cases [Re Smith and Fawcett Limited and Others] make it perfectly clear that a director's duty is to do what he honestly believes to be in the company's best interests.  The fact that his alleged belief was unreasonable may provide evidence that it was not in fact honestly held at the time:  but if, having considered all the evidence, it appears that the director did honestly believe that he was acting in the best interests of the company, then he is not in breach of his fiduciary duty merely because that belief appears to the trial judge to be unreasonable, or because his actions happen, in the event, to cause injury to the company."

103.   And at paragraph 92:-

"The law relating to proper purposes is clear and was not an issue.  It is unnecessary for a claimant to prove that a director was dishonest, or that he knew he was pursuing a collateral purpose.  In that sense, the test is an objective one.  It was suggested by the parties that the court must apply a three-part test but it may be more convenient to add a fourth stage.  The court must: 

92.1    Identify the power whose exercise is in question;

92.2    Identify the proper purpose for which that power was delegated to the directors;

92.3    Identify the substantial purpose to which the power was in fact exercised;

92.4    Decide whether that purpose was proper. 

[93]     Finally it is worth noting that the third stage involves a question of fact.  It turns on the actual motives of the directors at the time:  Re a Company, ex parte Glossop [1988] ACLC 570 at 577."

104.   In the present case, the argument for the defendants is that the payments made by each company were for the benefit of the plaintiff as a fiduciary.  In those circumstances, we accept the comments of Robert Miles QC, sitting as a Deputy Judge of the High Court in Gillman & Soame Limited (in administration) v Young [2007] EWHC 1245 (CH) at paragraph 82:-

"I should also say something about the burden of proof.  Where a person in a fiduciary position receives property of his principal the burden is on him to account:  United Pan-Europe Communications -v- Deutsche Bank (CA 19 May 2000) at para 34.  This principle  applies to company directors as it does to trustees:  Ultra Frame (UK) Limited -v- North Star Systems Limited and Others [2005] EWHC 1638 (CH) at para 1513.  It is, therefore, for GSL to prove that Mr Young received a particular payment from the company; but where it does so, it is for him to show that the payment was proper."

105.   In this case, the plaintiff denies being in breach of fiduciary duty, but even if he is found to be so liable, he relies upon Article 212 of the Law which is in these terms:-

"(1)     If in proceedings for negligence, default, breach of duty or breach of trust against an officer of a company or a person employed by a company as auditor it appears to the court that that officer or person is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that the person has acted honestly and that having regard to all the circumstances of the case (including those connected with his or her appointment) he or she ought fairly to be excused for the negligence, default, breach of duty or breach of trust, the court may relieve the person, either wholly or partly, from his or her liability on such terms as it thinks fit.

(2)       If an officer or person mentioned in paragraph (1) has reason to apprehend that a claim will or might be made against the person in respect of negligence, default, breach of duty or breach of trust, he or she may apply to the court for relief; and the court on the application has the same power to relieve the person as it would have had if proceedings against him or her for negligence, default, breach of duty or breach of trust had been brought."

106.   These provisions are modelled on Section 727 of the Companies Act 1985.  Sub-section 1 of that Section is in these terms:-

"(1)     If in any proceedings for negligence, default, breach of duty or breach of trust against an officer of a company or a person employed by a company as auditor (whether he is or is not an officer of the company) it appears to the court hearing the case that that officer or person is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he has 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 for the negligence, default, breach of duty or breach of trust, that court may relieve him, either wholly or partly, from his liability on such terms as it thinks fit."

107.   There are a few differences in language between Article 212(1) and Section 727(1) but the important difference for the purposes of this case seems to us to be the inclusion in the English statute of the words "and reasonably".  We have not had cited to us any Jersey case in which the Royal Court has had to consider this different language, and it seems to us that we have to resolve whether we ought to adopt the same approach as is taken in the courts of England and Wales, notwithstanding the omission of that language in the Jersey statute. 

108.   In Extrasure (supra) at paragraph 155, Jonathan Crow QC as Deputy High Court Judge said this:-

"The defendants rely on S727 of the Companies Act 1985.  They say that they acted honestly and reasonably and ought fairly to be excused.  In relation to the transfer of £200,000, I have not found that they acted dishonestly, in the sense that I have not found that they had any corrupt motive of personal gain, nor did they positively desire to do harm to Extrasure's interests.  Rather, I have found that there was an absence of any honest belief that the transfer was in Extrasure's interests.  Furthermore, given the circumstances of the transfer to Moneyguard, and in particular the knowledge of those involved in the new parent company, with which I deal below in relation to the second claim, I might well have taken the view that, in all the circumstances, the defendants ought fairly to be excused.  However, it follows from my findings in relation to issues (1) and (2) above, that I do not consider that they acted reasonably.  In the circumstances, I cannot excuse them pursuant to S727."

109.   Here then we have a circumstance where the addition of the word "reasonably" has resulted in the directors being unable to rely on Section 727 where otherwise they might have been able to do so.  The judge appears to have found that they did not act dishonestly, and also that in the circumstances, in the round, they might fairly claim to be excused - but he did not consider that they acted reasonably, and therefore did not excuse them. 

110.   In our judgment, we should distinguish between the approach required by Section 727 of the English Act, and that to be applied under Article 212 of the Law, even if there is in substance the probability that the reasonableness of a director's actions will form an important part of the judgment call as to whether he ought fairly to be excused.  Prima facie, the difference in the language used in Article 212 where the remainder and structure of the respective statutes are substantially the same, suggests that the legislature in Jersey must have intended to depart from the approach taken with S727 of the English Act.  Secondly, in our judgment the provisions of the English statute seem to imply that there is a requirement for an objective assessment of whether the director ought to have acted as he did - that is to say whether he acted reasonably.  Reasonableness itself imports some objectivity because it must be measured against the standards which ordinary rational people would apply to their decision making process.  By contrast, the Jersey statute does not make that a requirement for a director obtaining relief, and it seems to us that this confers upon us a wider element of discretion as to the application of the fairness test in relation to giving a director relief.  That may be relevant in the present case where an assessment of fairness would take into account the subjective pressure actually felt by the Plaintiff even if objectively at this distance one were not sure if it was reasonable to be affected by it. 

111.   Finally in relation to the law we turn to questions of honesty. 

112.   One condition of the Court's jurisdiction to grant relief under Article 212 of the Law, which is equally a condition for the purposes of Section 727 of the Companies Act 1985 2005 and Section 1157 of the Companies Act 2006 is that the officer of the company must have been acting honestly.  The use of this word crops up in different circumstances in company law both in Jersey and in England and Wales.  We note for example that in Extrasure (supra) when considering whether or not the director had complied with his duty to act in the company's best interests, a subjective test is applied - the director must do what he honestly believes to be in the company's best interests and the fact that his alleged belief was unreasonable may provide evidence that it was not in fact held honestly but, if it was, he will not have acted in breach of his fiduciary duty.  By contrast, where the Court is examining whether a claimant has established that the director was pursuing a collateral purpose which amounted to being an improper purpose, it is unnecessary to prove that the director was acting dishonestly, or that he knew he was acting in pursuance of a collateral purpose.  There the test is an objective one.  Where the court was considering whether or not to give relief under Section 727 (in that case of the 1985 Companies Act, although nothing turns on the differences in that respect) the director has the burden of showing that he has acted honestly, and the Court determined in Re A Flap Envelope Co Limited, Willmott and Another v Jenkin [2004] 1 BCLC 64 that the fact that the director chose not to give any oral evidence made it very difficult in the circumstances of that case for the Court to be satisfied that the director had acted honestly; although it has to be said that there had been an earlier judgment of the Court in related proceedings that the director's witness statement in support of the administration petition was "materially misleading". 

113.   In different circumstances, the Privy Council considered the question of dishonesty in Royal Brunei Airlines v Philip Tan Kok Ming [1995] 2 AC 378.  That case did not concern directly an application under Section 727 or its equivalent in Brunei, but it did concern the claim against a defendant in constructive trust where the basis of the claim was that the agents had knowingly assisted in a dishonest and fraudulent design on the part of the trustee.  As Lord Nicholls of Birkenhead put it, the issue on the appeal was whether the breach of trust which is a pre-requisite to accessory liability must itself be a dishonest and fraudulent breach of trust by the trustee. 

114.   At page 389, Lord Nicholls, delivering the judgment of the Privy Council, said this in relation to the question of what dishonesty meant in the context of the accessory liability principle:-

"... acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances.  This is an objective standard.  At first sight this may seem surprising.  Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence.  Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated.  Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent.  Carelessness is not dishonesty.  Thus for the most part dishonesty is to be equated with conscious impropriety.  However, the subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances.  The standard of what constitutes honest conduct is not subjective.  Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual.  If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour. 

In most situations there is little difficulty in identifying how an honest person would behave.  Honest people do not intentionally deceive others to their detriment.  Honest people do not knowingly take other's property.  Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries.  Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless."

115.   His Lordship then went on to consider the question of risk taking as an illustration of what he had been saying, and particular the question of where a trustee was or was not aware that a particular investment or application of trust property was outside his powers.  His Lordship continued at page 390C:-

"The difficulty here is that frequently the situation is neither clearly white nor clearly black.  The dividing edge between what is within the trustee's powers and what is not is often not clear cut.  Instead there is a gradually darkening spectrum which can be described with labels such as clearly authorised, probably authorised, possibly authorised, wholly unclear, probably unauthorised and, finally, clearly unauthorised. 

The difficulty here is that the differences are of degree rather than of kind.  So far as the trustee himself is concerned the legal analysis is straightforward.  Honesty or lack of honesty is not the test for his liability.  He is obliged to comply with the terms of the trust.  His liability is straight.  If he departs from the trust terms he is liable unless excused by a provision in the trust instrument or relieved by the Court.  The analysis of the position of the accessory, such as the solution who carries through the transaction for him, does not lead to such a simple, clear cut answer in every case.  He is required to act honestly; but what is required of an honest person in these circumstances?  An honest person knows there is doubt.  What does honesty require him to do? 

The only answer to these questions lies in keeping in mind that honesty is an objective standard.  The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances.  It is impossible to be more specific.  Knox J captured the flavour of this, in a case with a commercial setting, when he referred to a person who is "guilty of commercially unacceptable conduct in the particular context involved:"  see Cowan De Groot Properties Limited -v- Eagle Trust Plc [1992] 4 All ER 700, 761.  Acting in reckless disregard of others' rights or possible rights can be a tell-tale sign of dishonesty.  An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and the seriousness of the adverse consequences to the beneficiaries.  The circumstances will dictate which one or more of the possible courses should be taken by an honest person.  He might, for instance, flatly decline to become involved.  He might ask further questions.  He might seek advice, or insist on further advice being obtained.  He might advise the trustee of the risks but then proceed with his role in the transaction.  He might do many things.  Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct. 

Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time.  The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did."

116.   Although Royal Brunei is a case involving knowing assistance and not a case involving relief given to a director pursuant to Section 727, the comments on how one goes about assessing the question of honesty are in our judgment helpful and we have taken them into account in this case. 

Assessment of the security claims

117.   We start with the claim in contract.  The defendant companies contend that by virtue of clause 8.1 of the director's service agreement signed in March 2009, the agreed provision was as follows:-

"Occasions may arise when you consider that you need professional advice in furtherance of your duties as a director, and when you consider that you should seek such advice from independent advisers.  Any such advice (from the Fund's advisers or from any independent advisers) may be sought and obtained at the Fund's expense provided you have first obtained the prior approval of the Chairman of the Fund as to obtaining such advice and have provided to the Fund a written quotation for the provision of such advice.  The Fund will pay directly, or will reimburse to you as you elect, the full cost of all such advice."

118.   Although the defendant companies do not rely upon it, clause 4.3 of the same director's service agreement provides:-

"The Fund shall reimburse you any expenses directly and reasonably incurred by you in relation to your appointment as an independent director, provided that any receipts or invoices for such expenses are provided to the Fund."

119.   The defendant companies assert that the plaintiff was under an obligation to provide a written quotation to the board of the cost of the provision of this professional advice from Alp, and that he failed to do so.  Nonetheless he unilaterally approved payment of all the invoices in connection with the security costs and in doing so therefore acted in breach of contract. 

120.   There are two problems with the defendant's claim in contract.  The first is that the language which requires obtaining the prior approval of the chairman and providing AI and PI respectively with a written quotation for the provision of advice appeared for the first time in the March 2009 director's service agreement.  The comparable term in the director's service contracts of December 2008 and September 2008 excluded those provisions and merely contained language that "any such advice (from the Fund's advisers or from any independent advisers) may be sought and obtained at the Fund's expense.  The Fund will pay directly or will reimburse to you as you collect the full cost of such advice".  At the time that Alp was retained in December 2008, there was therefore no requirement as a matter of contract for the Plaintiff to provide the defendant companies with a written quotation for the provision of the advice. 

121.   It seems to us that it is necessary also to recall that until the EGM in April 2009, the plaintiff had acted as an executive chairman - indeed part of the defendant company's complaint is that he continued to act as an executive chairman after the EGM.  There is no doubt that he and other members of the middle boards were key men in the management of the business of the two defendant companies.  That was part of our conclusion in relation to the rationale for the exit payments provision for which was contained in the March 2009 director's service agreements.  We have also previously found as a fact that the middle boards were under improper shareholder pressure and that the plaintiff and Mr Pirrwitz were central to the board's resistance of that pressure, in the interests of the companies at large.  In the circumstances, we do not think that in principle the provision of appropriate security for the chairman of the two defendant companies should be classified as an expense which was unreasonably incurred, nor indeed as one which is not directly connected with the retention of his services as chairman.  As to whether it was reasonable to incur expenses of this quantum, we heard evidence from the plaintiff that he followed the advice of Alp in the form of either Mr Brero or his other associates, or of the St Gallen police.  The documentation which is provided in the Court files seems to support that assertion - in particular, for example, there is a proposal from Mr Didier Duperrut of Alp dated 12^th January, 2009, setting out a safety audit recommendation for the offices and residence of the plaintiff.  That includes the installation of fixed surveillance cameras around the property, which we heard was a suggestion unacceptable to the plaintiff and his wife such that other security solutions had to be found.  When Mr Pirrwitz was asked for his opinion about the quantum, he made a quick calculation in the witness box and concluded that the total cost of the security guards was not unexpected.  In the circumstances, we conclude that the expenses are capable of falling within clause 8.1 of the director's service agreement. 

122.   It appears to us that the second problem with this part of the claim is that it is necessary to construe the contract by looking at both clauses 8.1 and 4.3 of the director's service agreement.  Clause 8.1 contemplates that the director may have taken professional advice - as a director, presumably on behalf of the company, whether by contracting in his own name or on behalf of the company.  There is no provision that the director must act reasonably, but we consider that is to be implied by virtue of the other duties imposed on the director by the agreement.  Clause 8.1 is said to refer to professional advice in furtherance of the director's duties, but the security costs we think nonetheless fall within that description.  Under this clause therefore, until March 2009, the plaintiff was not in breach of contractual duty by committing the defendant companies to Alp and Diligence.  As to whether that would have changed when the new director's service contract was executed in March 2009 is moot because no new contract with Alp or Diligence was made after that date.  The existing contract, which had been entered on behalf of the companies continued.  If we are wrong in finding that the incurring of security costs with Alp was not a "professional" cost within the meaning of clause 8.1, then we think it was an expense that could have been incurred and recovered pursuant to clause 4.3 and therefore would not amount to a breach of contract by the plaintiff. 

123.   However, the plaintiff executed on behalf of the defendant companies an addendum contract with Alp and Diligence on 24^th March, 2009.  This addendum did not concern the personal security of the plaintiff or his family which were the subject of the contract in December 2008.  The addendum related to other investigative work which Alp and Diligence carried out after March 2009.  It appears this involved in particular an investigation of Pan Amp and Mr Weingarten.  The addendum contract should have been brought before the boards.  It was not approved by anyone other than the plaintiff and did not include any written quotation.  To the extent the defendant companies have paid invoices in respect of services provided under the addendum contract, we think the plaintiff was in breach of his contractual duty under clause 8.1 of the March director's service agreement. 

124.   For all these reasons, we consider that the defendant companies' claims in contract substantially fail.  To the extent they do not do so as set out in paragraph 123 above, but are established, we consider later whether the plaintiff should be relieved of liability. 

125.   That leaves over the plaintiff's claim for reimbursement of security expenses which were incurred with Alp and Diligence and which he paid personally.  We were not addressed on the quantum of these separately and we expect the parties can agree on a figure.  To the extent that agreement cannot be reached there is liberty to apply.  The principle is that the plaintiff is entitled to such reimbursement to the extent that he paid personally for security costs incurred prior to 2^nd February, 2009.  As indicated in paragraph 122 above, we think these expenses fall to be paid pursuant to clause 8.1 of the Director's Service Agreement in December 2008 when Alp and Diligence were retained.  If not due under that clause, they are due under clause 4.3 of the same Agreement.  We consider that on the basis of the information available to the plaintiff and the defendants at that time, the expenses were directly and reasonably incurred in relation to the plaintiff's appointment as an independent director.  We do not think however the plaintiff's claim succeeds to the extent he paid personally for security costs incurred after 2^nd February, 2009.  By that date he knew those costs were not incurred by Elliott but by the defendant companies.  For the reasons set out in paragraphs 131 and 132 below, we think the plaintiff was in breach of fiduciary duty in relation to the security expenses between 2^nd February, 2009, and 14^th May, 2009, and he cannot successfully claim in contract to the extent he paid such expenses.  It is one thing to relieve him of liability for breach of duty under Article 212 but it is a step too far to accept his claim for reimbursement despite that breach of duty. 

The claim in breach of statutory duty and/or fiduciary duty

126.   The defendant companies make an alternative claim that the plaintiff incurred the security expenses in breach of his duties to the companies under Article 74 of the Law, because it is asserted he did not act honestly and in good faith with a view to the best interests of the company, and that he did not exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.  As a collateral argument, it is submitted by the defendant companies that no director acting in accordance with his fiduciary duties has the right to use company money for personal expenses without at least first obtaining the informed approval of the board. 

127.   Once again, we think it is necessary to distinguish different time periods in relation to this claim.  We take first the period from 13^th December, 2008, to 2^nd February  2009.  The contract which was executed by Mr Brero on behalf of Alp and Diligence and by the plaintiff on behalf of AI and PI, opens with this preamble:-

"MIP/PI [MAI/AI] with the agreement of Mr Bill Goodall, security representative from Elliott Advisers UK, deems it necessary to strengthen the security of the personal and professional premises located respectively at Lienerstrasse 13-9010 St Gallen, Kirchlistrasse 29-9010 St Gallen and Fohlenweide - 8570 Weinfelden, as well as that of its CEO Mr Wolfgang Vilsmeier, chairman of the Board and more specifically his daughter Isabella Vilsmeier.  Lacking the necessary resources to ensure their own safety, the following has been agreed..."

128.   In his evidence the plaintiff informed us that he considered the obligation in the early stages was that of Elliott.  Although it is clear the contract was made by AI and PI, the preamble does give some support to the plaintiff's view that Elliott was closely involved in the retention of the security firms, and indeed it is obvious also from the evidence of Mr Brero that that was so.  We accept the evidence of the plaintiff that notwithstanding the contract that was actually executed, he considered that the obligation was that of Elliott.  We prefer his account of his conversations with Mr Adametz and Mr Goodall to theirs, and indeed we consider it to be more consistent with the documentary evidence that we have seen.  Furthermore we think that the plaintiff's longstanding family friendship with the Roehrig family increases the probability that the plaintiff was of the view that Mr Roehrig had promised to cover the expenses on behalf of Elliott.  It is probable that everything was done in something of a hurry - according to the plaintiff, Kazak killers were on their way to St Gallen, and furthermore there had been attempts made on the safety of his daughter already. 

129.   The legal test is whether the plaintiff at this time acted in breach of his duty of good faith to AI and PI, and in our view it is clear that he did not.  We have to assess that question according to what he honestly believed at the time, and we are satisfied that he considered that Elliott would pick up the cost of the expenses.  It follows that he is not in breach of fiduciary duty for the period up to 2^nd February, 2009.  We note that no claim is made by AI and PI in respect of this period in any event.  We also have noted that Kroll Associates tendered a price to the plaintiff on 7^th December, 2008, for necessary security arrangements.  This fits with his evidence that Kroll sent someone out to his premises immediately following his conversation with Klaus Roehrig and Mr Adametz, and it is also consistent with the subsequent instruction to Mr Brero on the basis that his company could provide similar services less expensively.  Furthermore it is particularly noteworthy that as at 7^th December, 2008, the real pressure in relation to the Pecik deal had not come to a climax.  At this point in time, the plaintiff was clearly aware that Elliott had shorted the TAV stock to the detriment of the Fund, but he was not at least fully aware of the pressure which was building in relation to the Pecik deal where ultimately he suspected that Elliott had made an agreement with Meinl with a view to achieving an early realisation of their holding in the two defendant companies.  This knowledge appears to have come to him following the lawyers' meeting of 15^th December, 2008, which we now mention. 

130.   We heard from Mrs Andrea Gritsch, who was an associate, a senior associate, and then since January 2013 a partner in the Austrian legal firm of Wolf Theiss.  That firm was instructed on a number of matters by the board of the two defendant companies.  She gave evidence about a meeting which took place at very short notice on 15^th December, 2008, concerning what has been described as the Pecik deal.  This meeting was a lawyers' meeting, apparently convened by Mr Adametz, and she found the meeting to be confusing - she and her then employer, Mr Richard Wolf, had a hard time ascertaining which lawyers were acting for which parties.  As far as Wolf Theiss were concerned, she thought they were attending the meeting to listen to what was being proposed.  When they heard that the proposals included the proposition that the defendant companies should pay money to Meinl Bank, she and Mr Wolf thought that was ridiculous.  There was no basis for such a payment.  Two days later, the Meinl entities offered a standstill agreement to the defendant companies to enable the Pecik negotiations to be finalised but the middle boards, especially the plaintiff and Mr Pirrwitz refused to agree. 

131.   However the position changed as at 2^nd February, 2009.  On that day Alp sent its first invoice to the plaintiff for the period 13^th December, 2008, to 31^st January, 2009.  If the plaintiff had previously considered that Elliott were picking up the security expenses, it must have been clear to him then or immediately thereafter that this was not the case.  It must at that point equally have been clear to him then if not before that the contracts had been made with Alp and Diligence on behalf of AI and PI respectively.  It should have been clear to him at that point that there was a potential for conflict based upon his personal benefit which he would obtain from these contracts.  Accordingly he was under a fiduciary duty to ensure that the existence of these contracts was brought to the boards and that he obtained board approval for the liabilities which had been and were being incurred.  The burden lies on him to prove that the boards gave that approval, failing which it appears to us to be clear that he is prima facie liable, subject to Article 212, for a breach of fiduciary duty in this respect.  To this criticism the plaintiff makes in reality two assertions.  The first is that the boards were well aware of the security threats.  He had briefed the boards at the Longueville Manor board meeting in December 2008, and members of the boards were able to see for themselves the security arrangements that were in place for the St Gallen meeting in February 2009.  Indeed Mr Baird in the hearing before us on the Group 1 issues acknowledged that he was well aware of the security threats.  Mr Pirrwitz told us in the present proceedings that he too was aware that an armoured car has been obtained and that security staff had been employed.  Given the way in which the middle boards operated, we do not doubt that the individual board members were aware that there had been security threats against the chairman and his family, and we also do not think there is any doubt that if the matter had been formally tabled at a board meeting, the contracts would have been approved.  That, however, is not a sufficient answer.  Knowledge of the generality of the security threats, and even of the retention of the two security firms was not enough unless board members were aware of the extent of the obligations which were being incurred by the company and which were capable of being construed as conferring a benefit on the chairman.  In our view, the plaintiff had a duty to put before the board the detailed arrangements which were being made with the security firms, from which he and his family benefitted, and it is no answer in those circumstances to rely upon the generality of what board members probably knew.  

132.   The second defence which the plaintiff puts up in that respect is that he was concerned that there was a Meinl spy or informant either on the board or with access to the board meetings, and that accordingly it was unsafe to draw to the attention of the board details of the security which he had arranged, at the expense of the companies.  We do accept that there was undoubtedly considerable alarm both in February 2009 and continuing until much later in the year, about the possibility of a Meinl insider on the board or having access to board discussions.  In our judgment, the fact of that defence shows that the plaintiff knew he should have obtained formal board approval because it appears to indicate he gave the thought to the matter.  But we also do not think it is a sufficient defence to override the plaintiff's fiduciary duties to the boards of the companies, and he should have been able to find some reporting methodology which both retained the key elements of the security which had been put in place and at the same time informed the board adequately of the financial obligations which he had incurred.  In those circumstances, we find that the plaintiff acted in breach of his fiduciary duty to AI and PI in relation to the security expenses for the middle period from 2^nd February, 2009, until 14^th May, 2009, when details of the security obligations and expenses came to be known to the executive management team.  The relationship between the executive management team and Mr Shinehouse is such that in our view the knowledge of the executive management team can be attributed to Mr Shinehouse and indeed it is clear from the evidence that we have seen and read that if Mr Shinehouse was not aware on 14^th May of the sums which were being paid, he became aware very shortly thereafter.  Furthermore we are satisfied that he was generally aware of the security threats against the plaintiff prior to that date.  If board members were generally aware in February and March, we think that that knowledge would also have been available to Mr Shinehouse, and indeed, we accept the plaintiff briefed board members including Mr Shinehouse at a dinner in February 2009. 

133.   Security expenses continued to be incurred during the third period from May 2009 until 31^st August, 2009, when they were wound down by agreement with the plaintiff and Alp.  It is common ground that the boards of the defendant companies discussed the matter at length at the meetings in June, and individual board members were party to email exchanges from May onwards in relation to the same subject matter.  The boards resolved that the expenses should continue to be paid while the matter was further investigated.  In our view, the plaintiff can no longer be treated as being in breach of fiduciary duty at that stage.  The boards had sufficient information to make a decision as to whether or not the payments were to be made in the future, and they resolved to continue them.  We make no criticism of the boards in that respect.  If in fact there had been anything in the security threats in June or July 2009, as a result of which injury had been suffered by the plaintiff or his family, and the security had been removed by the boards shortly before such occurrence, members of the board would have felt both personally guilty at their decision, and in addition would have been reputationally embarrassed.  We entirely understand that position, but we do not think it makes any difference to the hard fact that the boards authorised the continued employment of the security services.  On that ground, the defendant companies' claims against the plaintiff for reimbursement of the security expenses for the period from 14^th May, 2009, until 31^st August, 2009, are rejected.  This would apply to claims both in contract and in breach of fiduciary duty. 

134.   We turn next to the question as to whether the plaintiff should have relief under Article 212 of the Law in respect of the security expenses for the period from 2^nd February, 2009, until 14^th May, 2009.  For that question we have to consider whether the plaintiff acted honestly, and whether, in all the circumstances of the case, he should be fairly excused. 

135.   The defendant companies contend that the plaintiff cannot establish there ever were any threats against him or his family, and that he did not act honestly in relation to this issue.  They assert that his account of the security threats has changed from time to time and in particular that the account given now is not the same as the account which he gave to the board of directors on 1^st September, 2009.  It is asserted that the Court ought to accept the evidence of Mr Adametz and Mr Goodall as to the conversations in December; that the fact that the plaintiff and his family went on holiday to Brazil at the end of 2008 and in early 2009 without any bodyguards showed that he did not consider there were any real threats at the time; that he walked around the University of St Gallen and went on a 30 minute walk to the restaurant at the board meeting on 2^nd February, without a bodyguard and indeed generally that there was no extrinsic evidence supporting the existence of these threats.  It is said that although Mr Weingarten of Pan Amp gave various reports to the plaintiff in relation to the existence of security threats during 2009, the fact that the plaintiff asked Alp Services to investigate Pan Amp shows that the plaintiff himself had some concerns about Pan Amp's bona fides. 

136.   These are the substantial complaints and assertions advanced by the defendant companies although we do not pretend they are the only complaints.  We have considered all the evidence and in our judgment, the plaintiff did act honestly having regard to all the circumstances.  We rely for that conclusion on the following points:-

(i)        First and foremost, the plaintiff impressed us in the witness box both on the Group 1 issues and in this case as being a person who gave honest evidence.  He was not always an easy witness, in the sense that his answers to questions were often long and complex, but we did not doubt the sincerity with which he responded. 

(ii)       We cannot see any reason why the plaintiff would invent the threats which had been made against him or the incidents which had affected his family.  The result of these threats was clearly severe disruption to his family - to his wife, to his 12 year old daughter, and to his two sons.  It is unreasonable to think that these threats would have been invented by the plaintiff.  And for what?  In order to have security guards affecting the privacy of his family and business arrangements for a nine month period?  In order to have available to him a heavy and, by contrast with his usual rather faster vehicle, an unattractive motorcar in which to travel?  In order to have effected structural changes to his home which neither he nor his wife regarded as improvements?  It makes no sense to us to suggest that any person would invent threats of this kind, and even if they did, would continue to advance those threats and maintain the inconvenience of the security arrangements for months on end.  If the plaintiff and his wife did not invent the threats, it follows that someone else did, whether they were actual threats or not. 

(iii)      Mr Brero's evidence before us - which in this respect was consistent with what he told Mr Cohen in 2009 - was that of course he treated the existence of the threats seriously.  We understand that it was his job to do so; but the fact that he did so also carries the implication that the threats were not objectively foolish.  Whether Mr Brero believed the threats were real or not, he must have accepted at the time that they were real to the Plaintiff, and that there might be something in them. 

(iv)      It is also clear that Mr Weingarten, whose relationship with the plaintiff will come to be discussed later in this judgment, gave information to the plaintiff that there were continuing threats from the Meinl Group.  That it seemed possible that the Meinl Group would carry out threats of this kind was in our judgment real to the plaintiff.  His personal relationship with Mr Julius Meinl was not good.  The sums of money at stake between the Meinl Group and the defendant companies were very significant indeed.  The plaintiff was regarded by the hedge fund investors as key in the resistance to the Pecik deal and to settlement of the Meinl litigation.  We emphasise that we make no finding as to whether the threats were or were not made.  What we are judging is the fairness of the reaction of the plaintiff as chairman of the two defendant companies in all the circumstances, fraught as they were, during the period from February until May 2009 in order to decide if he should be relieved of liability for his breach of duty during the part of that period. 

137.   Having regard to all the circumstances which we have found applied, we consider that it is fair to relieve the plaintiff of any liability to the defendant companies in respect of the security expenses between February and May 2009.  In the event that we have reached a wrong conclusion in relation to the contractual or fiduciary liability for the expenses between December 2008 and 2^nd February, 2009, or between May and August 2009, such that the plaintiff should be treated as being in breach of duty during either of those periods as well, we would have exercised our discretion in his favour in respect of those periods too and for the same reasons.  In reaching our conclusions in relation to Article 212 of the Law, we have also taken into account our conclusions in relation to the third issue which we have had to resolve in the current litigation, namely the defendant companies' claims against the plaintiff in respect of Pan Amp, a matter to which we now turn. 

The Pan Amp claims

138.   Pan Amp is based in Hamburg, Germany, and was initially engaged by Mr Dohr on behalf of AI on 14^th November, 2008.  The plaintiff signed a contract as Chairman of the board on 15^th November, engaging Pan Amp for the provision of technical services relating to the company's email server.  Pan Amp was also retained by PI.  The middle board had an arrangement whereby expenses paid to service providers were listed in the boardroom packs circulated prior to board meetings, and monies paid to Pan Amp duly appeared in the boardroom packs for the middle boards during February and March at least, and probably in the earlier months following that company's engagement.  There is no doubt that the middle boards were aware that Pan Amp had been engaged. 

139.   The reasons for the engagement of Pan Amp by the board of PI in November 2008 were that there was perceived to be a risk that the company's former directors, all of whom were Meinl appointees, might have been engaged in the deletion of email records, having regard to the prospective and/or actual litigation between the Funds and former Meinl entities responsible for the management of the Funds.  It was necessary therefore to secure and preserve the relevant email records of those formerly engaged in the management of PI, in relation to their discharge of functions.  Mr Vilsmeier's evidence was that Mr Dohr showed the board members a brochure in relation to Pan Amp which seemed impressive.  It included press coverage which was positive, and, according to the brochure, Pan Amp had developed what it described as "robot technology" which enabled it to undertake what the company described as "deep internet" research effectively by intercepting email exhanges in the satellite ether en route from one web server to another.  Pan Amp advertised that its clients included various German government agencies and it claimed to be hired by insurance companies in suspected fraud cases.  In other words, when Mr Dohr presented the company to the board for engagement, Pan Amp gave every appearance of being a respectable established and able company.  It appears that Mr Dohr procured that there should be communication between Mr Weingarten and Messrs Wolf Theiss, the defendants' Austrian lawyers, to ensure that there was no legal objection to the work which Pan Amp were undertaking, and an email from Mr Weingarten to Mr Dohr dated 12^th November, 2008, confirms that there was no such objection.  On 14^th November, Wolf Theiss confirmed that Pan Amp was instructed to proceed with the backing up of the email server. 

140.   Shortly before this, the Rebellen website had been established.  It was asserted to be a legitimate blogging site, but the plaintiff's evidence was that it was in reality the creature of Julius Meinl, the Chairman of Meinl Bank, and it was used, so the plaintiff says, as a vehicle for spreading misinformation, defamatory statements and malicious gossip aimed at discrediting the boards of AI and PI.  It was apparently established in August 2008, shortly after the middle board had been appointed to the first defendant. 

141.   The Rebellen website was perceived by the plaintiff to be more than personally upsetting, and to be capable of causing significant damage to him personally and to the defendant companies.  The discussion forums made damaging and unfounded allegations against the plaintiff and Mr Dohr, and sought to portray the boards in a highly unfavourable light.  The plaintiff's perception was that the allegations had a seriously adverse impact upon his and his companies' relations with third parties and in particular banks.  He gave evidence that in the consequence of allegations contained on the Rebellen website that he had laid off numerous members of staff at one of his factories, one of his companies was required to accelerate repayment of a bank loan; and the manager of his leading bank, Hausbank UBS regularly asked him what was going on in relation to the website and was clearly concerned about it. 

142.   The plaintiff said that the Austrian current affairs magazine Profil had obtained a copy of a document referred to as the "Meinl strategy paper" and indeed this was reported in an article in Profil which appeared in September 2009.  This described how the internal strategy of Meinl Bank since 2008 included an "unembellished and rather carelessly written guidebook on systematically discrediting the bank's opponents... the measures include putting together a "list of transgressions" and "concise files", the spreading of selective information on the internet, providing journalists with "exclusive stories", but above all filing "lawsuits" and "anonymously pressing charges" against selected Meinl opponents. 

143.   Pan Amp were retained by the plaintiff to obtain information in relation to the Rebellen website.  This was referred to in an email from Mr Weingarten dated 17^th December, 2008, and sent to Mr Dohr.  Reports from Pan Amp were then provided to the plaintiff and/or Mr Dohr until March 2009; the February report was also copied to Wolf Theiss.  In addition a report was sent on 12^th June, 2009, to Mr Shinehouse and copied to Dr Wolf. 

144.   There is no doubt that Mr Dohr and the plaintiff were the directors of the middle boards most concerned with the Rebellen website.  They were concerned not only with personal damage to their reputations, and thus to the reputations of the defendant companies, but also by the assessment made by Mr Weingarten that the Rebellen website was being used, and might be effective, in seeking to manipulate the share prices of the defendant companies.  By an email dated 16^th January, 2009, Mr Weingarten suggested that:-

"In our estimation a legal route to shutting down of www.meinl-airports-rebellen.com would take too long. 

The players appear to us to be well set up legally. 

It's now time to give preference to another way by a foreign assignment.  The domain meinl.airports.rebellen.com in the meantime has become too well known and the contents are so unpleasant that this can be implemented by us with priority.  A budget is required for this, as at the beginning of the activity we already have to pay special costs..."

145.   Different other measures were considered.  Offers were made to purchase the domain name - the fact that an offer in the sum of €300,000 was made and refused shows the significance that both the owners and the plaintiff attached to the particular website.  Another strategy was the employment of students to enter into lengthy dialogues with those running the website through the discussion forums and blogs, thereby creating a significant workload for the individuals employed behind the website who might not be able to cope with the administrative demands placed upon them by all the enquiries. 

146.   The defendants rely on the email of 16^th January as containing, they say, a direct implication that legal means to defend Mr Dohr and the plaintiff against the website were not enough, and illegal means should be adopted.  The first difficulty is that the email of 16^th January, 2009, came from a person who did not give evidence as to what it meant; but even if it was intended by him to mean what the defendants say, we do not think it was necessarily to be construed that way, or was so construed by the plaintiff.  It could have been taken to mean action that was not illegal but did not involve litigation in the courts.  The defendants contend that in fact illegal means were thereafter adopted, and we have received some expert IT evidence analysing what was done.  That evidence is given by Dr Nicholas Sharples, who was retained by the plaintiff, and Mr Anthony Dearsley, who was retained by AI and PI.  The difficulty for both experts was that most of the forensic digital evidence was unavailable to them.  They did not have access to the Pan Amp computer system.  They did not have access to the Rebellen website webserver.  Both experts accept that it is very difficult to give reliable expert opinion as to what actual activities might have been undertaken, and this problem was exacerbated by some quite impenetrable language which Pan Amp adopted in its reports.  What they have tried to achieve is an analysis based on what Pan Amp said and what information might have been available from the web servers.  According to Mr Dearsley, the server is effectively split into two parts - the front area which are those pages viewable across the internet publicly, and the administrative or "back end" which in most webservers if correctly configured would be password protected and only accessible by authorised users.  Mr Dearsley's assertion was that having examined the web log print outs produced by Mr Weingarten, they are standard format web logs which are contiguous and could only have been obtained by copying the files from the back end of the web server. 

147.   Pan Amp claimed that the server log files were the results of internet intercepts by its robot technology, but Mr Dearsley's view was that Mr Weingarten must have hacked into the Rebellen webserver and obtained administrator privileges in order to access the log files directly.  By contrast, Dr Sharples concluded that there was no forensic evidence which would permit the Court to conclude that Pan Amp had hacked into the website and/or secondly that Pan Amp was engaged in the interception of emails. 

148.   Fortunately the experts had a meeting on 21^st May, 2014, and came up with a joint report which identified their points of agreement and disagreement.  We think that for the  purposes of this judgment it is probably enough to note:-

(i)        There is good evidence that the log file attached to the anonymous letter (to which we will shortly turn) shows genuine traffic to the Rebellen website. 

(ii)       The embedded text, when part of an email message might or might not have been obtained by hacking in to the Meinl email server. 

(iii)      The description which Mr Weingarten gave to what he did seems unlikely to be true. 

149.   We also received evidence on German law, on the basis that some of Mr Weingarten's activities may have taken place in Germany.  That evidence is to this effect:-

(i)        It is illegal to intercept non-publically broadcast or transmitted communications. 

(ii)       The criminal code requires knowledge of something close to recklessness - in other words the defendant seriously considers it possible that the offence will be committed and accepts that risk when authorising what is done. 

(iii)      Self-defence is a defence. 

(iv)      The offences in this case, if any, would appear to be time barred. 

(v)       There are circumstances in which Pan Amp's activities might have been lawful.   Clearly those activities might have been unlawful and indeed probably were. 

150.   We also received some Austrian expert evidence.  This was not easy to follow, but it seems to be in similar terms.  There would appear to be jurisdictional issues where the offence was not committed in Austria.  Self-defence and a justifying act of necessity are potential defences. 

151.   The technical issues of what Pan Amp did, whether it was illegal and whether that was known to the Plaintiff are relevant in three respects:-

(i)        If Pan Amp engaged in illegal activities to the knowledge of the plaintiff, are the defendant companies able to hold the plaintiff liable to account for monies due to Pan Amp in respect of such activities?

(ii)       If Pan Amp engaged in such illegal activities, were the defendant companies liable to pay?

(iii)      If Pan Amp engaged in such illegal activities and the defendant companies paid the Pan Amp invoices and later settled their claims for recovery of those sums without any recompense, have they adequately mitigated their loss?

We now consider the first of these questions against an assumption that Pan Amp were acting illegally. 

The knowledge of the Plaintiff

152.   We turn first to the anonymous letter, which is relevant to the issue of whether the plaintiff knew Pan Amp was engaging in illegal activities.  The plaintiff's evidence was that in late January or early February 2009 he received an anonymous letter at his office in St Gallen relating to the Rebellen website.  It took the form of a confession of guilt by a person who was apparently connected to the individuals and entities responsible for that website and it explained its operation.  There were enclosures with the letter which were highly technical.  The plaintiff informed us that on receipt he contacted Wolf Theiss and Mr Weingarten in order to obtain advice as to how to proceed.  Shortly thereafter, on or about 12^th February, 2009, he took the parcel containing the anonymous letter and its enclosures to Messrs Wolf Theiss at their offices in Vienna.  As a consequence of receipt of this information, Pan Amp was instructed to conduct a good deal of further work on behalf of the companies.  The reason the anonymous letter is important is that it is said by the defendant companies that the creation of the anonymous letter arose out of a conspiracy by Mr Weingarten and the plaintiff to legitimate the concerns about the Rebellen website and a need for Pan Amp to carry out further investigative work (which it turned out was also illegal).  

153.   The plaintiff absolutely denied having conspired with Mr Weingarten to this effect.  The evidence on which the defendant companies relied amounted to this:-

(i)        Mrs Gritsch gave evidence that the plaintiff delivered the anonymous letter and various documents including the administration log files of the Rebellen website for the period 2^nd December, 2008, to 24^th January, 2009, in an unmarked white envelope to her colleague a Mr Alexander Schnider on 12^th February, 2009.  The statement that it was delivered in an unmarked white envelope is denied by the plaintiff, who says that he delivered the anonymous letter and its enclosures in the envelope in which it had been received by post at his offices.  The route and explanation by which the anonymous letter arrived in the hands of Wolf Theiss is important therefore because it goes to the credibility of the plaintiff and also because it goes to the question of how Mr Weingarten might have got information which he subsequently was able to investigate and examine.  The defendant companies' case was that the confession had been created between Mr Vilsmeier and Mr Weingarten because they did not know how otherwise to present the data which Mr Weingarten had obtained through his illegal use of robot technology. 

(ii)       Alleged admissions to this effect by Mr Weingarten on 5^th June, 2009. 

(iii)      An alleged admission to this effect by the plaintiff on 22^nd July, 2009. 

154.   Given that this matter was known to be directly in issue, it is surprising that Mrs Gritsch's witness statement does not disclose that she was not personally present at the meeting on 12^th February, 2009.  When therefore she says that the documents were handed over in a white unmarked envelope, that evidence depends upon the statements made to her by Mr Schnider, who has not been tendered before us as a witness, and whose account cannot therefore be challenged.  If this was intrinsically unsatisfactory, the problems were compounded when the original file was produced for our examination, because it is quite clear from looking at the documents apparently delivered with the anonymous letter that the entire package simply would not fit into the white envelope which was asserted to be the envelope in which the documents were delivered.  Mrs Gritsch has no explanation for this, but she said she was sure that Mr Schnider had not lost the original envelope.  It was obvious to the Court, as indeed it was to Mrs Gritsch, that the whole package would not fit into the white envelope which was with the file, and in those circumstances either the envelope was not the one in which that package was delivered, or the package was delivered in more than one envelope, in which case the second envelope was missing from the original bundle.  The Court is therefore left with hearsay evidence which was denied by the plaintiff, has not been tested, and, worse, with which there are some obvious difficulties. 

155.   According to Mr Richard Wolf and to Mr Shinehouse, a meeting took place between them and Mr Weingarten on 5^th June, 2009, in London.  At that meeting, Mr Weingarten allegedly told Messrs Wolf and Shinehouse that the anonymous letter had been created by him with the plaintiff because they did not know how otherwise to present the data obtained by Mr Weingarten through the use of his robot technology.  Mr Weingarten did not give evidence before us.  The plaintiff has not therefore had the opportunity of cross-examining him as to the truthfulness of that which he is alleged to have said.  In those circumstances, we find it difficult to place much credibility on Mr Weingarten's statement.  If he made it, he may well have done so because he was seeking to defend himself, in circumstances in which he still had at that time claims for unpaid fees, against any suggestion that he had behaved wrongly in undertaking work on behalf of the defendant companies.  He may have been seeking to ingratiate himself with Mr Shinehouse with a view to continuing to obtain instructions to act on behalf of the defendant companies.  These and no doubt other motivations might have been explored in cross-examination, had he given evidence.  He was, however, not called. 

156.   As to whether Mr Weingarten did in fact make this statement to Mr Shinehouse and Mr Wolf, we note that both Mr Wolf and Mr Shinehouse said that this was what Mr Weingarten had admitted.  We have to say that we find that evidence to be surprising.  We have a copy of the meeting notes of Mr Wolf in respect of that meeting.  They are very brief and consist of a number of bullet points.  In relation to the anonymous letter the entry is simply this:-

"The anonymous voluntary declaration came from Pan Amp in order to make the data "official".  All content is supported by data."

157.   One might think it surprising that Mr Wolf did not note, if it had been said, that the Chairman of the defendant companies was asserted to have connived in this process, particularly given that it had been the Chairman himself who had delivered the documents to Wolf Theiss offices in Vienna and given the relationship between Wolf Theiss and Mr Weingarten, to which we will refer later. 

158.   We have not been shown any meeting notes taken by Mr Shinehouse, if indeed they ever existed.  What is surprising is that if Mr Weingarten said what it is now asserted he did, there is nothing in any of the email traffic following this alleged omission to refer to it.  The plaintiff was not challenged with that contention.  There was no reference to other board members, especially those close to Mr Shinehouse such as Mr McKillop, or to Mr Pike, that the admission had been made; there was no concern about the Pan Amp methods expressed even though at the next board meeting some 10 days later, there was considerable debate about the Pan Amp reports in relation to user 4, a topic again to which we will come later in this judgment.  It may not be essential to reach a view as to whether Mr Weingarten did or did not make the assertion that Pan Amp constructed the anonymous letter in conjunction with the plaintiff because even if he did we cannot be sure that that assertion was true, but at the very least we have considerable doubt as to whether the admissions alleged to have been made by Mr Weingarten were in fact made at that meeting. 

159.   Mrs Gritsch told us that at some point after the Wolf/Shinehouse/Weingarten meeting on 5^th June, 2009, Mr Wolf told her of the assertion which Mr Weingarten had made implicating the plaintiff.  This had come as a surprise to her because Mr Weingarten had repeatedly confirmed that his methods would be absolutely clean and "usable in court".  In her evidence she said that until March 2009 at least, she had no reason to think that Mr Weingarten was acting illegally in the work he was doing for the companies.  As far as she was aware, none of her colleagues thought that he was either.  Indeed they needed to be sure that the work which he was doing would result in a product which was fit for use in Court.  In about May 2009 she saw some draft contracts to be entered into between Pan Amp and the two defendant companies.  She said she was surprised at their contents, which provided for some very expensive two week billing, and there was no real definition of the jobs which Pan Amp was asked to undertake.  Accordingly she advised the boards not to sign these contracts.  Her suspicions about Pan Amp, having started at about that time, grew when she saw the emails referred to in her witness statement which allegedly consisted of email correspondence between executives of Meinl Bank, which Pan Amp's robot technology was said to have retrieved in the ether of the internet.  She thought the language of these emails was unusual and unsatisfactory and although they were expressed in code, the code was too obviously comprehensible to have been used by those party to the emails.  By July therefore, she had some serious reservations about the work which Pan Amp was doing and the suspicion arose that Mr Weingarten might have fabricated the communications in question.  

160.   That is the background against which Mrs Gritsch was instructed by Mr Shinehouse to take a witness statement from the plaintiff, which took place on 9^th July at the offices of Wolf Theiss in Vienna.  In her evidence in chief, she said that she brought that interview to a close because she was concerned that the plaintiff might be incriminating himself.  We found this explanation difficult to accept.  If she had known about the alleged Weingarten admission on 5^th June, as she said she did, she must have known before the interview started that this was likely to be a possibility, and in the circumstances we consider that the draft witness statement which was produced, which is more about resisting the claims of Mr Dohr than anything else, is more likely to be an accurate reflection of that as the purpose of that meeting.  So we are hesitant about accepting her evidence that she knew in advance of the meeting that its purpose was to tackle several issues of which the Dohr claim was only one. 

161.   We have the suspicion that Mrs Gritsch might have been able to tell us more than she did, but subject to that reservation her evidence was given honestly.  However it suffered from being imprecise on points of detail, which is perhaps unsurprising in that the events in question took place some five years ago; and we thought that her evidence was influenced by the subconscious need to advance her client's case, and we therefore found it to be less reliable than we would have liked. 

162.   A further meeting took place with Mr Weingarten on 22^nd July, attended by Mr Shinehouse, Mr Wolf and Mr Pike.  According to Mr Shinehouse, Mr Weingarten repeated that he and the plaintiff had agreed to the preparation of the anonymous letter regarding the Rebellen website; Mr Weingarten also admitted that the intercepted email communications could not be used in Court, because they could not be traceable to the source and it was illegal to use the information because it is permissible to read those emails but they might not be used for one's benefit.  Mr Weingarten was said to have been unwilling to act as a witness. 

163.   Mr Wolf gave evidence of this meeting as well.  It covered a number of topics.  He also exhibited his notes of the meeting.  Insofar as concerns the anonymous letter, the notes read as follows:-

"Anonymous letter:  Robots moved into the back-end of the system and saved the log files over months.  It was a lot of work over months, then Pan Amp mirrored the system.  Then BW [Mr Weingarten] went back to Dohr and WV [the Plaintiff] with a first report.  Thereafter HPD [Mr Dohr] was very negative.  Then it was decided to create the letter in Switzerland.  The letter was written by Pan Amp."

164.   Accordingly, although Mr Wolf's evidence was that Mr Weingarten repeated the admission that the anonymous letter had been fabricated by him and the plaintiff, his notes do not bear that out insofar as the plaintiff's participation was concerned. 

165.   Mr Pike described how he first met Mr Weingarten at the offices of Wolf Theiss on 10^th June, 2009, when Mr Weingarten showed portions of emails between Mr Meinl and one of his colleagues a Mr Weinzierl.  Mr Weingarten explained a few technical details which Mr Pike said he did not understand very well.  Mr Pike's evidence in chief was that after that meeting he discussed with Mr Shinehouse his scepticism about the authenticity of Mr Weingarten's statements, which was apparently shared.  Mr Pike next met Mr Weingarten at the meeting with Mr Shinehouse and Mr Wolf on 22^nd July at Zurich airport.  Mr Pike supports the evidence of Mr Shinehouse and Mr Wolf that Weingarten said again that the plaintiff had agreed with him about the preparation of the anonymous letter.  By contrast with Mr Wolf, the handwritten notes of Mr Pike do contain a reference in relation to the anonymous letter that Mr Weingarten had agreed with the plaintiff "re prep of anon. letter". 

166.   We accept that on the balance of probabilities Mr Weingarten did make the statements attributed to him at the meeting in July.  Whether they were true or not however is a different issue. 

167.   The final piece of evidence on which the defendant companies rely for the purposes of establishing that the plaintiff was responsible with Mr Weingarten for the anonymous letter arises out of the evidence of Mr Shinehouse and Mr Pike that the plaintiff had admitted it to them.  Mr Shinehouse deals with this very briefly in his witness statement when he says simply that he recalls that the plaintiff had admitted that he knew the anonymous letter was not actually anonymous and that he had agreed with Mr Weingarten to it because it was vitally important to stop the Rebellen website.  The meeting when the admission was made was shortly after the meeting with Mr Weingarten.  Mr Shinehouse recalled that Mr Vilsmeier had said there was a Meinl agent watching him - he pointed across the hall, but the seat was suddenly empty. 

168.   Finally Mr Pike also gave evidence about that meeting.  He did not have any notes of it, which was unusual, because he said that Mr Vilsmeier took from him his pad of paper.  There was no particularly convincing reason for the plaintiff to do so, but that was why he had no notes.  The plaintiff did not give the pad back and Mr Pike did not ask for it, because the plaintiff was so emotional and in full flow.  He had already torn off the notes of the Weingarten meeting and put them in his briefcase, which is why he still had those. 

169.   The plaintiff flatly denied that he was responsible for conspiring with Mr Weingarten in the preparation of the anonymous letter. 

170.   Taking all these matters in the round, our finding on the facts is that it is probable that Mr Weingarten did say at some stage that the plaintiff had collaborated with him in the construction of the anonymous letter.  However we accept the plaintiff's denials that this was so.  Mr Weingarten seems to be generally accepted by the representatives of the defendant company to have been an unreliable witness.  We see no reason why we should attach credit to what he is reported to have said, which cannot be challenged in circumstances when we are satisfied that the plaintiff gave evidence honestly before us, and where the preponderance of the documentary and other evidence supports what the plaintiff says.  We think that whether as a result of language differences, or the plaintiff's emotional state or for whatever reason, there was a misunderstanding between the Plaintiff, Mr Shinehouse and Mr Pike concerning the alleged admission by the plaintiff at Zurich airport on 22^nd July, 2009. 

171.   In particular, to accept that the plaintiff knew in February 2009 that there was no legal route by which Mr Weingarten had received the information he had, required us to accept that all the instructions given by the plaintiff to him thereafter were given knowing that the robot technology was a sham and that Pan Amp were claiming to do one thing and in fact doing another - in other words acting dishonestly towards the defendant companies.  That seems intrinsically unlikely and does not fit our assessment of the plaintiff.  It also seems unlikely that the plaintiff would knowingly have continued to rely on the Pan Amp reports in the way he clearly did. 

172.   In the circumstances that it is essential to this part of the defendant companies' claims against the plaintiff that he knew that Pan Amp were engaged in illegal activity, and we have found that he did not know that, it is no longer relevant to consider whether the activities of Pan Amp were or were not legal, nor is it relevant to consider whether, if they were illegal, the defendant companies were liable to pay - the latter issue would only arise in relation to action between the defendant companies and Pan Amp.  Similarly, given that the knowledge of illegality on the part of the plaintiff was essential to the defendant companies' claims, the issue as to whether those companies have adequately mitigated their loss by settling with Pan Amp upon the basis that they did is again no longer relevant.  Had we been required to consider whether the plaintiff could legitimately object to the defendants' settlement with Pan Amp, we would have decided he could not.  It is however material to refer to a few other topics in the evidence which was presented to us because it is the evidence on those topics which also has had some influence upon us in considering the central issue of the plaintiff's honesty in this respect. 

User 4

173.   Before tackling this issue in more detail, it is right to remember the background against which the middle boards operated between mid-November 2008 and April 2009.  During this period there was intense suspicion by the middle boards of the hedge fund shareholders who had put them in place in July and November respectively.  Members of the boards were suspicious because of the shorting of the TAV stock and, in the case of Elliott, because the plaintiff at least and probably other board members as well, were worried that as one of the significant hedge fund investors, Elliott might be prepared to make a deal with the Meinl entities by which Elliott would transfer its certificates to Meinl for a sufficient consideration, whether payable by Meinl or the companies, enabling a significant cash return to be made on its investment, with the result that Meinl would then be in a position to regain control of the boards and if it thought fit pursue individual board members for damages for breach of duty.  The plaintiff clearly thought that for resisting the efforts of Elliott through the Pecik deal and in taking up the rights issue in TAV, the middle boards had seriously upset at least one of its key shareholders, and indeed it appeared from meetings which took place in January and February 2009 that the shareholder damage was not limited to Elliott, not least because certain investors were anxious as to whether the middle boards were pursuing the previously agreed strategy.  The introduction of Mr Shinehouse on to the board at the behest of Elliott therefore did not help the underlying anxiety of the members of the middle boards both as to whether the companies were pursuing the correct strategies and as to their own personal risks.  When one adds to that the threats which the plaintiff perceived had been made against himself and his family, it is an understatement to say that the boards were operating in a climate of fear and suspicion. 

174.   One of the suspicions concerned the identity of what came to be known as User 4.  The Pan Amp investigation, whether legal or not, had identified four material contributors to the Rebellen website.  One of these was identified as having become active on the Rebellen website from the early part of 2009, and was designated User 4.  Because User 4 appeared to be so well informed as to the personal circumstances of some of the board members, a question arose as to where User 4 acquired the information which was appearing in the blog commentaries drafted by him or by her.  According to Mr Vilsmeier, Messrs Wolf Theiss, together with Mr Dohr and him, the plaintiff, were very much involved in instructing Pan Amp to identify who User 4 might be. 

175.   In his evidence in chief, Dr Wolf accepted that his firm was initially mandated to prevent publication of defamatory statements on the Rebellen website and to investigate Pan Amp and the threat to the plaintiff and his family.  He was at pains to emphasise that his firm did not assume any kind of management tasks on behalf of the defendant companies, nor indeed had they been asked to do so.  He was quite sure that he had not personally given any advice that the Pan Amp technology would be safe under Austrian law because he himself was a banking and finance lawyer and would not comment on issues relating to IT law or criminal law.  He thought that no-one at Wolf Theiss knew about the exact operations or methods of Pan Amp at their relevant time.  We note in passing that this evidence is not wholly consistent with the evidence given by Mr Pirrwitz, who said that he was present at a meeting with Dr Wolf at the offices of Wolf Theiss when the view was expressed that as internet traffic was essentially open communication and Pan Amp were not penetrating any server firewalls, that company's operations were safe under Austrian law. 

176.   Dr Wolf told us that Mr Weingarten had conducted an analysis of the Rebellen homepage and identified three users but not User 4.  He made a report in mid-February and a discussion took place as to the use of the German state prosecutors to make their own enquiries so that the defendants could identify who User 4 was.  Mr Weingarten suggested the institution of criminal proceedings in Germany and Messrs Wolf Theiss were in touch with Mr Weingarten's German lawyers who prepared a filing for the State prosecutors.  Wolf Theiss then sought the defendants' instructions as to whether this filing was agreed, and according to Dr Wolf, the firm's only involvement lay in passing this information on to the defendants. 

177.   It is clear that Messrs Wolf Theiss had some involvement in the matter.  An email from Mr Rechel, the German lawyers for Pan Amp was sent to Dr Wolf and Mrs Gritsch on 8^th April.  They were sent a copy of the brief to the prosecutor, and told that it had been submitted.  Dr Wolf sent it on to Mr Dohr and the plaintiff, and when Mr Dohr raised the question as to whether board colleagues should be advised, Dr Wolf's response was that as there was a suspicion that a member of the board was User 4, it would seem to him to be questionable to wait until there was concrete information from Germany.  It is clear from this response that Dr Wolf was well aware that there had been a preliminary view formed that User 4 might be Mr Holger Gantz, the secretary to the defendants, which carries the inference that Dr Wolf must have had a briefing which he considered to be sufficient enough to express a view.  It is to be noted that by his email of 9^th April, the plaintiff agreed with that advice and indicated that the only board member who had been advised, apart of course from Mr Dohr and himself, had been Mr Shinehouse.  The response also indicates that Dr Wolf appears to have accepted the possibility at least that the Pan Amp information was reliable. 

178.   Dr Wolf's position had changed some 14 days later because it is apparent from an email which he sent on 20^th April to the plaintiff, Mr Shinehouse, Mr Dohr, Mr Boleat, Mr Baird and Mr Duswald, that he was prepared to share all information at least with them.  The subject heading is "Meinl:  new criminal file", and the material parts of the email are as follows:-

"Dear Sirs

you will all remember the events of November/December 2008, when Meinl with the help of Mr Pecik attempted to enter into a settlement agreement with Elliott Advisers.  The settlement included AI and PI as parties and was communicated to AI and PI after it had been agreed between the shareholders.  The contents were that AI and PI would drop all claims against Meinl and pay to the Meinl side approx. EUR 30-40 million in order to facilitate a sale of the certificates held by Elliott advisers to Mr Pecik.  Since this was not in the interests of AI and PI, it was decided by AI and PI in December 2008 not to pursue this offer. 

We have knowledge that there was a supervisory board meeting of Meinl Bank on 19 January 2009 to this topic.  It was a telephone meeting in which the following persons participated:

[Various Meinl associates were named] 

Mr Hill presented the following transaction:  Mr Pecik establishes a new subsidiary of his Victory Holding by the name of "Marathon".  Marathon acquires certificates in AI and PI.  Meinl Bank lends its shares in AI and PI to Marathon so that Pecik can gain control of AI and PI.  This is done without the "rebel" shareholders having formally signalled their support (in the form of selling their certificates to Marathon).  Then the existing board is replaced by a new board which drops all charges and ends all claims against Meinl Bank.  Finally there could be a merger between MPM and PI. 

...

Please note that we do not have a copy of the minutes of the supervisory board meeting, so that the above may not be totally precise or complete. 

These minutes are now a part of new criminal proceedings, which were instigated by the representative of the Austrian banking supervisory authority on the board of Meinl Bank.  In order to get access to the file we suggest to submit the attached joinder.  Please remember: "joinder" does not mean that we are suing Meinl et al for criminal conduct, but that we are claiming that AI and PI were damaged and request access to the files of the prosecutor. 

We are looking forward to your comments.  Any filing will be made only upon your explicit ok."

179.   There seems no doubt that the reference to the supervisory board meeting of Meinl Bank arises out of the reports of Pan Amp: nor indeed is there much doubt that it is the Pan Amp work which led to the brief served upon the prosecutor, in this case in Austria.  The email is interesting because it reveals not only some contemporaneous support for the view expressed by Mr Pirrwitz and the plaintiff in their evidence that there was genuine concern over a long period at the prospect of a Meinl takeover, but also because it supports the view that Dr Wolf was not raising at that stage any of the suspicions which before us he claimed that he had.  It seems clear that at this time he accepted the integrity of the Pan Amp information and there do not seem to be any responses from those to whom he sent this email which challenged such a view. 

180.   Suspicion that Mr Gantz was User 4 was not easily dispatched.  Mr Weingarten continued to do his work and continued to provide texts on his laptop which he claimed he had intercepted with his robot technology.  The identification of User 4 remained an important consideration in the sense that negotiations between the defendant companies and Meinl were continuing and indeed did not reach fruition until many months later.  We have noted that on 4^th May, 2009, Mr Dohr sent an email to Mr Shinehouse, copied to Mrs Gritsch and Dr Wolf and Mr Hassler (but not the plaintiff) in which, after referring to some not material matter, he said:-

"In the meantime you may have heard from Wolfgang that Pan Amp believes to have enough evidence that "User 4" is Holger Gantz.  The criminal system financed by Meinl which may have infected AI needs to be investigated immediately and thoroughly; I trust that Kroll will have some ideas how which to proceed.  I understand that Wolfgang who is under shock by the news about Holger will call you this evening".

181.   The response from Mr Shinehouse went the following day:-

"What kind of evidence do we have regarding Holger.  This is very serious and I want to be sure we are certain.  Could either Andrea or Richard respond?  I am available to speak by phone if necessary.  I need to deal with this (or Bill) but it should not be dealt with by either Wolfgang or you given the nature of the issue".

182.   By his response, Mr Dohr agreed that procedure, confirming that the evidence had been provided by Mr Weingarten, and suggesting that Dr Wolf should follow up with him. 

183.   Dr Wolf's acceptance of the apparent validity of Pan Amp's investigations, even at 5^th May, 2009, is revealed by his reply:-

"It appears that User 4 has access to all emails which are sent to and by email addresses with the format "@ airportsinternational.eu" and "@ powerinternational.eu".

Therefore, the email exchange considering User 4's identity of the last two days, which was copied to Wilfried Hassler at his "powerinternational" address may have been seen by User 4, who may therefore already know that he is under suspicion. 

We suggest that you - for the time being - do not send any further emails of a sensitive nature to such addresses. 

We recommend to immediately make a decision on how to proceed from a technical side, and also on how to react with respect to this situation from a managerial point of view. 

One option is to shut down the servers of AI and PI and migrate them to secure systems.  Please note that both email servers were installed pursuant to the instructions of User 4 and are maintained by a friend of User 4.  Another option is to keep User 4 in place and use the existing servers for information only that you do not mind (or that you want) being leaked. 

All further details should be discussed ASAP in a telephone conference..."

184.   This email was sent to the plaintiff, Mr Dohr and Mr Shinehouse, and copied to Mrs Gritsch and a Mr Abhram also of Wolf Theiss. 

185.   When Mr Shinehouse was asked for his comments on this email, he said that he remembered the issue.  He agreed that he had obviously received the email.  He noted that on the whole they used their other business emails and he merely said that he did not write this particular email himself. 

186.   The plaintiff contends that after the email of 5^th May, Mr Shinehouse substantially took control over the instructions given to Pan Amp, acting in conjunction with Dr Wolf.  We think that on balance, the majority of the email traffic after this date would tend to suggest that the plaintiff is correct in this respect.  Indeed, Mr Shinehouse agrees that he and Dr Wolf met Mr Gantz on 20^th May and terminated his consulting engagement with the defendant companies.  During the course of that meeting, they informed Mr Gantz that Pan Amp had informed them that there was evidence that Mr Gantz was User 4, which Mr Gantz vehemently denied.  However, Mr Shinehouse emphasised that Mr Gantz was not dismissed because he was User 4, but rather because the executive management team considered that his performance was not acceptable.  In fact when cross examined, Mr Shinehouse gave several reasons for the dismissal:-

(i)        The plaintiff considered that Mr Gantz was User 4, and the executive management team had the difficulty of working with the chairman who thought Mr Gantz was putting defamatory comments on the Rebellen website. 

(ii)       There had been an evaluation of Mr Gantz over the last month, and it was considered that he did not make a significant contribution. 

(iii)      He was uncooperative with the executive management team. 

(iv)      He was simply not a team member. 

187.   It is right that we now express our views about the evidence generally given by Mr Shinehouse not least because the contemporaneous email traffic, especially from Mr Gantz on 21^st and 23^rd May, does not wholly support that evidence.  We have no doubt that he is an experienced, articulate and skilful practitioner in his specialist field.  We also have no doubt that he gave his evidence honestly and that he had no intention to mislead us.  Nonetheless it seemed to us that it was clear that he formed an early view, no doubt encouraged by those who procured his appointment, that the middle boards misdirected their efforts and were not focused on achieving the goals of his sponsors; and we think that this view migrated into a harsher view that the plaintiff was not to be trusted. 

188.   We also have no doubt that just as Mr Pirrwitz and the plaintiff were extremely busy when confronted with the defendant companies' affairs after their appointment as directors, so indeed was Mr Shinehouse extremely pressed following his appointment as managing director in April 2009.  His early attention was undoubtedly centred upon the big issues which faced the defendant companies, one of which at least in the early days was the sale of the TAV shares, which was something on which the hedge fund investors were particularly focussed.  All these factors have had the effect that we have only been able to place intermittent reliance on his evidence.  The criticisms which we make of his evidence should be seen against the background of those views.  In relation to Pan Amp, we think that in essence the position is that, without knowing too much about the instruction of Pan Amp in the early months, he received information about the Pan Amp investigations in early May which appeared to have the backing of the Chairman, about whose views he was distrustful, but also from Messrs Wolf Theiss, whom he had no reason to doubt.  We think he acted upon the results given to him, and later on, when he had confronted Mr Weingarten, certainly by July, and received the allegation that the anonymous letter had been a construct between the plaintiff and Mr Weingarten, he became increasingly sceptical about the Pan Amp contributions.  We note that by September, Mr Robson and he were extremely sceptical; and we have reached the view that the reason that Mr Shinehouse is not a reliable witness in this respect is that that later scepticism has convinced him that he cannot ever have truly believed what Mr Weingarten claimed he was able to do.  We accept his statement that it was a very busy time generally.  The User 4/Pan Amp situation was a nuisance for him - he was negotiating with Meinl Bank, selling assets, and deciding how much could be repaid to shareholders.  The fact remains that he was aware that Pan Amp were retained, and that he took responsibility from 5^th May for the further work which Weingarten was to do.  Indeed we recall that by the end of May, the boards had given instructions to Latham Watkins to send the letter to the plaintiff requiring him not to give any instructions to anyone on behalf of the companies.  Indeed on 20^th May, 2009, it was Mr Shinehouse who signed the agreement with Pan Amp on behalf of each of AI and PI, binding Pan Amp into particular contractual terms, and on 25^th May, confirmed to Mr Weingarten that his only communication from that date should be with Dr Wolf or with him, Mr Shinehouse. 

189.   In fairness to Mr Shinehouse, there was some external evidence which also justified the view that there was an insider.  He attended on 16^th June, 2009, a meeting at the offices of QVT in New York.  Present were Mr Strong of QVT, Mr Roehrig of Elliott, Mr Obrezkov of VR Capital and Dr Proschovsky of Cube Invest.  As the meeting came to a close, Mr Roehrig informed Mr Shinehouse that Mr Meinl had told him, Roehrig, that he was paying a former director of the companies to provide Meinl Bank with information about the companies.  According to Mr Roehrig, he did not know the name of the Meinl mole.  If the statement was accurate, then the only former directors were still actively working on the defendant companies' business were Mr Hassler and Mr Dohr.  The plaintiff was convinced that the insider was Mr Dohr, but, according to Mr Shinehouse, he was not sure that there was an insider - his view was that if there was, it probably was Mr Dohr.  As Mr Dohr resigned from his employment by AI on 26^th June, 2009, this ceased to be a problem. 

190.   The defendant companies ceased to pay Pan Amp beyond 7^th June, 2009.  That company had been properly retained by the defendant companies since about November 2008.  The nature of the retainer was that from time to time Pan Amp were instructed to conduct an amount of work in the field of information technology.  It was work of different kinds.   Some of it may well have been work which the defendant companies ought not to have instructed Pan Amp to do.  But they did so instruct.  We find on the facts that the middle boards were aware of the instructions given to Pan Amp, even if those instructions were on the whole given through the plaintiff.  That was not an uncommon way to proceed in any event.  Messrs Wolf Theiss acted on a number of different issues for the defendant companies and on the material which has been put before us, it does not appear as if they had specific instructions in writing retaining them for particular jobs on which the companies instructed them.  The relationship was not like that, and to some extent was more akin to a general retainer.  At all events, whether that was or was not so insofar as Wolf Theiss were concerned, it certainly appears to have been the position with Pan Amp.  We also find on the facts that the executive management team generally, and Mr Shinehouse in particular, were aware of Pan Amp's retention by the defendant companies at least by 5^th May, 2009, and probably earlier.  The Pan Amp charges were presented to the middle boards in the boardroom packs.  There is no doubt that the Pan Amp charges were available to the executive management team after the EGM. 

191.   In the circumstances our finding on the facts is that there was a contract between the defendant companies and Pan Amp, and it cannot be said that the plaintiff was in breach either of his fiduciary duties to the defendant companies or indeed in respect of his contractual duties under the director's service agreement in this respect.  The defendant companies' claim against the plaintiff in respect of the monies paid by the defendant companies to Pan Amp therefore fails.  If we had found the plaintiff has been liable for breach of duty, we would have exercised our discretion to give him relief under Article 227 of the Law for the same reasons as are set out in paragraphs 134-137 above. 

192.   For these reasons the plaintiff's claim is allowed in part, with interest at the Court rate until payment and the defendants counterclaims are dismissed. 

Authorities

Pirrwitz-v-AI and PI and Vilsmeier [2013] JRC 017.

AI and PI-v-Pirrwitz [2013] JCA 177.

Civil Evidence (Jersey) Law 2003.

Companies (Jersey) Law 1991.

1000 Neptune (Vehicle Washing Equipment) Limited -v- Fitzgerald (No. 2) [1995] BCC 1000.

Regent Crest Plc (In Liquidation) v Cohen and another [2001] 2 BCLC 80.

Extrasure Travel Insurances Limited and Another v Scattergood and Another [2003] 1 BCLC 598.

Gillman & Soame Limited (in administration) v Young [2007] EWHC 1245.

Companies Act 1985.

Companies Act 2006.

Re A Flap Envelope Co Limited, Willmott and Another v Jenkin [2004] 1 BCLC 64.

Royal Brunei Airlines v Philip Tan Kok Ming [1995] 2 AC 378.