Gardner Aerospace Holdings Ltd v Upton - High Court Case

| | [Home ]
[Databases ]
[World Law ]
[Multidatabase Search ]
[Help ]
[Feedback ]
[DONATE ] | |
| # England and Wales High Court (Chancery Division) Decisions | | |
| You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >>

  Gardner Aerospace Holdings Ltd & Anor  v Upton [2026] EWHC 555 (Ch) (20 March 2026)

URL: https://www.bailii.org/ew/cases/EWHC/Ch/2026/555.html
Cite as:
[2026] EWHC 555 (Ch) | | |
[New search ]

[Printable PDF version ]

[Help ]

| | | Neutral Citation Number: [2026] EWHC 555 (Ch) |
| | | Case No: BL-2023-001625 |
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

| | | Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL |
| | | 20/03/2026 |
B e f o r e :

MR JUSTICE RICHARD SMITH

Between:
| | (1) GARDNER AEROSPACE HOLDINGS LIMITED
(2) GARDNER GROUP LIMITED | Claimants |
| | - and ? | |
| | MR ANTONY JOHN UPTON | Defendant |

**Fraser Campbell KC (instructed by Fieldfisher LLP) for the Claimants
Daniel Lewis (instructed by Kennedys Law LLP) for the Defendant

Hearing dates: 5, 10-12 & 17 November 2025**

HTML VERSION OF APPROVED JUDGMENT ____________________

Crown Copyright ©

3. This judgment was handed down remotely at 10.30am on 20 March 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
5. .............................
7. MR JUSTICE RICHARD SMITH
9. Mr Justice Richard Smith:
10. Introduction
12. The First Claimant, Gardner Aerospace Holdings Limited [1] (GAH), is the parent company of the Second Claimant, Gardner Group Limited (GGL). [2] GAH's subsidiaries manufacture parts for the aerospace industry (the Claimants and their subsidiary companies together or generally, Gardner or the Group).
15. At the relevant time, the Gardner business included manufacturing sites in the UK as well as sites in France, Poland, India and China. Production certification for the Chengdu facility in China was achieved in Q4 2021.
18. In early 2017, GAH was acquired by Ligeance Aerospace Technology Company Limited (LAT), a Chinese company listed on the Shenzhen Stock Exchange.
21. In February 2018, the Defendant, Mr Antony Upton (Mr Upton), was engaged by GGL as CFO. In May 2018, he became a director of GAH and GGL. In July 2021, Gardner's CEO, Mr Dominic Cartwright resigned. Mr Upton became interim CEO later that month, with Mr Laurence Ford then becoming interim CFO.
24. Mr Dennis Scott joined the board as a non-executive director in August 2021.
27. LAT enjoyed a right under GAH's Articles of Association to appoint special directors with a casting vote in the event of a tie. In this way, LAT exercised control over the GAH board. LAT's special directors on the GAH board during the relevant period were Mr Yu Wei and Mr Richard Wang.
30. Mr Philipp Visotschnig was appointed as a GAH director on 3 May 2022 and assumed the role of GAH's CEO on 1 July 2022. Mr Upton was informed shortly thereafter that he would not be retained by Gardner.
33. The GAH directors and management also had contact with LAT's Chairman, Mr Zheng Zhang, LAT's CFO, Ms Hongmei Zhai, and the Finance Manager of Gardner Chengdu, Ms Qi Wang.
36. The Transaction/ NSIA
38. GAH and GGL have claimed in these proceedings against Mr Upton for breach of fiduciary duty as director of GAH and GGL and of his former GGL contract of employment. The alleged breaches are said to arise in connection with a proposed 'debt-for-equity' swap transaction agreed in January 2022 between LAT and one of its shareholders, Sichuan Development Holding Company Limited (SDH), a Chinese state-owned investment fund (Transaction). If consummated (as ultimately it was in December 2023), the Transaction would result in SDH's shareholding in LAT, and therefore indirectly in GAH, increasing from 14 to 32%.
41. The National Security and Investment Act 2021 (NSIA or Act) establishes a statutory regime for protecting national security. That regime is engaged where a "trigger event" is contemplated or occurs, including a person gaining control of a qualifying entity of a "specified description" by increasing its shareholding from 25% or less to more than 25%. One such specified description was the activity of military and dual use. There is no dispute that, by reason of SDH's proposed increased shareholding in LAT, GAH's military and dual use activity, and the combined effect of ss.5, 6 and 8 of the Act (and relevant regulations for the specification of qualifying entities), the Transaction was notifiable in advance as a "trigger event". To that end, SDH's solicitors, Herbert Smith Freehills LLP (HSF), submitted an NSIA notification to the Department for Business, Energy and Investment Strategy (as it was then known) (BEIS) on 3 February 2022.
44. Following such notification, the Secretary of State (SoS) then had a review period within which to decide whether to issue a 'call-in notice'. S.1 of the NSIA provides that SoS may issue such a notice where " arrangements are in progress or contemplation which, if carried into effect, will result in a trigger event taking place in relation to a qualifying entity or qualifying asset, and the event may give rise to a risk to national security". On 16 March 2022, SoS issued a 'call-in notice' in respect of the Transaction, recording that "[t] he Secretary of State reasonably suspects that this trigger event may give rise to a risk to national security ".
47. Following that 'call-in notice', SoS then had a 30-day (extendable) "assessment period" in which either to make a final order or to give a final notification to each person to whom the 'call-in notice' had been given. SoS was empowered to make a final order if satisfied on the balance of probabilities that (i) arrangements were in progress or contemplation which, if carried into effect, would result in a trigger event (ii) a risk to national security would arise from the trigger event if carried into effect and (iii) SoS reasonably considered the provisions of the order necessary and proportionate for the purpose of preventing, remedying or mitigating the risk. Before making a final order, SoS was also required to consider any representations.
50. The Final Order
52. SoS issued a final order in relation to the Transaction on 10 October 2022 addressed to, amongst others, SDH, LAT, GAH and GGL (Final Order). The Final Order records the following:-
55. (i) The prior issue of the 'call-in notice';
57. (ii) The Transaction (as contemplated) being reasonably suspected to result in a trigger event;
59. (iii) The receipt of related representations from SDH, LAT and GAH;
61. (iv) The service of an "Additional Period Notice" and the "Assessment Period" thereby ending on 29 July 2022;
63. (v) The agreement of a voluntary extension of the Assessment Period to 21 October 2022;
65. (vi) The application of the Final Order to SDH, LAT, GAH and GGL;
67. (vii) The effective date of the Final Order as completion of the Transaction;
69. (viii) SoS being satisfied, on the balance of probabilities, that:-
71. (a) arrangements were in progress or contemplation which, if carried into effect, would result in a trigger event; and
73. (b) a risk to national security would arise from the trigger event if carried into effect;
75. (ix) The national security risk in this case being concerned with the military and dual use applications of sensitive information and know-how held by Gardner and the potential that the technology could be used to develop military capabilities;
77. (x) SoS reasonably considering that the provisions of the Final Order were necessary and proportionate to prevent, reverse or mitigate that risk;
79. (xi) The requirements of the Final Order, including:-
81. (a) The appointment by HMG of an observer to the GAH board;
83. (b) The prohibition against GAH and GGL sharing with SDH and LAT information obtained from GGL or its subsidiaries;
85. (c) The appointment of a board member with security clearance with responsibility for export control and security (E&S) matters;
87. (d) Counter-terrorism checks for Gardner affiliated personnel;
89. (e) Access restrictions to Gardner's protected information;
91. (f) Access restrictions and security requirements at Gardner UK sites;
93. (g) Information security requirements for Gardner systems;
95. (h) Notification requirements for contemplated asset transfers by GAH and GGL to SDH and LAT (or their affiliates);
97. (i) Final Order compliance certification; and
99. (j) Information provision requirements.
101. The Final Order also explained the procedures for its challenge, including seeking its variation or revocation by the SoS or the judicial review of the decision to impose it. The Claimants did not bring a legal challenge against the Final Order. However, following engagement by Mr Visotschnig, SoS varied the Final Order on 13 March 2024, resulting in its terms being less onerous.
104. The claim against Mr Upton - overview
106. The Claimants assert in the Amended Particulars of Claim (APoC) that Mr Upton was personally opposed to Chinese ownership of GAH and GGL through LAT, he knew from December 2021 that he would not be retained as CEO and he engaged in conduct prejudicial to GAH and GGL, namely (APoC [24]):-
109. (i) Lobbying politicians for the issue of the 'call-in notice' and the imposition of onerous conditions in the Final Order;
111. (ii) Negatively misrepresenting the Transaction and its implications to BEIS' Investment Security Unit (ISU);
113. (iii) Engaging with potential purchasers of GAH without proper authority and encouraging them, in turn, to lobby BEIS to take a negative view of the Transaction and LAT's continued ownership of GAH; and
115. (iv) Negatively misrepresenting to Gardner's bankers (NatWest or the Bank) the level of uncertainty associated with investment from LAT or SDH.
117. According to the Claimants, Mr Upton pursued this course of conduct, not to advance the interests of the Group, but with a view to obtaining an order for divestment of LAT's interest in GAH or otherwise undermining LAT's desire and ability to remain owner of GAH, with the ultimate aim that a new buyer of the Gardner business would retain him in employment. They claim that such conduct was in breach of Mr Upton's duties, both as director and employee. Mr Upton denies any breach. The Claimants further assert (as originally pleaded at least) that the alleged conduct caused the 'call-in notice' to be issued, the imposition of onerous conditions in the Final Order and delay in the resolution of the 'call-in notice', as a result of which, they incurred the costs associated with compliance with those conditions and the associated Transaction delay. Mr Upton also denies that his actions caused the Claimants any loss.
120. The conduct of the trial
122. Liability, including causation, was originally due to be addressed at this trial, with issues as to quantum (if any) to be addressed at a later hearing. However, a question arose at the outset as to whether the Claimants should be permitted to re-amend their APoC to plead their causation case on a loss of chance basis, namely that Mr Upton's conduct caused them to lose a real and substantial opportunity to avoid the 'call-in notice', the related onerous conditions and delay. The Claimants' essential position was that the claim was already properly pleaded, a claim for loss of chance already being inherent in a claim for loss dependent on the actions of third parties, here SoS and NatWest. Mr Upton's position was that the Claimants had not pleaded a loss of chance case, this very recent development reflected recognition of the difficulties in their causation case generally and the Court should not accede to the amendment. Although I did not hear related argument, there also appeared to be some question between the parties as to whether a claim for equitable compensation (as opposed to common law damages) could be advanced on a loss of chance basis. Despite these differences, neither party sought an adjournment of the trial in whatever form I might decide that it should proceed.
125. I agree that the claim against Mr Upton was not pleaded on a loss of chance basis and that, coming into trial, he would have understood that he was meeting a case on causation as to the effect of his actions on the balance of probabilities. In that regard, this case was different from the (not entirely clear) manner in which matters had been pleaded in McGill v Sports and Entertainment Group [2017] 1 WLR 989. Moreover, although the overall thrust of Mr Upton's causation defence may have been the same if the case against him had been pleaded on the basis of a loss of chance, I accept that, in the circumstances of this case, particularly having regard to his submissions as to the matters that might potentially have influenced SoS's decision-making, he may well have sought to explore further factual areas beyond those presently relied upon to seek to defeat a causation argument on a balance of probabilities analysis.
128. Given these matters (and again by way of contrast with the position in McGill), I was not persuaded that the issue as it arose here engaged a question of law only or that it was a 'mere' pleading point. Indeed, it seemed to me that there was the potential for unfairness to Mr Upton if the trial were simply to proceed on the basis of the re-amended claim. The Claimants' suggestion that the Court might do so, albeit leaving open the question of whether, in light of the evidence and submissions heard during the course of the trial, it would decide the causation issue, seemed if anything to risk further uncertainty and potential unfairness. Moreover, it is right to say that the proposed amendment had been advanced late in the day, the explanation for why matters were only now proposed to be put in this way was not compelling and the proposed amendments were themselves limited and somewhat inchoate, risking confusion as to whether the Claimants might, in fact, now be 'riding' two causation 'horses.'
131. Although the position was far from satisfactory, proceeding with a trial of a claim advanced on an erroneous basis in the (unamended) APoC would also have been seriously prejudicial to the Claimants. Accordingly, I was not persuaded to adopt the primary position advocated by either party. That said, I did agree with both of them that an adjournment of the trial (in whatever form that might now take) would be undesirable and should be avoided, if possible. In those circumstances, and given that quantum had already been hived off, I concluded that the appropriate course was to put the Claimants to election, either to proceed with the trial on the claim as originally formulated (including as to causation), alternatively on the basis that only questions of breach of duty would be addressed at this trial, with the Claimants recognising that they would have to bear any associated wasted costs occasioned by the deferral of the causation enquiry.
134. In my view, although this latter course would give rise to some problems in terms of the conduct of, and necessary adjustments to, the trial and the potentially increased need, for example, to hear again from the same witnesses later in these proceedings, it was the least worst outcome. Moreover, although perhaps unusual, it did not seem an unnatural course given the somewhat different nature of the enquiry on a loss of chance analysis. The Claimants elected to adopt that latter course and, after a limited period to re-visit the parties' hearing preparations, the trial resumed. Finally, I also indicated the Court's willingness, in principle, to accede to an amendment to plead damages on a loss of chance basis, subject to such further argument as might arise upon sight of the proposed final draft. As noted, the limited re-amendment proposed was not sufficiently clear. At the hearing, I gave my brief reasons for adopting this course, indicating that (as have now been set out) fuller reasons would follow.
137. The evidence
139. The first witness was Ms Hu for the Claimants. Although her evidence was directed to causation, it concerned how the Claimants (not HMG or NatWest) would have acted in a different counterfactual outcome. As such, she did not encroach upon the loss of chance causation analysis. Mr Upton was also able to cross-examine her on it, as already planned. Given that she had already made her arrangements to travel from China, this seemed the appropriate course. However, since Ms Hu's evidence is not relevant to my findings as to breach, I do not need to mention it further in this judgment (save on one limited aspect below).
142. I also heard evidence from Mr Visotschnig for the Claimants and from Mr Upton, now limited to the breach issue. Mr Visotschnig was a careful and thoughtful witness, albeit he gave some unnecessarily long answers and had a tendency to pre-empt some lines of questioning, particularly where he appeared to perceive some potential sensitivity on the Claimants' part.
145. Although some of the propositions put to Mr Upton in cross-examination were more nuanced than the questions perhaps suggested, a number of his answers sought to draw distinctions which were not meaningful. He also struggled to give straightforward answers to many important questions put to him by reference to the contemporaneous documents despite their clear language (often his own).
148. Ultimately, I found the oral evidence of limited assistance given the contemporaneous record. There was some suggestion on both sides that certain documents should have been produced by the other but were not available at trial. However, even if there were disclosure deficiencies (and it was far from clear that these were made out), the documents concerned did not seem of particular importance to the matters I have to decide, let alone for adverse inferences to be drawn. Nor, given the focus of the trial, and the extent and quality of the documentary record, did I consider it significant that other members of the GAH board from the relevant time did not testify.
151. I first consider by reference to the documents the most relevant events and communications relied on by the parties, interweaving as appropriate my analysis of the relevant witness evidence. I have set out these factual aspects at some length because there are many inter-connected threads running through what is a relatively short chronology but busy narrative. Moreover, that narrative may become relevant at a future stage of these proceedings, albeit I make clear that my findings are strictly limited to the narrow issue of breach.
154. It is fair to say that Mr Upton has come in for strong criticism from the Claimants for his conduct related to the Transaction. Mr Upton rejects such criticism and says that his conduct was shaped not by the nefarious motives ascribed to him but by a number of considerations relevant to the conduct of Gardner's business to which it was appropriate that he had regard as Gardner's CEO. Those considerations are said to have their origins from the time of LAT's acquisition of GAH in early 2017 and the subsequent conduct of Gardner's business. They range from national security considerations as a result of Chinese ownership of a business involving military and dual use activity (said to have become more pressing in light of proposed Chinese state control of LAT through the Transaction) to the ongoing difficulties of obtaining financing from LAT, to considerations of investment and job security in the UK and Europe, not least given the transfer of work to, and specific security considerations in respect of, Gardner's Chengdu site in China. I therefore set out here some of the early background as was particularly relied on by Mr Upton.
157. Early matters - 2017-2021
159. LAT's acquisition of GAH required the consent of the French and UK Governments, including because of the national security implications to which it gave rise. To that end, on 27 February 2017, LAT and GAH entered into a deed of covenant and undertaking (Deed) by which they recognised that members of the Group supplied certain parts to customers controlled under export control regulations, that these were subject to various intellectual property rights (IPR) and that GAH held highly confidential technical data relating to the goods supplied. LAT agreed not to access export controlled military and dual use goods, software, technology or technical data (Controlled Items) or information or data relating to customers' IPR.
162. On 5 May 2017, SoS for Defence entered into a deed of covenant and undertaking with GAH (SoS Deed) so that, for national security reasons, access to technical data relating to products, technical information, data and IPR belonging to Gardner BTC Limited (Blade) was additionally protected. GAH warranted in the SoS Deed that the Deed remained valid and effective and that, to the best of its knowledge, had not been breached. It also undertook to notify SoS of any intended termination, amendment or potential breach thereof. GAH also undertook in the SoS Deed to ensure that its subsidiaries maintained the security measures set out in the Annexes thereto. These measures sought to restrict access to Controlled Items and included retention of a fully screened senior individual with responsibility for E&S matters, E&S representatives appointed at each site and in shared services functional teams, an E&S whistle-blowing system, personnel security screening processes, visitor and site security restrictions, E&S compliance requirements, data storage, server access and Controlled Item storage restrictions and IT maintenance and information control processes. The SoS Deed also contained audit procedures to allow review and audit by SoS as well as the appointment of external compliance and quality auditors. (The Deed and SoS Deed are referred to together in this judgment as the Deeds.)
165. On 17 June 2018, SoS for BEIS issued a public interest intervention notice with respect to GAH's proposed acquisition of Northern Aerospace Limited (Northern), a manufacturer of structural assemblies and parts for the aerospace industry. The notice included a requirement for the Competition and Markets Authority (CMA) to investigate and report on the proposed transaction. CMA concluded that, although the transaction would create a 'relevant merger situation', it did not believe that this would result in a substantial lessening of competition within a UK goods and services market. The CMA report also noted that the Ministry of Defence (MoD) had assessed the national security aspects of the proposed transaction, brought together its views with those of other UK defence and security services and identified national security concerns as including the full protection of the UK's aerospace capability and safeguarding of any sensitive technology to which Northern might have access by reason of its future activities. The national security analysis was concerned with whether the transaction created the potential for LAT to have access to Controlled Items, sensitive information or IPR. The MoD informed CMA that it had obtained written assurances from GAH and LAT confirming that the protections in the Deeds would be applied to Northern. The Northern acquisition completed in July 2018. No third party representations were made to CMA about the national security public interest consideration.
168. On 5 December 2019, SoS for BEIS issued a public interest intervention notice with respect to GAH's proposed acquisition of Impcross Limited (Impcross), a UK-based manufacturer of parts for the aerospace industry. The notice again included a requirement for CMA to investigate the proposed transaction and report. CMA concluded that it did not believe that there would be a 'relevant merger situation'. It also noted that the MoD had again brought together its views relating to national security with those of other UK defence and security services. National security concerns identified included the safeguarding of sensitive information, skills and manufacturing capabilities within Impcross. Third party concerns were also raised as to the involvement of a Chinese entity, LAT, in Gardner, including the risk of espionage and potential harm to UK national security. In response to the public interest concerns on national security grounds raised by SoS for BEIS, GAH agreed to novate the Deed to extend its terms to Impcross and to ensure that existing Impcross military work continued to be manufactured in the UK post-acquisition. In the event, the proposed Impcross transaction did not go ahead.
171. The GAH board meeting held on 25 February 2021 was attended by Mr Cartwright, Mr Upton, Mr Yu Wei and Ms Storer. The minutes record the phased transfer of identified parts to the Chengdu facility progressing to plan as well as confusion around a request from Ms Hongmei Zhai for a business case for the move of work to Chengdu.
174. The GAH board meeting held on 25 March 2021 was attended by Mr Cartwright, Mr Upton, Mr Wang, Ms Storer and Ms Posluszna. The (then) CFO, Mr Upton, reported that, based on Chengdu's hourly direct costs, more labour intensive transfers of work to that facility would not be profitable whereas the transfer of heavily automated work could be.
177. The GAH board meeting held on 27 April 2021 was attended by Mr Cartwright, Mr Upton, Mr Wang, Mr Yu Wei, Ms Storer and Ms Posluszna. The minutes record the further discussion of the transfer of work to Chengdu, including a proposal for ?22m in sales across 650 parts (and the same profitability report from Mr Upton).
180. The GAH board meeting held on 27 May 2021 was attended by Mr Cartwright, Mr Upton, Mr Yu Wei, Ms Storer and Ms Posluszna. The minutes record Mr Cartwright explaining that Gardner was now excluded from military tenders due mainly to its Chinese ownership. They also record Gardner's financial difficulties, forecast NatWest covenant breaches and, as confirmed by Mr Yu Wei, LAT's unwillingness to increase its existing ?25m loan to Gardner. Although not present at this meeting, Mr Visotschnig accepted that, having been told by Mr Yu Wei that no further shareholder loan would be forthcoming, it would have been a mistake to suggest to NatWest that there was a funding commitment from the shareholder. This issue arises in the context of LAT's willingness and ability (or otherwise) to meet Gardner's liquidity and capital expenditure requirements and to grow the Gardner business, Mr Upton's related discussions at the GAH board and his communications with third parties, including NatWest, in 2022.
183. Mr Cartwright left the role of Gardner CEO in July 2021 and was replaced by Mr Upton on an interim basis. From around July 2021, Mr Visotschnig was in discussion with LAT and Gardner concerning his own potential employment by Gardner. He also had an interview with the SDH Chairman, Mr Yigang Zhang, leading to a conditional employment offer from Gardner in October 2021.
186. In the context of GAH's relationship with NatWest, Mr Upton relied on the Bank's letter dated 28 July 2021 expressing concern about the CEO's recent departure at a time when the Bank was considering the restructure of the (UK Government (HMG) backed) banking facilities provided in December 2020 to help address the impact of Covid-19 on Group financial performance. Despite its concern, NatWest had agreed in principle to GAH's request to forbear on the June 2021 amortisation payments, deferring these until June 2022 contingent upon provision by LAT of a further ?8m subordinated loan. In his evidence, Mr Visotschnig accepted that Gardner depended at this point (July 2021) on NatWest's forbearance and that this had been taken as far as it would reach.
189. Although the Bank had previously recognised that the transfer of some work to lower cost jurisdictions would help restore profit, it was concerned to ensure that the 'borrower Group' retained existing contracts and profitability. NatWest therefore required, as part of any amended facility, that any Gardner business should not be transferred to non-obligor entities as well as information about new business activity to be undertaken by non-UK Group entities. The Bank was not willing to grant further forbearance in the future. It appears that the Group's 2020 NatWest facility agreement was further amended and restated on 3 August 2021. NatWest also noted, based on cashflow forecasts, the potential need for further funding from June 2022 which would have to be provided by further equity or subordinated loan. As noted below, the Bank's analysis proved to be prescient, Mr Upton relying on the difficulties and/ or delay in securing such funding experienced in mid-2022.
192. On 7 September 2021, NatWest advised that the regular weekly calls with the Bank introduced in 2020 would be replaced by monthly meetings.
195. On 19 November 2021, NatWest notified Gardner of an event of default under Clause 25.2 of the relevant facility agreement and reserved its rights. This concerned a pledge of shares in favour of the Bank over the Group's Indian subsidiary which had still not been completed.
198. The minutes of the GAH board meeting held on 29 November 2021 record Mr Wang having joined the GAH board and the expectation of Mr Visotschnig joining as new CEO in 2022. They also noted the "? increased 'noise' [ ] from parties around the intention of LAT to sell further shares to [SDH] which would convert SDH to a majority shareholder of LAT sometime within 2022. This action would trigger a change of control and currently SDH are working with UK and French governments around the change of control." It was then expected that global banking relationships would move to HSBC. Mr Upton had agreed with the LAT Chairman to work with HSF to issue a positive statement to allay market rumours. Mr Upton noted the real concerns of customers at the change of ownership and expressed his concern around commitments to be made by Gardner, LAT and SDH to allow the process to complete which would not necessarily be of benefit to Gardner.
201. In December 2021, GAH announced that Mr Visotschnig had been nominated as CEO. Mr Upton testified that, at the time, he considered it a serious risk that he would be on the way out when Mr Visotschnig took over. Mr Upton explored potential employment opportunities with an executive search firm, GRG, including a manufacturing CFO role in Oxfordshire. At the end of January 2022, Mr Upton was also in touch with Directorbank, an executive search firm. His recollection was that the firm approached him about a position in the North East and that this led to several phone calls. Ultimately, nothing came of it. There was some discussion as to whether Mr Upton actually 'applied' for the role even though he was interested in, and interviewed for, the position. Given his interest in the position and related actions, the distinction he sought to draw here was semantic.
204. In January 2022, SDH and LAT agreed the Transaction.
207. As Mr Upton stated in evidence, at the start of 2022, Gardner had two forthcoming banking (and related funding) 'milestones', namely (i) the amortisation payment now due to NatWest in June 2022 and (ii) the much larger bullet repayments due from September 2023. Mr Upton confirmed that 'Plan A', as understood by the GAH board, was the approval and completion of the Transaction. This was intended to address the latter milestone through the full refinancing (by HSBC) of the NatWest facilities, with SDH standing as guarantor. In addition, the LAT/ Gardner intercompany debt would be converted to equity, thereby releasing Gardner from the related interest burden.
210. Mr Upton testified that he understood that it was his duty throughout the 'call-in' process, in the interests of Gardner, to do his best to help obtain the approval of HMG for the Transaction and that the GAH board, LAT and Mr Visotschnig all agreed that Gardner's 'Plan A' was to get the Transaction approved so that SDH money could flow through LAT to Gardner. He also testified that it was never his intention for the NSIA process to result in the divestment of Gardner by LAT unless 'Plan A' did not happen. In those circumstances, Gardner would need a 'Plan B' to secure support from another party, including possible divestment.
213. Transaction developments in early 2022
215. On 4 January 2022, Mr Upton reached out to his MoD contact, indicating that "there are many changes in the offing during 2022 for Gardner" and asking for "a call to discuss the proposals and their potential implications." That call took place on 10 January 2022. HMG's related internal e-mail records:-
218. (i) The tone of the call echoing that of the last meeting in July 2021 with "frustrations over LAT's ownership and management of the company";
220. (ii) Mr Visotschnig's current role and his assumption of the Gardner CEO role later in the year, the suggestion that his interests " may " be more aligned to growing the Chinese side of the business and that sight of his contract might be requested as part of MoD's investigation to understand his incentives going forward (HMG being unclear whether it had the power to do this);
222. (iii) "[T]he Chinese" having invested US$40m in the last two years, including with the completion of a second round of financing in summer 2021, securing support from NatWest and LAT;
224. (iv) The facility in Chengdu having received Airbus accreditation in summer 2021, Mr Upton suggesting that LAT " could " move all Gardner's operations there within 18-24 months but that this would cause customer disquiet and some programmes were unmoveable, Mr Upton also quoting the Chairman's statement from a board report that "a good outcome for him" would be all the manufacturing being done in China;
226. (v) The need to get into composite manufacturing to stay competitive but Chinese ownership meaning that Gardner was blocked from accessing the US market save for forming commercial partnerships;
228. (vi) Gardner and LAT having considerable debt and not being in a position to make further acquisitions, albeit SDH understood to be considering an Italian acquisition;
230. (vii) Mr Upton raising the forthcoming investment by SDH into LAT, with an NSIA submission for the change of control understood to be imminent;
232. (viii) LAT's discussions with the French Government to secure its consent to the Transaction, the French Government understood to be asking for a show of commitment in exchange such as a jobs guarantee;
234. (ix) The role of MoD in the assessment of the national security implications of the Transaction and the suggestion that Mr Upton speak to BEIS about economic concerns; and
236. (x) The need for "renewal" in 2022 of the Deed, Mr Upton agreeing to share prior compliance reports with MoD.
238. Mr Upton explained that it was the "custom and practice" of the Gardner CEO and Director of Governance to update MoD on developments in Gardner's business and planning. As for his reference to Mr Visotschnig, given that change of ownership was a notifiable event under the Deed, Mr Upton said he thought it important that HMG should explore whether Mr Visotschnig would receive a reward if Gardner was sold. I found this unpersuasive. Although HMG's note does refer to his incentives going forward, this was in the context of Mr Visotschnig's suggested closer alignment to growing the Chinese side of the business. As to the Chengdu facility, Mr Upton testified that the Gardner management team was under no illusion that there was a risk that operations could move to China. This presented a risk to UK jobs and employment which the Deed was expected to maintain. The management team was worried about that prospect and was therefore informing HMG through the proper communication channel. He said that the reference to the "Chairman" was to Mr Yu Wei who had previously spoken at the GAH board about the future state of Gardner being development in Europe and manufacturing in China. Mr Upton denied bringing LAT change of control (and anticipated Transaction notification) to HMG's attention to suggest that Chinese ownership was a bad thing for Gardner. However, he accepted that "frustration" (with LAT) was a "keyword" of the discussion. I agree. He was also clearly trailing with HMG doubts about LAT's (and Mr Visotschnig's) future intentions with respect to Gardner and their potential impact for UK jobs.
241. Later the same day, Mr Upton reached out by e-mail to the BEIS contact identified by MoD. Mr Upton briefly explained the MoD call, LAT's change of control process, the need for UK and French governmental approval and how the French government was leveraging the process to obtain commitments on investments, also suggesting a call to discuss how a similar outcome could be achieved from the UK process. Mr Upton explained that his reference to "leveraging the process" was in the context of Gardner being notified of the requirement to withdraw from UK R&D programmes, his purpose being to solicit views on Gardner's participation in such programmes after Transaction approval. However, the withdrawal notification was given later in March 2022 and does not explain his approach here. Mr Upton confirmed in his evidence that he had not discussed with the GAH board, Mr Visotschnig or LAT approaching HMG to 'leverage' the Transaction approval process to secure commitments on jobs and investments. He said that there was no limit of authority (or, a term he returned to more than once, "authority matrix") that required him to seek board approval for such an approach. However, this rather missed the point. Mr Upton would readily have appreciated that the GAH board had an obvious interest in knowing if one of its own directors was discussing with HMG conditions for Transaction approval, let alone proposing their imposition by way of 'leverage'.
244. It appears that the proposed call with BEIS took some time to arrange. There was no written record of that call but Mr Upton testified to his belief that this took place in February, the documents suggesting that it did not occur until 18 February 2022 at the earliest.
247. It also appears from the documents that French Government approval to the Transaction was forthcoming by 21 January 2022 and that no additional requirements were imposed beyond those put in place in 2017 upon LAT's acquisition of GAH.
250. On 3 February 2022, HSF submitted the NSIA notification for the Transaction to BEIS on SDH's behalf. This confirmed that, following completion of the Transaction, SDH would be LAT's controlling shareholder, LAT already enjoying GAH board control. With the consummation of the Transaction, SDH, a Chinese state entity, would therefore enjoy indirect control over GAH.
253. On 8 February 2022, MoD asked Mr Upton for the report on compliance with the Annexes to the SoS Deed as discussed on their January call, identifying categories of information required. Mr Upton provided compliance information the following day, also asking for confirmation of his understanding that SDH had made the NSIA 'application'.
256. The GAH board met again on 28 February 2022. Mr Upton noted SDH's ongoing discussions with HMG and anticipated challenges regarding change of control. He did not mention his related discussions with MoD and BEIS. The potential acquisition of an Italian company was also discussed. Mr Visotschnig suggested in his written evidence that Mr Upton was pressing for this acquisition which, given Gardner's financial position, he considered "absurd". However, based on the discussion at this and the prior board meeting on 27 January, it seems clear that there was mutual interest among the directors and, potentially, from LAT and SDH, in this (or another) acquisition and that Mr Upton was pragmatic about the opportunity. As such, Mr Visotschnig's critical focus on Mr Upton's enthusiasm seemed unfair. In any event, the merits (or otherwise) of the proposed acquisition were not relevant to what I must decide.
259. On 4 March 2022, Mr Upton exchanged messages with LAT's investment controller in China concerning the status of SDH's 'application' to HMG. Mr Upton was told that HMG had said it needed 45 days to operate internally, with feedback expected that month.
262. Mr Upton's initial communications with Mr Holden
264. On 7 March 2022, Mr Upton e-mailed Mr Richard Holden MP (North West Durham), in whose constituency Gardner's Consett factory was based. That e-mail apparently followed a telephone conversation with Mr Holden the previous week. In the e-mail, Mr Upton identified other Gardner UK factories and their local MPs. He also described Gardner's challenges in the following terms:-
267. " ? As the geo-political landscape has changed, the Chinese owner has found it increasingly difficult to invest in Gardner outside of China and equally, Gardner has found it difficult to participate in some development programs, as some customers take a more negative view of Chinese ownership. The shareholder has been able to invest in a 50000sq m facility in Chengdu, China and has made recent investments in equipment for this facility."
269. The Claimants rely on Mr Upton's explanation of the Transaction and his expressed 'preference' for consent to be refused:-
272. "The resulting high level of indebtedness of Gardner's shareholder has led them to enter into debt for equity transaction with a Chinese state owned investment fund. Under the National Security and Investment Act, this is a notifiable transaction (change of control) and an application has been made to the UK (and French) governments. With the risk that improved Chinese shareholder finances will hasten the transfer of UK and French jobs to the new facility in China, we believe that the application of the NS&I Act be carefully scrutinised with a view that if consent is given, suitable guarantees over UK employment and investment are obtained at a minimum or, preferably, the application for Chinese state ownership of an aerospace asset is refused. We have tabled a potential solution with BEIS should the application be refused."
274. The potential solution that had been tabled is not stated but I consider it likely to have been discussed in Mr Upton's call with BEIS on or after 18 February 2022. Given its linkage to approval refusal and Mr Upton's later actions discussed below, that solution is also likely to have involved Gardner's divestment by LAT. As for this e-mail to Mr Holden, Mr Upton said in his evidence that he enlisted his support to protect jobs and investment, not to get approval for the Transaction refused. Although the e-mail does mention the aim (at a minimum) of getting guarantees to protect jobs and investment, Mr Upton's clear preference was for such refusal. His suggestion in oral evidence that this could be "read into that sentence" made no sense. He clearly conveyed his ideal outcome of Transaction non-approval and that a 'solution' had already been proposed to BEIS in that scenario.
277. The Claimants also place reliance on Mr Upton's concluding remark that "I look forward to seeing what can be stirred up!", 'stirring up' said to be exactly what Mr Upton was doing by communicating in this way with the local MP. Mr Upton testified that this was an inelegant reference to support for employment and investment. Given his preference for refusal of approval for the Transaction, I accept that Mr Upton's concluding language about what could be 'stirred up' was directed to more intrusive regulatory intervention.
280. Mr Upton forwarded the e-mail to Gardner's VP of Human Resources and Company Secretary, Ms Storer, "[f]or the files!". She responded "[f]ingers crossed!!". Mr Upton confirmed that he did not share this communication with the GAH board, Mr Visotschnig or LAT. Since they were working for the approval of the Transaction, I am satisfied that they would have taken significant exception to such a communication had they seen it. Mr Upton too would have appreciated the likelihood of such an adverse reaction. Indeed, for someone who supposedly recognised that it was his duty to work to secure Transaction approval, this was a quite remarkable communication.
283. NatWest's further observations on Gardner funding ? March 2022
285. On 9 March 2022, NatWest wrote to the GGL board. The Bank noted some recovery in the Group's financial performance since July 2021 but that the latest cashflow forecast depended on further funding to refinance certain equipment to meet the minimum liquidity cover covenant in the near term, with minimal headroom in the Bank's remaining covenants throughout this financial year. NatWest also noted that the deferral of the amortisation payments to June 2022 meant that large bullet repayments due under the Bank's facilities in September and December 2023, together with the then current financial performance, might result in material uncertainty when it came to the ongoing concern review to be disclosed within Gardner's 2021 audited accounts. As it had already canvassed in July 2021, the Bank was of the view that additional shareholder or third party funding should be considered at this stage given that forecasts continued to indicate the need for additional funding from June 2022 onwards.
288. NatWest explained that it did not itself have the appetite for further funding or forbearance. It also continued to reserve its rights in respect of the ongoing breach of covenant relating to the Indian share pledge. In light of the proposed changes in LAT's shareholding, the Bank requested clarification by 31 March with respect to the current and intended ownership of the Group and LAT, proposed board changes and related NSIA obligations. Mr Upton forwarded the letter to Mr Ford for review. He responded that:-
291. "All factually correct.
293. They are basically saying that we need to fix the problem without offering any flexibility on further waivers or deferments. Therefore without a known refinancing or LAT support, Nat West are inferring they are unwilling to support us.
295. We therefore have a going concern problem without Shareholder support and won't get unqualified accounts.
297. They will clearly call on shareholder cure once it is evident we don't have Rigimill pre inception funding or we forecast we cannot pay the loan repayment (this will be within the 13 week forecast in the first week of April)
299. Should they also be copying this [sic] LAT as a party to the loan agreements?
301. Even if they don't we may have to ask for clarity of LAT support as directors of GAHL in order for us to act as directors now we have this letter."
303. On 10 March 2022, Mr Upton forwarded NatWest's letter to Ms Hongmei Zhai and Ms Qi Wang of LAT under cover of an e-mail in which he explained that NatWest's "positioning" letter and restatement of no further support was not surprising. He also mentioned a capex financing proposal which had been put together for discussion with SDH. Although not seen as a positive step, SDH's support in this way would allay NatWest's concerns and provide needed liquidity until after the summer. Third party lenders were deterred by industry risk and the balance sheet position of GAH and LAT. The Bank's letter would also raise going concern issues with Gardner's UK auditors who had already expressed concern about the ability to refinance the NatWest facilities in 2023. Evidence of support from LAT or SDH would remedy that, Mr Upton asking whether this could be raised with SDH. Mr Visotschnig accepted that Mr Upton was reporting NatWest's position and inviting a discussion on further asset financing. However, he also testified that Mr Upton was not proposing action such as ceasing further capital expenditure given Gardner's lack of funds. Again, this appears to reflect a difference of view as to Gardner's financial management, not a matter that falls for my decision. On the same day, Mr Upton sent the letter under cover of an e-mail in similar terms to his fellow directors.
306. Events leading to Mr Upton's 28 March 2022 call with BEIS
308. On 14 March 2022, GKN Aerospace (GKN) wrote to GGL stating that, by mutual consent, GGL would voluntarily exit what was known as the MASTER project, albeit with the potential for continuing participation by becoming a GKN subcontractor.
311. On 16 March 2022, BEIS sent the 'call-in notice' to SDH, HSF and GAH.
314. On 18 March 2022, Mr Upton informed Mr Holden of this development by e-mail in which he stated:-
317. "If this is someway down to your efforts, thank you for this welcome intervention!
319. I certainly don't believe the fight is over but at least it means that the potential impacts of Chinese state-ownership of Gardner are properly being considered."
321. I agree that if, as Mr Upton testified, he had been working to secure HMG approval for the Transaction, he would not have welcomed the issue of a 'call-in notice', let alone express that sentiment to an MP. In the same e-mail, Mr Upton also mentioned Innovate UK's proposal to defund innovation projects in which Gardner was involved unless it withdrew, expressing concern as to future competitiveness and job security. I accept that Mr Upton was seeking here to continue the "fight" by encouraging further political intervention in the NSIA process with a view to Gardner's "ownership position [being] challenged\ changed."
324. On the same day (18 March), Mr Upton wrote to BEIS. Noting the receipt of the 'call-in notice', he welcomed the "additional scrutiny that the change of control process is being afforded." Again, he would not have expressed himself in these terms if he was working for HMG approval. Mr Upton enclosed the GKN withdrawal notice, noting that this may have been coincidental but also his understanding that the two were clearly linked. He asked for a call to discuss Innovate UK's block on Gardner's participation and potential remedies. A meeting with BEIS was subsequently fixed for 28 March 2022. An internal ISU note of that meeting records that:-
327. (i) BEIS ran through the NSIA process, using the "usual lines";
329. (ii) Mr Upton stated that the process was clear but asked whether an information notice had been given. ISU said that it had not but could not rule out that one might be;
331. (iii) SDH had informed Mr Upton that it may need help navigating the process but was not clear what it wanted him to do - Gardner was "flying blind";
333. (iv) According to Mr Upton, LAT and SDH would not be able to answer questions about military content because of the access restrictions in the Deeds;
335. (v) BEIS stated that there was no link between the 'call-in notice' and the letter from GKN stating that Gardner had been removed from the MASTER project;
337. (vi) BEIS recommended that he speak about that to GKN and Innovate UK, Mr Upton stating that he could "read between the lines";
339. (vii) Mr Upton stated that he had remedies in mind and asked how best to make representations. BEIS said that the earlier it had information, the more useful it was;
341. (viii) Mr Upton said that remedies would depend on the national security risks sought to be mitigated, positing the example of Chinese ownership or involvement which he thought was a 'red line'; and
343. (ix) Mr Upton said that the meeting had helped Gardner to understand where it could influence remedies and any risk assessment. He was happy to take guidance to save 500 jobs and would be fully supportive of the process.
345. In his witness statement, Mr Upton stated that ISU had asked Gardner in writing on 28 March 2022 to propose possible remedies. However, he accepted in oral evidence that the relevant communication with ISU (in the meeting recorded above) was, in fact, verbal. He described that meeting as a 'teach-in' about the NSIA process and how this would unfold, it being clearly stated that parties were encouraged to make representations. There was some discussion as to which of the participants brought up the question of remedies. Mr Upton said that it was ISU which raised the issue. Although, it is clear from the meeting notes (HMG's and Ms Storer's) that ISU explained the NSIA process, including remedies, information provision and representations, Mr Upton had requested the meeting in part to discuss potential remedies. At the meeting itself, he also volunteered that "he had remedies in mind", asking how best to make related representations. He provided those representations in the form of a draft 'remedies letter' shared with Mr Robert Asplin of PwC a few days later and in final form to ISU a week after that.
348. The further involvement of MPs
350. On 22 March 2022, Mr Holden wrote to Mr Upton, stating that he had spoken to Dame Margaret Beckett MP (Derby South) and Mr Stephen Metcalfe MP (South Basildon and East Thurrock). Mr Holden explained that the former would like a briefing from Mr Upton and that she would write a private letter to ministers. The latter was broadly supportive of what Mr Holden described as "your aims" and was keen to visit the Gardner site in his constituency. Mr Upton e-mailed Dame Margaret on 24 March 2022 in very similar terms to his 7 March e-mail to Mr Holden, including his stated preference for the refusal of the "application for Chinese state ownership of an aerospace asset". I again accept that Mr Upton sent this further e-mail with a view to that being his ideal outcome.
353. On 31 March 2022, Dame Margaret wrote to SoS for BEIS explaining that she had been approached by Gardner, headquartered in her constituency. Her letter closely reflected Mr Upton's e-mail to her and explained her understanding that (i) Gardner had been under Chinese ownership since 2017 (ii) the Chinese owner had found it increasingly difficult recently to invest in Gardner outside China (iii) Gardner was finding it increasingly difficult to participate in development programmes because some customers were concerned about its Chinese ownership (iv) the shareholder had recently made a significant investment in a facility in Chengdu which compounded the difficulty of investing outside China (v) the shareholder was sufficiently indebted to enter into a debt for equity swap with an investment fund owned by the Chinese state and (vi) she was pleased to hear that BEIS had called in the transaction under the NSIA. She urged SoS to scrutinise the Transaction carefully to ensure that, at a minimum, there were suitably strong UK job and investment guarantees. However, she also expressed her scepticism of such guarantees and, reflecting Mr Upton's preference conveyed to her, urged the refusal of the application with respect to an asset of this nature. She also understood that Gardner had proposed to BEIS another potential way forward. The BEIS minister, Lord Callanan, responded on 17 May 2022, noting that it would not be appropriate to comment on whether the Transaction had been called in under the NSIA and that commercial transactions were primarily matters for the parties but assuring Dame Margaret that, whenever BEIS identified concerns with such transactions, it did not hesitate to use its powers to protect national security.
356. On 22 April 2022, Mr Upton met Mr Holden at Gardner's Consett site, noting internally to Mr Ford after the meeting that "Mp meeting went well. Reckons we need to add a political influencer to the board. Have a good weekend!". Mr Holden wrote after that visit (14 May 2022) to thank Mr Upton, asking him to keep in touch about what they had discussed. Mr Holden said that he would "ask around here too". Based on Mr Upton's preparatory e-mail from 20 April 2022 to the plant lead site leader, it is clear that job opportunities in Consett and the development of skills locally were discussed on the visit. However, Mr Upton also envisaged discussing "government intervention into our ownership arrangement." In view of Mr Upton's clearly expressed preference from 7 and 24 March 2022 to Mr Holden and Dame Margaret for the Transaction not to be approved, I accept that he also used the opportunity of the visit to continue to lobby the former for HMG intervention in the Transaction to that end. Indeed, Mr Upton had told Mr Williams of Montana Aerospace (Montana) on 20 April 2022 that "I am meeting with some MP's on Friday and will "share" your LOI to strengthen their resolve." Montana's letter of intent (LOI) contemplated the divestment of up to 100% of Gardner and Mr Upton's discussions with Mr Williams from early April 2022 envisaged that occurring following a divestment order by HMG as part of the NSIA process.
359. On 29 March 2022, Mr Upton responded to NatWest's 9 March letter, providing an update on the NSIA process, including how BEIS had said on the 28 March 2022 call that no information was outstanding. Mr Visotschnig accepted in oral evidence that the letter contained everything that should have been shared with the Bank. Mr Upton forwarded the letter to his co-directors on 31 March, explaining that NatWest had acknowledged the response and was content to be updated as the process continued.
361. GAH board meeting - 1 April 2022
363. The question of funding generally was an important issue discussed at the GAH board meeting on 1 April 2022, attended by Mr Upton, Mr Ford, Mr Scott, Ms Storer and Mr Visotschnig. Since it was inquorate, it was an informational meeting. It was recorded and lasted approximately 80 minutes. The meeting was a candid discussion of the problems facing the Group as at April 2022 in the midst of the NSIA process, including:-
366. (i) Gardner's worse than expected profitability, impacted by a number of adverse factors;
368. (ii) Tight cashflow, Gardner having expected to go under the ?5m minimum liquidity covenant limit in Q3 2021 but managing to avoid this by greater 'creditor stretch' and additional financing;
370. (iii) Some performance in H2 2021 negatively impacting cash generation such that Gardner was close to the ?5m limit, with efforts being made for operational improvements and maximisation of cash availability;
372. (iv) Gardner's capital funding plan being 'pushed' with LAT;
374. (v) Gardner's additional efforts to obtain financing for some of its UK assets;
376. (vi) Mr Upton's indication that he wished to propose to NatWest the temporary suspension of the ?5m limit pending the delivery (and refinancing) of certain machinery;
378. (vii) Mr Upton's observation that the shorter term issue would be the funding of the capital repayment due on 30 June 2022;
380. (viii) The longer term proposition, namely SDH taking a controlling stake in the business through a debt for equity swap, with Gardner gaining access to liquidity through a global financing solution to be provided by HSBC;
382. (ix) Mr Upton's observation that it was becoming harder to obtain money from China, with LAT not having funds and SDH having funds but the Chinese authorities reluctant to invest in over-indebted companies;
384. (x) Relatedly, Mr Upton imparting a rumour concerning a UK subsidiary of the Chinese state-owned Aviation Industry Corporation entering 'pre-pack' administration as evidence of such reluctance;
386. (xi) Mr Visotschnig's assessment from his communications with SDH that (a) he did not see an appetite in the short term to invest to grow the business and that it was more a 'turnaround' case to be achieved by Gardner (b) he was fighting for the ?10m for the capital plan and, in doing so, avoiding phrases such as "supporting current losses" (c) although the capital plan was an 'asset-based fact finding' and matters appeared to be moving in the right direction, this was far from being approved and he was not sure it would be fully and (d) there was a readiness to convert the existing shareholder loan after the debt for equity swap, with a further debate to be had next year when the refinancing approached;
388. (xii) Mr Upton's view that the current (long term) plan, involving SDH taking a controlling stake in GAH and a refinancing by HSBC, still did not seem to secure the certain liquidity stream that GAH required to achieve its plans rather than perpetuating the problems of the last four years in trying to maintain the investment value of the business without the investment necessary for that purpose;
390. (xiii) The need to consider insolvency if the business could not be financed long term, albeit there was always the potential to do a rescue and the risk that steps would need to be taken towards that;
392. (xiv) The NSIA process, including the need for HMG consent for the Transaction and the proposal presently under BEIS assessment;
394. (xv) Mr Upton's description of HMG's consent to the Transaction as the "best case" and its refusal as the "worst-case scenario", the latter resulting in loss of banking support.
396. (Mr Upton had, of course, told Mr Holden and Dame Margaret inconsistently that such refusal was his preferred outcome);
398. (xvi) Mr Upton considering it odd that HMG had not asked for information;
400. (xvii) Mr Upton and Mr Ford both being of the view that HMG and SDH were each waiting to see what the other would do, the former having conveyed to Mr Visotschnig (and he to SDH) that SDH doing nothing was not a good option;
402. (xviii) Mr Upton pointing out that any intervention by GAH to provide reassurance to secure a positive result would need SDH consent and that HMG would not reveal the circumstances giving rise to national security concerns such that GAH could not understand what the issue might be;
404. (xix) Mr Upton also pointing out a potential 'interim' outcome of consent conditional on a 'request' by HMG with respect, for example, to jobs or investment, such request being difficult to satisfy if money was not forthcoming from China.
406. (Mr Upton has expressed this to Mr Holden and Dame Margaret as a minimum 'ask' of HMG);
408. (xx) As for a potential alternative plan or 'Plan B', the sale of UK sites not being straightforward because of their particular issues or co-dependence on other Gardner sites;
410. (xxi) The identification of the Basildon site as the easiest to segregate from the Gardner business, Mr Upton stating that such a defensive move would signal to the market that GAH cannot invest;
412. (xxii) Mr Visotschnig's view that it was always good to plan for the worst, that GAH should have a script to hand in case HMG asks for GAH's views on the debt for equity swap and, likewise, to plan for the eventuality that the Transaction fails (including bearing in mind a possible Basildon sale);
414. (xxiii) Mr Upton's related view that GAH needed to be agile to navigate a situation in which the Chinese retain ownership (albeit with a shrinking European presence because of the need to sell it off) or in which ownership moves to a different structure (because HMG will not allow the Transaction). In the latter case, the options would need to be considered but, on past experience, GAH would not be given consent to do so.
416. (It is notable that Mr Upton did not mention here that, only a few days earlier, he had made an approach to Montana concerning a change of Gardner ownership (discussed below));
418. (xxiv) Mr Visotschnig's view that refinancing of the ?35m facilities was a priority after the summer; the current priority (in the absence of a 'Plan B') was to ensure that GAH was not exposed to a breach of covenant so allowing NatWest to pull out;
420. (xxv) Mr Upton noting that this would be tricky at the EBITDA level but the related covenant had been treated by NatWest as 'informational'. The ?5m minimum liquidity covenant and debt repayment covenants, however, were 'hard' and Gardner needed to make a payment in June 2022 which it could do. The feedback from the Bank was that, so long as Gardner was not asking for more money, debt repayment apart, it would be able to delay issues concerning the conduct of the facilities; and
422. (xxvi) Mr Upton's view that NatWest would be concerned if it thought that there would be no more money coming from China. However, the key would be HMG's consent to change of control. NatWest would likely 'pull' in the 'doomsday scenario' of consent being withheld, those circumstances necessitating a change of GAH ownership and financing structure.
424. There was some discussion in the context of this meeting about Mr Upton's suggested failure to disclose his contact with ISU in the NSIA process. For example, it was suggested to Mr Visotschnig that it was clear from these minutes and Mr Upton's comments on the status of the process and lack of a request for information from ISU that he was involved in the process. I have to say that this was not apparent from the minutes. If anything, Mr Upton's comment about not making representations to ISU without SDH consent rather suggested otherwise. Nor do they record his meeting with ISU only a few days earlier.
427. Later on 1 April 2022, ISU sent an information notice to Mr Upton, seeking information by 19 April 2022 about the goods and services supplied by Gardner facilities in the UK or China to companies or organisations in the defence sector. That information was provided on 18 April. On 26 April 2022, ISU confirmed that this was satisfactory, the resumption of the assessment period and the revised period for ISU to complete its assessment.
430. Gardner's 'remedies letter' ? 8 April 2022
432. On 1 April 2022, Mr Upton sent Mr Asplin of PwC (himself formerly a director of GAH) a draft 'remedies letter', identifying "our ask to UK government\ definition of the desired solution". PwC had not yet been formally engaged by Gardner. The letter stated that:-
435. (i) It was written on behalf of the Gardner "management team" and was to be signed by Mr Upton as "director";
437. (ii) Ongoing Chinese control of Gardner created the potential for loss of UK employment and capability through the transfer of work to Chengdu and active 'de-risking' decisions by customers (such as requiring resignation from development programmes as disclosed on the 28 March call with BEIS);
439. (iii) Transaction approval with the requirement of a strengthened Deed would further impact Gardner's ability to trade and its involvement in ongoing programmes, increasing loss of UK employment and capability;
441. (iv) Although shareholder debt would be converted to equity upon successful completion of the proposed change of control, no new investment for Gardner's European entities was envisaged even though Gardner's business plan suggested that this was required. As such, the Transaction would not secure the Gardner business. Moreover, the Chinese authorities were restricting funds outflows from China, Gardner foreseeing that future shareholder funding would become increasingly difficult, even if the shareholder was willing;
443. (v) Given these matters, Gardner believed that the Transaction would not secure Gardner's future and that heightened oversight was not a workable mitigation to the perceived national security risk;
445. (vi) The proposed remedy to facilitate continuation of the Transaction would therefore be a requirement for LAT to divest control of Gardner. Possible scenarios included:-
447. (a) Partial divestment of at least 51% of shares of all Gardner entities except for Gardner Chengdu to an alternative investor prior to the change of control;
449. (b) LAT's retention of 100% of Gardner's shares with Gardner to be governed by an independent board, with no direct LAT/ SDH control indefinitely or for a defined period to allow divestment; or
451. (c) Divestment of Gardner (except for Gardner Chengdu) prior to the Transaction.
453. (vii) All these scenarios (except (a) with its continuing Chinese involvement) would fully mitigate any national security concerns and secure UK employment and capability while allowing LAT to continue to invest in its Chengdu capability and recover fair value for its investment in Gardner over the medium term. These remedies would also avoid SoS for BEIS having to issue an order against the proposed transaction, thereby frustrating a Chinese state matter.
455. Mr Upton also explained in his e-mail to Mr Asplin that Montana were interested in acquiring Gardner in the scenarios outlined in the letter and how he had "[l]aid it on thick" with NatWest, asking whether they could be seen to be supporting an effectively 'sanctioned' entity if HMG did not allow the Transaction to proceed. In his evidence, Mr Upton denied that he was setting up a position of NatWest pulling its support if the Transaction was refused as another way of forcing a sale of Gardner. Mr Upton suggested that this was an effort to make the Bank support the Transaction and delay any contingency planning actions required by NatWest. However, this would be a hazardous and, frankly, unlikely strategy. I reject his related evidence.
458. Mr Upton also said that the NatWest's 9 March 2022 letter had already put it "pretty much" in the position that he was suggested to have been engineering with NatWest. However, the Bank's letter did not come close to that. NatWest made clear that it did not have the appetite for further lending or forbearance and, in relation to the Transaction, asked for information. Mr Upton provided this on 29 March and told the board on 31 March 2022 that the Bank was "OK to continue to be updated as the process continues." I agree that Mr Upton 'laying it on thick' with NatWest was his sowing with the Bank seeds of disquiet in the event of Transaction non-approval. Indeed, he had canvassed at the 1 April 2022 board meeting in strikingly similar language the Bank's likely nervousness in that scenario.
461. On 8 April 2022, Mr Upton sent the (final form of) 'remedies letter' to BEIS on behalf of Gardner's management team very similar to the draft shared with Mr Asplin on 1 April (including the points already summarised), stating in the cover e-mail that they continued to work on the information notice requirements and would respond separately to those the following week. Mr Upton confirmed that he did not share this letter with the GAH board, LAT or Mr Visotschnig.
464. A few observations are warranted on its contents. The final form of letter now spoke in terms ongoing Chinese "state" control of Gardner (not merely ongoing Chinese control). Mr Upton accepted that this was a poor choice of language given that the Transaction had not yet been consummated. In fact, much of the focus of the letter was on Gardner's existing experience under LAT's ownership in terms of jobs, investment, market competitiveness and compliance costs as a result of the Deed. As to those, Mr Upton accepted that no work or jobs or UK capability had been transferred to Chengdu at the time of the letter. Nor could he identify work lost as a result of the Deed. As to the Transaction itself, the letter did mention that it would result in LAT/ Gardner debt being converted to equity but not the proposed refinancing of the NatWest debt and related SDH guarantee. Mr Upton conceded that it was a "reasonable assumption" that he was telling HMG that the Transaction "would be a bad thing for Gardner". In fact, this was obvious from the letter's plain language.
467. Mr Upton also suggested in his written evidence that the 'remedies letter' encompassed potential options beyond divestment. Although the option of heightened oversight was canvassed, Mr Upton went on in the letter to say that this would not be a workable mitigation because of its impact on the Gardner business. Nor was the suggestion of an independent GAH board a standalone option; it was part of one of three possible variants of a proposal for Gardner's divestment. Mr Upton said in his written evidence that these scenarios were "hypothetical". However, as he told Mr Asplin on 1 April 2022, the letter, with its options for divestment, reflected the Gardner management team's "ask" of HMG. Mr Upton was seeking to make it a reality.
470. Indeed, the letter was, in my view, an extraordinary communication for any GAH director to have sent to ISU. Mr Upton initially accepted that LAT's divestment of GAH would have made more difficult the objective of getting new money from SDH into Gardner. I agree. SDH would certainly not have entertained funding LAT for the benefit of a company required to be sold, let alone guaranteed that company's bank borrowings. However, he did not believe it would kill 'Plan A'. That evidence was unrealistic. Gardner was LAT's principal asset. SDH would not have proceeded with the Transaction if doing so meant Gardner's divestment. Indeed, Mr Visotschnig told ISU on 22 August 2022 that a remedy of divestment would be unworkable for Gardner and of no commercial benefit to SDH. Although Mr Upton suggested ignorance of SDH's motivations in this regard, he would have well appreciated what was a rather obvious point.
473. Nor could Mr Upton's apparent reliance in his written evidence on the GAH board discussion on 1 April 2022 avail him. At that meeting, Mr Upton described consent to the Transaction as the "best case", refusal as the "worst case scenario." As he accepted in oral evidence, the latter would render 'Plan A' impossible. As I have already noted, his divestment proposal, if adopted, would have been to the same effect. Although the possible divestment of certain Gardner sites was discussed at the meeting as a potential 'Plan B' if the Transaction was not approved, the 'remedies letter' was not presenting LAT's divestment of Gardner as a contingency in that event. Rather, as Mr Upton explained to Mr Asplin on 1 April, such divestment represented the "definition of the desired solution". Put another way, it represented Mr Upton's own 'Plan A'.
476. It is also notable that Mr Upton's co-director, Mr Scott, suggested at the 1 April 2022 board meeting that GAH take the initiative and provide HMG with a briefing paper to provide assurance, including around jobs, investment and IP, and "hopefully secure a positive decision". Mr Upton declined this suggestion then on the basis that SDH consent would be required. Despite this, only a week later, and without SDH consent or the knowledge of the GAH board, he went on to propose remedies which he knew would undermine 'Plan A'. Mr Upton said that he could not speak to the reaction of his co-directors if he had told them but accepted that "one of a range of outcomes" might have been that they would have been "appalled, angry, apoplectic." I agree that, had it been shared, Mr Upton's unsolicited proposal to ISU for the divestment of Gardner by LAT would likely have elicited all those responses and that Mr Upton would have appreciated this at the time.
479. Mr Upton's explanation for taking this course only a week after the board meeting at which Mr Scott proposed a briefing paper for HMG was the receipt of ISU's information request. This made no sense either. An information request is not a request for representations on remedies. Mr Upton was already anticipating the former (which he told the board he was surprised not yet to have received). He also already knew about the ability to make the latter from his discussion with ISU on 28 March 2022. He stated then that he had remedies in mind and asked the best way to go about making representations. He had also tabled a 'solution' with BEIS on or after 18 February. It is quite clear that he already had the divestment proposal 'up his sleeve'. Indeed, he shared a fully worked up draft of the 'remedies letter' with Mr Asplin on the very same day as the board meeting and the information request (1 April). As he also said to Montana on 5 April concerning the proposed divestment of Gardner and LAT's likely reaction, "a lot of thought has been given to this!" Finally, Mr Upton's suggestion that the 'remedies letter' was intended to expedite the NSIA process did not make sense either. Whether or not the process might have been hastened, his proposed remedies, if adopted, would have put an end to Gardner's 'Plan A'.
482. Nor did I accept Mr Upton's suggestion in this context that he wanted Plan A to succeed in a way that would secure jobs, investment and competitiveness. If, for example, UK jobs had been a concern, he could have proposed (less drastically) the approval of the Transaction conditional on UK jobs not being moved to China. Mr Upton initially said in his evidence that this would frustrate the shareholder. However, the forced divestment of LAT's shareholding proposed in the 'remedies letter' would obviously have caused greater frustration, as Mr Upton explained to Montana on 5 April. Mr Upton later suggested that he did not consider at the time proposing a remedy of requiring a guarantee of jobs and investment. However, he had previously canvassed with HMG such guarantees in the context of the position of the French Government as well as the possible leveraging of the Transaction to the same end. He had also canvassed this with Mr Holden and Dame Margaret as his minimum 'ask' behind his preference for Transaction refusal. They had also been discussed at the board meeting on 1 April 2022. Mr Ford also e-mailed Mr Upton about such remedies earlier on 8 April, the day the 'remedies letter' was sent. Given these matters, the idea that Mr Upton had not considered these less draconian remedies was unrealistic. Coming back again to his comment to Mr Williams, Mr Upton had already given a "lot of thought" to this.
485. In short, if adopted, the 'remedies letter' proposal would have killed the Transaction. Mr Upton readily appreciated this. Despite paying 'lip service' to Transaction approval as the "best case" in the presence of his co-directors on 1 April 2022, he had already been working behind the backs of the LAT board (with MPs and ISU) to undermine 'Plan A'. In evidence, he tied himself up in knots in his efforts to suggest otherwise.
488. Montana Aerospace
490. On 28 March 2022, following his call with BEIS earlier in the day, Mr Upton reached out to Mr Tom Williams of Montana stating that "events may be working out in a way that presents another opportunity for a change of ownership of Gardner." It appears that Mr Upton met with Montana on 4 April 2022, following up that meeting with some "short bullet points for you to consider in your evaluation of this opportunity", summarising that "an alignment with Montana would better protect UK employment and promote UK capability", with Montana also "better placed to support the investment required to deliver on Gardner's potential." Mr Williams responded, asking how Mr Upton saw this potential solution playing out with Gardner's shareholders and its new CEO. As noted in the context of the 'remedies letter', Mr Upton responded that, if HMG made an order for Gardner's divestment, the Chinese shareholders would likely not react well but, if HMG was not too aggressive, he expected them to accept this given the wider issues faced by the Chinese state in supporting under-performing overseas assets. He said that Mr Visotschnig was aware of the current situation and various scenarios and was of the view that, longer term, Gardner's European operations would need to find new ownership. Mr Upton believed that, as an LAT appointment, timing was key for Mr Visotschnig and, should an order be made by 1 July, there would be an option for him and SDH to revisit his appointment. Mr Williams responded on 5 April stating that this was what Montana envisaged, albeit noting that " ? if they think they can recover all their investment without a significant 'haircut' then it won't work for us", concluding that "[l]et's see how the UK government react."
493. On 12 April 2022, Montana issued an LOI with respect to the potential purchase of up to 100% of GAH's shares. On 20 April 2022, Mr Upton said that he was meeting with "some MP's", that he would share the letter with them "to strengthen their resolve" and that he expected an "extension notice" putting the "main decision" back to the end of May or early June 2022. In response to Mr Williams' offer of lobbying assistance, Mr Upton stated on 21 April that he had "all the Gardner site MP's (including Margaret Beckett!) lobbying the Secretary of State on our behalf" and that " ?. I think it would be worth a few calls to people on your political influence list" which would also "give a few further data points on the "mood" in government to make something happen." Mr Upton also proposed certain "key messages" for BEIS. Mr Williams had not met SoS but he was happy to speak to their mutual contact at BEIS.
496. As for the nature of that lobbying, Mr Upton suggested in evidence that his phrase "to make something happen" was unclear and maintained that this was directed to protecting UK jobs and Gardner's future. I was unable to accept this evidence. The purpose of the lobbying was clear from the documents, including reference to the likely "involuntary" nature of a sale scenario, adverse shareholder reaction to a divestment order by HMG and Montana's intent (expressed in the LOI) to acquire up to 100% of Gardner. The reference to UK jobs and Gardner's plans was but one element of the "key messages" to BEIS which were focused on the impediment of continued Chinese ownership. Those messages also identified the availability of alternative European investment. The lobbying assistance sought was clearly directed to Gardner's divestment, consistent with Mr Upton's 'remedies letter' from early April.
499. Liberty Hall
501. On 11 April 2022, Mr Upton also reached out to Mr Rowan Taylor of Liberty Hall Capital Partners, L.P (Liberty Hall), stating that "[i]f you are interested in hearing about where Gardner is at currently and that it might shortly be in play, I'm happy to arrange a call to discuss." Mr Taylor responded the same day saying that Liberty Hall was interested. They spoke on 19 April 2022, with Mr Taylor following up that call by indicating Liberty Hall's interest in acquiring Gardner, requesting a non-disclosure agreement (NDA) from Gardner and asking for Mr Upton's recommended next steps. Mr Upton responded on 21 April 2022 with a 'boilerplate' NDA, asking if Mr Taylor "could arrange for some UK governmental lobbying by US officials to help create the environment [sic] t for the proposed transaction", sending the same "lobbying messages" as he had already shared with Montana. He also asked Liberty Hall "for a Letter of Interest [to] be provided by Liberty Hall ?. outlining your interest in supporting Gardner should the UK Government decide that the business needs to be divested."
504. The evidence concerning the e-mail to Mr Taylor on 21 April 2022 was somewhat surreal, Mr Upton suggesting that the "proposed transaction" referred to was the Transaction. Self-evidently, the e-mail was concerned with a potential acquisition of Gardner by Liberty Hall which had expressed its definite interest in pursuing the acquisition of Gardner (acknowledged by Mr Upton), had requested an NDA (provided in draft by Mr Upton) and had been asked (by Mr Upton) for an LOI (as Montana had also provided).
507. Mr Upton also sought to maintain his written evidence that his engagement with Montana and Liberty was to acquire evidence of their ability to buy Gardner assets if there were an opportunity to divest and to demonstrate to NatWest that there was market interest in Gardner should the Bank not decide to continue to finance or HMG did not approve the Transaction. Although I accept that Mr Upton did test their interest (and they responded positively) and that he did share the Montana LOI with NatWest, the involvement of Montana and Liberty Hall was not for contingency planning purposes. Mr Upton was in discussion with those potential investors from late March and early April 2022 to facilitate an order from HMG for the divestment of Gardner. Although he denied in his evidence that he had obtained the Montana LOI to show to HMG, Mr Upton requested a similar LOI from Mr Taylor of Liberty Hall on 21 April 2022 "to demonstrate to UK government officials that there is an achievable transaction\ outcome if they were to intervene in the way that had been requested". He also told Mr Williams on 20 April 2022 that he would share the Montana LOI with "some MP's" (Mr Upton then due to meet Mr Holden at the Consett site two days later) and on 2 May 2022 that HMG was aware of Montana's interest. The intervention that "had been requested", embodied in Mr Upton's 'remedies letter' of 8 April 2022, was for the grant by HMG of a divestment order. Far from contingency planning in case the Transaction was not approved, Mr Upton was working for that outcome himself, enlisting Montana and Liberty Hall for that purpose. Indeed, although he had denied in his witness statement encouraging lobbying by Montana or Liberty Hall, it is clear from the documents that he was doing just that. Mr Upton accepted in oral evidence that he was asking for their assistance in lobbying HMG, that he did not inform the GAH board that he was doing so and that he had no mandate for that purpose. Again, these were remarkable steps to take for someone who supposedly considered himself obliged to work for Transaction approval.
510. Request for concessions from NatWest ? late April 2022
512. On 12 April 2022, Mr Upton, Mr Ford and Mr Visotschnig met with NatWest at Gardner's Consett site. One purpose of the meeting was for NatWest to begin to get to know Mr Visotschnig. Mr Upton confirmed in evidence that he and Mr Visotschnig both conveyed at the meeting that LAT was committed to provide the necessary short term funding required from June 2022 referred to in NatWest's 9 March letter. After the meeting, NatWest said that it would await further updates with respect to the NSIA approval process and Gardner's ongoing discussions concerning potential asset financing.
515. On 19 April 2022, LAT submitted a document, explaining that it had planned to transfer to GGL the sum of US$2.5m by the end of April 2022 to support capital expenditure investment. In light of Chinese holidays, the funds were now expected to arrive in GGL's account by 7 May.
518. Gardner provided the latest short term cashflow forecast to NatWest on 22 April 2022, the Bank noting on 25 April that it was positive to hear that LAT's US$2.5m payment had been approved by the Chinese State Administration of Foreign Exchange (SAFE). However, in view of forecast liquidity, the Bank also asked for a call that day to discuss what the forecast included. NatWest and Gardner did not speak on 25 April but Mr Upton sent a letter that day outlining Gardner's request "for potential concessions" to enable it to "continue to manage its recovery". He could not recall whether he shared this letter with the GAH board, LAT or Mr Visotschnig but said that he communicated frequently with the Bank without doing so. The letter:-
521. (i) Provided information about the timing of the US$2.5m LAT payment;
523. (ii) Confirmed LAT's awareness that this did not fully cover the Gardner liquidity requirement in its long-range cash forecast and that LAT was working with the authorities to provide a timeline for further follow-on loan extensions, albeit noting that the uncertainty around the 'call-in notice' would continue to weigh on LAT's ability to approve further injections in the short term;
525. (iii) Explained that, with uncertainty over the timing of this shareholder support and continued difficulties in obtaining asset finance, maintaining weekly cash flows at greater than ?5m for at least two successive weeks was unlikely or taking action to maintain compliance would cause damage to the business and its recovery;
527. (iv) Explained Gardner's belief that the correct course of action to allow the business to continue to function was to suspend or waive the minimum liquidity covenant until 31 July 2022 or until the outcome of the 'call-in notice' was known and further shareholder funding became possible;
529. (v) Noted that a further consequence of the uncertainty now faced by Gardner was that going concern issues would frustrate audit sign off for the 2021 year end statutory accounts by 30 June 2022, Gardner requesting an amendment or waiver to extend the statutory filing deadline to 30 September 2022;
531. (vi) Noted Gardner's expectation that the leverage covenant framework would be impacted by inflationary headwinds and requesting a covenant reset; and
533. (vii) Concluded that Gardner continued to respect the Bank's position of no new NatWest funding, loan amortisation delays or weakening of Bank security.
535. In relation to 96(ii) above, it was suggested that Mr Upton had deliberately conflated the question of Transaction approval with that of the short term funding requirement from June 2022. Mr Upton said that, in view of what had been happening in the period January to April 2022, he considered that the two were already clearly linked. Although he was aware of LAT's commitment conveyed to NatWest at the meeting on 12 April to provide the short term funding and he believed that 'Plan A' was the right and achievable plan, he said that LAT's ability to reach that point in terms of continuing to support short term measures was difficult, with other sources of financing being sought out. The approach of the GAH board, supported by Mr Visotschnig, was to maintain the Bank's confidence. Mr Upton said that he considered that his letter supported LAT's assurance, albeit pointing out, accurately as it turned out, that events did not necessarily happen as expected and that caution was required. That is why the GAH board engaged in contingency action to ensure a continuous line of funding.
538. I agree that, keeping the Bank abreast of ongoing funding issues and any related difficulties, was, of course, appropriate. However, only two weeks after joining Mr Visotschnig in assuring the Bank about LAT's funding intentions, Mr Upton then cut across those assurances, suggesting in his e-mail linkage with, and uncertainty around, the 'call-in notice'. In his related evidence, which I found obfuscatory, Mr Upton could not articulate a proper basis for having later written in such terms. Moreover, given the content of his 'remedies letter' which, if adopted, would have undermined Gardner's 'Plan A', his related statements of support in this context again rang hollow. I am satisfied that Mr Upton wrote to NatWest in the terms he did on 25 April to undermine the recent assurances about LAT's intentions and with a view to unsettling the Bank. To use his own earlier language, he was again laying it "on thick" with NatWest to see what could be "stirred up".
541. The same point arises under 96(iv) above, namely Mr Upton's request for a waiver of the minimum liquidity covenant. Such a request could not be said to be objectionable in itself if warranted by Gardner's forecast liquidity position. Likewise, although criticised for doing so, I cannot say that it was inappropriate for Mr Upton to provide the Bank at the same time with a 'worst case' liquidity scenario. Nor was it clear on the evidence whether the making of the waiver request carried the approval of the GAH board. That said, I do accept that Mr Upton was again seeking to 'rattle' NatWest by asking for a waiver of the minimum liquidity covenant until July 31 2022 or " ? a time when the outcome of the Call-In Notice is known and further shareholder funding becomes possible." Mr Upton was again linking funding availability to the outcome of the NSIA process. Again, he could not articulate in his evidence a proper basis for doing so. I accept that Mr Upton's aim in sending his 25 April e-mail was to heighten NatWest's concern that Gardner would not be able to meet its banking obligations. Indeed, as envisaged in Mr Upton's later e-mail to Montana sent on 13 May 2022, this was a "secondary scenario" for his "desired solution" of Gardner's involuntary sale.
544. In NatWest's e-mail response the next day, it noted the ongoing uncertainty around the 'call-in notice' weighing on LAT's ability to approve further injections in the short term to safeguard the Group's liquidity position going forward and explained that this had not been its understanding based on the 12 April discussion. Given that the NSIA process timeline and outcome and alternative options to stabilise the business in the short term were unknown, amendment to the minimum liquidity and other covenant tests would prove more challenging. The Bank suggested a call the following week.
547. Mr Upton responded on 29 April 2022, agreeing to a call and noting "further negative news", the ?2.5m additional loan having been 'blocked' by the Chinese bank despite SAFE approval and a delay of a week or so. According to Mr Upton, this was "[m]ore evidence that relying on China source funds is likely to be difficult and unpredictable." It appears that the call with NatWest took place that day (29 April), with Mr Upton providing NatWest thereafter by way of suggested "reassurance" a copy of the Montana LOI "supporting a change of ownership for Gardner" and his board paper covering the contingency actions that Gardner was said to be undertaking. Mr Visotschnig accepted in oral evidence that the Bank was placing significant emphasis on the ?2.5m payment and that Mr Upton was required to tell the Bank that LAT had not honoured its commitment in respect of the timing of the payment. However, he also testified that Mr Upton should have properly explained the delay. This was the fault of the bank, not LAT, and was due to the local holidays in China not, as Mr Upton had suggested, the need to rearrange approvals.
550. A similar point was put to Mr Upton in his evidence. He acknowledged that the payment was delayed by "difficult circumstances that were beyond both Gardner and LAT's control." He also testified that he had provided a "perfectly honest explanation" of those circumstances. I was unable to accept this evidence either. In my view, Mr Upton's observation about the likely future unreliability of LAT funding was a deliberate and gratuitous comment made in the knowledge that the real cause of the delay in LAT's payment of the ?2.5m was an administrative problem. Again, Mr Upton was seeking to destabilise the Bank's relationship with Gardner by disparaging its shareholder as he had already done (and would go on to do) in other important third party communications, including with HMG.
553. In relation to the sharing with NatWest of the Montana LOI, Mr Upton testified that he had shown Mr Visotschnig the letter during April 2022 and that the latter knew it was a strategy for "dealing with NatWest". I have no hesitation in rejecting that evidence. Given the purpose for which the LOI was procured, namely to facilitate Mr Upton's "ask" of HMG for the LAT divestment of Gardner, Mr Upton would not have shared this with the incoming (LAT-appointed) Gardner CEO. Mr Visotschnig's unchallenged written evidence was that he did not learn of the LOI (or its sharing with the Bank) until after Mr Upton had left Gardner. I accept it. Indeed, it was common ground that Mr Visotschnig later put a stop to discussion with Montana about divestment. Had he found out about the Montana LOI and its proposed sharing with NatWest, he would have objected to that too.
556. Although there is no record of the call with NatWest on 29 April 2022, Mr Upton described the subject matter as a "negative topic". Given the matters which went before and after, I am satisfied that he used the opportunity on that call to 'twist the knife' further about LAT funding, including now by reference to the delay in the NSIA process only just announced, sharing the Montana LOI as a supposed source of "reassurance" that there were others interested in "supporting a change of ownership" and conveying the false impression with the inclusion of his board paper that this was part of Gardner's contingency planning when the GAH board knew nothing of his approaches to Montana and Liberty Hall. He did so to further his objective of the involuntary divestment of Gardner. As already noted, he went on to tell Montana on 13 May that this would follow from either an HMG divestment order or, relevantly here, the breach of Gardner's banking obligations.
559. On 2 May 2022, Mr Upton also provided an update to Mr Williams of Montana on NSIA process timing, noting that the delay afforded a week or two "to land another couple of blows." To carry on the metaphor, Mr Upton was not, and had not been, 'pulling his punches'. He said that he was being pushed to explore contingency options such that they could look to commence due diligence if Montana was in a position to get things underway. He also wrote to the wider Montana team reporting on timing and explaining that the board was being encouraged to explore alternative options should the Transaction not be approved, Gardner working with PwC for that purpose. On 6 May 2022, Montana reiterated that "a cooperation between Montana Aerospace and Gardner in any form could create significant synergies and establish a leading player on the aerostructures market."
562. On the same day (2 May), Mr Upton provided Mr Taylor of Liberty Hall with an update on the NSIA process in similar terms, the related delay said here to allow "another couple of weeks to influence the politicians." Mr Upton also noted that "the delay in approval has caused some concern among wider stakeholders". I am satisfied that these included NatWest which Mr Upton had attempted to unsettle at the end of April 2022 (as described above). Mr Upton went on to explain that, in light of those concerns, the GAH board was "being encouraged to explore alternative options should [HMG] consent to the change of control not be granted." Despite some nervousness from its solicitors about the process, Liberty Hall confirmed that it remained "highly interested in the possibility of Accurus Aerospace acquiring Gardner". On 5 May 2022, Mr Upton informed Mr Asplin that Liberty Hall had provided an NDA and connected him with Mr Taylor.
565. Gardner board meeting - 3 May 2022
567. On 3 May 2022, GAH held a further (now quorate) board meeting attended by Mr Upton, Mr Ford, Mr Scott, Mr Yu Wei, Mr Visotschnig, Mr Wang, Ms Storer and Ms Walski. At the meeting, Mr Visotschnig was appointed as GAH director. The minutes record:-
570. (i) Mr Upton's report that NatWest had responded negatively to the delay of the ?2.5m loan from LAT, with payment now hoped for mid-May;
572. (As noted, Mr Upton had reported to NatWest negatively about this delay and LAT's suggested related unreliability.)
574. (ii) NatWest's initial willingness in its April meeting with Mr Upton to consider his request for a no liquidity covenant and a covenant reset but the Bank's re-consideration of its position due to the delay in the ?2.5m funding and in HMG approval for the Transaction;
576. (As noted, Mr Upton had written to NatWest, suggesting uncertainty around the 'call-in notice' and linking this to LAT's funding intentions.)
578. (iii) The key issues from a cashflow perspective being the servicing of capex and debt and the struggle to obtain financing;
580. (iv) The cashflow trajectory not being worse than the Bank plan from the previous year which had assumed funding, as to which, LAT had asked for ?10m and NatWest had conveyed that ?2.5m was not enough;
582. (v) A meeting having been arranged with NatWest which had advised that Gardner should be obtaining legal advice on insolvency;
584. (vi) The expectation that LAT would perform a debt for equity swap and through that transaction with SDH would gain access to further funding;
586. (vii) The delay in HMG approval for the Transaction until 24 May 2022, no reason for this having been given;
588. (viii) The need for a contingency plan in case such funding was not secured;
590. (ix) Mr Upton's belief that if Gardner went to the market to divest elements of the business, there would be a proposal for the whole of the business;
592. (It is notable that Mr Upton did not mention here that he had already asked HMG for a divestment order in his 8 April 2022 'remedies letter', that he had approached Montana and Liberty Hall and requested LOIs from them to facilitate HMG making a divestment order and that Montana had provided such a letter expressing its interest in acquiring up to 100% of Gardner.)
594. (x) The board's continuation of these activities, including obtaining advice as necessary, until the cashflow forecast was positive or funding committed by LAT.
596. Mr Visotschnig's related written evidence, repeated at trial, was to the effect that Mr Upton had mismanaged the minimum covenant position. Gardner had sufficient cash to be at or over the ?5m minimum liquidity limit and Mr Upton should have checked with Mr Ford as to the solutions that could be adopted to keep Gardner in that position, such as delaying capital expenditure or payments suppliers. However, this aspect reflects a difference of view as to the way in which Gardner should have been managed financially as opposed to any specific breach of fiduciary duty or employment obligation. It is not an issue for me to decide on this claim even if I could meaningfully to do so.
599. Contingency planning
601. GAH's liquidity shortfall contingency planning document explained the need for a 'Plan B' in the following terms:-
604. "3. As reported to the Board during the Board meeting of 3 May 2022, the Company currently forecasts a cash flow shortfall during May 2022 and over the course of the remainder of the year. There is also projected to be a requirement for additional funds in 2023 culminating in a full refinance by the end of that year. In order to solve this projected shortfall, the Company's primary objective is to monitor costs closely and to obtain additional funding from LAT. We understand that some form of funding from LAT is still required under this "Plan A" (Debt for Equity Swap\ SDH controlling shareholder).
606. 4. The Company should also have a contingency plan or a "Plan B" in the event that funding is not provided by LAT in time. Accordingly, the Board has agreed during the Board Call of 1 April to test the market for divestments from Gardner to reduce indebtedness and provide funding for investments."
608. Mr Visotschnig testified that this was one of the papers for the 3 May 2022 board meeting and that it did not reflect the agreed position of the GAH board. I have to say that I found unclear the provenance and status of this document. It appears to have been created during an earlier period of Gardner liquidity difficulty and updated, seemingly on a rolling basis given the dates referred to.
611. On 5 May 2022, PwC sent Mr Upton an engagement letter, identifying its role as supporting GAH in its interactions with NatWest, initial strategic advice as to the sale of parts of the Group and broader strategic advice from Mr Asplin to the board. Mr Upton confirmed in his evidence that he did not have GAH board approval to sign the engagement but said he did not need this. This was a repeat appointment, his predecessors had not required authority for such appointments either, he had delayed as far as he could to avoid fees being incurred, but the Bank had been asking Gardner to look at appointing advisers and it could not be put off further. Mr Upton sent the PwC engagement letter to NatWest the following day, referring to the Bank's own adviser appointment process and next steps with PwC once that process had completed. Mr Upton denied that he was encouraging NatWest to appoint advisers to work with Mr Asplin to explore divestment.
614. On 6 May 2022, Mr Ford advised NatWest that the ?2.5m of funds from LAT was still targeted for next week and that a term sheet for ?2m asset financing had been received from Hampshire Trust Bank. He also explained that the board's assessment remained that further provision of shareholder funds would more than offset the current liquidity shortfall. However, given the approval delays and difficulties in receiving funds from China, Gardner was pursuing contingency options to ensure that viable alternative plans were in place to restore liquidity and support the business. These included the possible sale of non-core assets, with PwC reviewing Gardner's options.
617. On 10 May 2022, NatWest, Mr Upton and PwC held a meeting. This was followed up by the Bank sending a letter to the GAH board, noting various covenant breaches with respect to the different Gardner facilities (borrowers' gross leverage, leverage and minimum liquidity and guarantors' EBITDA). The Bank enclosed related reservation of rights letters. Mr Upton testified that he already knew from his discussions with the Bank that the letters were on their way but did not recall whether he had informed Mr Visotschnig about this. The letter to the board also noted that approval had been given by LAT for further funding. However, the date of expected receipt remained unclear. Moreover, the initial ?2.5m injection would be "insufficient to fund forecast cash requirements beyond 5th August 2022, and insufficient to fund above the Bank's minimum cashflow requirement of ?5m for the whole forecast period up to 21st October 2022." NatWest said that it would appoint its own advisers to start contingency planning (at the Group's cost), including possible enforcement of the Bank's security. The Bank was considering "all options". Mr Upton denied that such appointment was "music to [his] ears" or that he had been manoeuvring to that position. The reservation of rights letters contemplated that "[t]he directors of Gardner Aerospace Holdings Limited and Gardner Group Limited will be aware of their duties to creditors at this time and are presumably taking appropriate advice".
620. On 11 May 2022, Mr Upton notified his co-directors of this development, how he had "met with the bank on Tuesday and they are supportive of our contingency planning activity that is now underway with PWC support" and that he was in discussion with LAT concerning its possible support with respect to Gardner's cashflow requirements. To that end, Mr Upton's e-mail of 13 May 2022 to LAT identified the difficulties experienced by Gardner despite the further ?2.5m loan (apparently received on 12 May):-
623. "Unfortunately, the continued passage of time before the decision by the UK Government on the proposed change of control, has caused Natwest to lose confidence in LAT's ability to support Gardner. While the operational and sales performance of the business is recovering, the continuing low cash generation is now below covenant levels leading Natwest to have concerns over the debt repayments that are due to restart on 30 June. Without further LAT support, they also consider the repayment of the facilities in September 2023 onwards to be in doubt. It should be [sic] note that the future cash requirements are consistent with those included in Gardner's long range financial models prepared both in 2021 and earlier this year."
625. Mr Upton also invited LAT's guidance on how Gardner should respond to "NatWest's concerns over the possible alternative arrangements should the Debt for Equity swap not be executable."
628. On 12 May 2022, Interpath, an advisory and restructuring services firm, introduced Mr Upton to Mr Ash Reek, executive chairman of Rcapital, an investor in UK mid-market businesses. Mr Upton testified that his discussions with Rcapital began because of its first investment into the aerospace industry in the Nasmyth engineering group. Rcapital was said to be interested in 'benchmarking' that investment against other businesses, including Gardner. Although there were discussions with Rcapital about working together on future acquisition opportunities, Mr Upton said that discussion about a job with Nasmyth (and possible Gardner divestment opportunities) only started after 4 July 2022.
631. On 13 May 2022, PwC advised NatWest that the ?2.5m had been received from LAT and that PwC had commenced work to prepare for possible strategic disposals. They also noted that the Bank was planning to appoint Teneo as advisor. Mr Upton separately advised NatWest that he had shared its letter of 10 May 2022 with LAT which was meeting the following week to formulate a response.
634. On 13 May 2022, Mr Williams of Montana e-mailed Mr Upton, explaining that Mr Visotschnig had been in touch with Montana's CEO saying that LAT was fully committed to, and looking to grow, the Gardner business. Mr Williams asked who had the mandate from the shareholders to conduct any discussions and the range of scenarios LAT was prepared to consider. Mr Upton responded, noting that he was not surprised by the approach which reflected the ambition of the shareholder, but explaining that this was unlikely to be a voluntary sale scenario, the opportunity for Gardner acquisition most likely occurring because of an HMG decision requiring LAT to divest upon change of control to Chinese state ownership. He also identified (as referred to above) a "secondary scenario" of the inability of the shareholder to meet obligations to the Bank in the event of a change of control. Mr Upton was now planning for these scenarios with the mandate of the board and at the request of the Bank, with PwC also now appointed as advisors and Gardner now well advanced in its planning to begin discussions around divestment.
637. In response to a request from Ms Qi Wang, Mr Upton provided explanations on 16 May 2022 of (i) Gardner's cashflow issues (ii) the urgency of the cashflow need (iii) the impact if the funding was not received and (iv) the future development if Gardner could obtain funding from SDH or LAT. Mr Upton noted that short term liquidity had been remedied by the ?2.5m loan but the ongoing forecast suggested further breaches of covenant in the next three months without a further injection of funds. Such funding would be required no later than July 2022 to retain the Bank's confidence in Gardner's financing position. Mr Upton also anticipated the Bank requesting LAT's and SDH's commitment to providing ?25m funding support to Gardner through to the scheduled repayment of the Bank debt in September 2023. He also noted the Bank's loss of confidence in Gardner's position due to the uncertainty over HMG's change of control approval. Mr Upton also explained that the Gardner directors had already begun contingency planning to assess the possible disposal of parts of the business to generate cashflow, noting the downsides of weak valuations, delay in growing the business to targeted levels and loss of customer confidence.
640. On 19 May 2022, Mr Visotschnig relayed to NatWest that he was working to secure Gardner's ongoing cashflow needs and that SDH and LAT both were willing to support Gardner going forwards. LAT was preparing a response to the Bank's 10 May 2022 letter which would include confirmation of LAT's commitment to support the identified cash flow needs until September 2023 in line with the liquidity covenant, that such support was neither related to, nor conditional upon, HMG's approval of the Transaction, and that such support was backed by SDH.
643. Mr Upton rejected the idea that he was unhappy with Mr Visotschnig's letter because it might persuade the Bank that there was not too much to be worried about and that it would not be necessary to look at divestment. However, if Mr Upton has been supportive of LAT plugging Gardner's funding shortfall and reducing the Bank's concerns, I agree that his reaction to Mr Visotschnig's letter was odd. Mr Upton's response to these reassurances was to tell Mr Asplin the same day that Mr Visotschnig's "colours were firmly nailed to the China mast!" He also noted a suggested lack of substance in Mr Visotschnig's assurances to NatWest and how LAT and SDH had brainstormed how they might provide support but had not reached any conclusions. The communication was yet further disparagement by Mr Upton of LAT and its funding intentions. Mr Upton also noted the "obvious conclusion" that Mr Visotschnig and LAT planned to de-escalate NatWest's threat with the promise of ongoing finance support, saying that Gardner needed PwC, Teneo and NatWest to be strong on understanding that plan and its feasibility. Despite Mr Upton's denials, I accept that he was seeking to undermine Mr Visotschnig's message and that his communication with Mr Asplin was another example of him seeking to manoeuvre the situation with a view to the Bank taking a sceptical position and to his divestment ambitions being realised.
646. On 18 May 2022, Teneo noted to PwC the possibility that matters "could escalate with an adverse outcome from NS&I next week or at any point, and the Bank understanding its options/ issues will help info its decisions making process over the next few weeks/ months." Teneo also asked for "a bit of a deeper understanding of what has been provided to NS&I to date and any informal feedback."
649. On 19 May 2022, Mr Upton updated ISU on the current position with respect to Gardner's various stakeholders, namely (i) the main customer, Airbus, being aware of the proposed change of control and open to working with a Chinese state-owned entity provided it is not caught in any sanctions regime (ii) NatWest being concerned by developments and requesting Gardner to assess contingency plans pending the outcome of HMG's assessment with Gardner working with PwC for that purpose (iii) LAT not engaging in contingency planning due to the perceived negative implications (iv) LAT, with SDH support, remaining committed to supporting the business but experiencing difficulties in transferring funds from China but (v) no further plans being developed or additional funding yet agreed to fulfil Gardner's ongoing operational plans or investment needs.
652. On the same day (19 May), BEIS gave notice of the extension of the assessment period until 29 July 2022. Mr Upton forwarded this to his co-directors on 23 May 2022, stating that "[i]ts [sic] disappointing that the current uncertainty is extended but this was by far the most predictable decision at this point in time." On the same day (23 May), he notified NatWest of this development.
655. Following their meeting on 19 May 2022 at Gardner's Derby site, Mr Reek e-mailed Mr Upton on 21 May 2022 stating that:-
658. "As discussed, it would be good to show you around a couple of the [sic] Naysmyth facilities, probably Bulwell, Henton and Coventry in the next couple of weeks. I am struggling next week, but maybe one day in the following week?
660. Also, we discussed Gardner internally at Rcap, and are definitely interested to see if we could do something. To that end, I don't know if [sic] its possible for a few of the Rcap guys to visit Derby, again in the next couple of weeks? Even if something can't be done ultimately on a deal, for me, it would be good for them to see what a good aerospace factory looks like, for reference at [sic] Naysmyth."
662. Mr Upton replied on the same day (21 May), stating that " ... I'm pleased to pursue an opportunity to work with you from both ends of the equation!" Mr Upton and Mr Reek also arranged mutual site visits. Mr Upton testified that the opportunity being discussed was how Nasmyth could improve its operational performance using the benchmarking already mentioned. The other 'end of the equation' was supporting Rcapital on the due diligence for a potential acquisition opportunity, with the process starting in earnest in July 2022. He said that discussions concerning Rcapital's potential investment in particular Gardner subsidiaries did not start until after 4 July. However, Mr Reek's reference to "a deal" suggests otherwise.
665. Teneo's engagement letter dated 24 May 2022 indicated the scope of its role as reporting on (i) liquidity forecast issues, implications and options (ii) enforcement or insolvency options and outline tax considerations (iii) PwC's strategic planning options and any remaining strategic options (iv) estimated outcome statements from an enforcement or insolvency process and (v) conclusions and recommendations to the Bank.
668. GAH board meeting ? 26 May 2022
670. On 26 May 2022, GAH held a further board meeting attended by Mr Upton, Mr Ford, Mr Scott, Mr Yu Wei, Mr Visotschnig, Mr Wang, Mr Asplin and Ms Storer. In relation to the NSIA process, Mr Upton stated that " ? they continued to build confidence with the UK Government with the goal of receiving approval. He stressed that knowledge of the situation remained limited." Mr Upton's belief was that the delay in the process was "political".
673. Mr Asplin was introduced to the board. He explained PwC's role, noting the breach of the Bank's covenants which would need to be taken seriously given NatWest's ability to force the sale of the business. Mr Upton observed that the Bank was concerned but was not accelerating the issue and hoped that working with PwC would make the Bank feel more at ease, with Teneo reviewing PwC's outputs rather than directing the Group such that Gardner remained in control of the situation and circulation of information, it being important to avoid leaks into the public domain and loss of confidence and value. PwC's focus was on the analysis of working capital and cash management and the identification of areas of the Group business that could be sold, divested or leveraged to improve cashflow. PwC would not be looking at selling the business as a whole but that would form part of their work if directed to test the market. That would be the worst case scenario.
676. Mr Asplin noted that it was hoped that LAT would invest further funds but, if this was not forthcoming, the directors needed to be well prepared to change direction. Without the additional funding, Gardner would reach an insolvent state in August 2022. Mr Upton confirmed that LAT remained supportive and were looking for solutions to deliver Gardner's short term and long term requirements. Given Mr Upton's comments to Mr Asplin from 19 May concerning the lack of substance to LAT's assurances, this observation was disingenuous. Although Mr Visotschnig considered that PwC should continue preparations for 'Plan B', he confirmed that LAT was supportive and wanted to protect its investment, explaining that it needed to work with third parties and within the laws restricting state enterprises to have investments approved. The target was the end of June 2022 to completely resolve the situation. A letter was being prepared to reflect this commitment.
679. This appears to be reference to LAT's letter to SDH and Gardner dated 24 May 2022 circulated to the GAH board and NatWest on 29 May with LAT confirming its continuing financial support in the following terms:-
682. "Following the various discussions between LAT and the Gardner Group in recent weeks, we would like to confirm that LAT with the backing of its shareholder SDH will continue to support the on-going operational cash needs of GGL and its subsidiaries until Sep-23. ?.
684. We confirm the approval to provide ?7.5m of funding to Gardner Group Ltd in early July 2022 and further ?12.5m of funding to Gardner Group Ltd in December 2022 at the latest. The funding will be provided as a shareholder loan at similar terms and conditions as the previous two shareholder loans. LIL, our Hong Kong based entity will be source of funds and the loan will be subordinated to the bank's debt. ?.
686. For the avoidance of doubt, this support is neither related nor conditional to the UK government approval of LAT's current refinancing project with SDH ("debt/ equity swap"). ?.
688. We would also like to confirm that LAT together with SDH has started to work on a refinancing solution for the September 2023 balloon payment. We are welcoming your and other stakeholders' input to this discussion. ?."
690. The minutes also record Mr Visotschnig's suggestion in the context of labour tensions at the Consett site that " ? membership be reminded that the site that the Chinese factory would be qualified to manufacture the products soon" and Mr Upton's confirmation that "production would be moved to China if the dispute and the disruption continued." There then followed discussion of the risks of communicating Chengdu as the production alternative and potential threat to UK jobs, Mr Upton explaining that "they needed to proceed with caution while they were awaiting UK Government approval on the SDH transaction."
693. I agree that the minutes indicate that Mr Upton had been in communication with HMG about the NSIA process. As he accepted, Mr Visotschnig was therefore incorrect to suggest in his witness statement that Mr Upton never indicated to the GAH board that he was engaged in communications with HMG. However, I accept Mr Visotschnig's evidence that Mr Upton did not impart the substance of his discussions and that the former was not aware until August 2022 of the extent of Mr Upton's communications with ISU, including in relation to the 'call-in' process. Moreover, Mr Upton's comment that Gardner was supposedly continuing to "build confidence" with HMG was also disingenuous. He did not mention his 8 April 2022 'remedies letter' (which was to the opposite effect) nor his other efforts described above to seek the Transaction non-approval and/ or involuntary divestment of Gardner by LAT.
696. On 27 May 2022, PwC circulated its draft presentation on transaction options and short term cashflow which they proposed should form the basis for the next Bank update.
699. On 30 May 2022, HSF spoke to ISU. ISU spoke mainly about procedural issues and did not disclose the progress of its review, current attitude or any thoughts on the subject of the 'application'. HSF outlined the potential results of ISU review, namely (i) approving the Transaction (ii) issuing an order (either approving the Transaction subject to remedies or refusing the Transaction) or (iii) extending the review period on a voluntary basis. Any remedies would not necessarily be the same as Gardner's existing undertakings to MoD. ISU would need to re-visit these from a national security perspective.
702. On 31 May 2022, Trinity House Group, a senior finance and executive search firm, sent Mr Upton a candidate briefing pack for a CFO (Europe) position at a leading global doors and windows manufacturer based in Solihull. He testified that he had an exploratory conversation with the company but was, again, initially reluctant to accept that he had applied for the position even though one of his written communications with Trinity House attached his CV which he had submitted "in support of my application".
705. On the same day (31 May), Mr Taylor of Liberty Hall sought an update on timing and next steps from Mr Asplin. Mr Asplin responded that Liberty Hall were "very sincerely ?. at the top of our (short) list and we respect the synergies and mutual benefits a serious conversation will yield." Mr Asplin sought to set up a call.
708. Also on the same day (31 May), Mr Upton communicated with PwC concerning their engagement and costs. With respect to PwC's potential work on divestments, Mr Upton noted that "[m]y nervousness is that I can't be seen by the shareholder to continue to burn ?55k a week on fees for Part 3, when LAT believe that they have made adequate commitment to cure the breach. Practically, we need the Natwest letter to clearly reference the requirement for ongoing work to prepare for divestments to provide the Board with sufficient justification to proceed." In response to this, PwC noted that " ? it sounds like the NatWest messaging is not going to be as strong as [sic] we;d hoped." Mr Upton replied that "[i]t's concerning if Natwest back off too soon. Not sure how they have ended up in a more comfortable position!" This again reflects Mr Upton's manoeuvring with a view to NatWest holding a sceptical view of LAT's willingness to fund Gardner.
711. On 6 June 2022, ISU sent an information notice to Gardner, seeking information concerning Deed compliance and security measures in light of the Transaction. Mr Upton noted to Mr Ford and Ms Storer the "[i]nteresting timing (and mix of fact and opinion based questions)". Mr Upton also asked Ms Storer whether most of this was covered by her recent letter to the MoD on Deed compliance. He also said that he needed to consider whether to answer this independently or with HSF. ISU sent SDH (through HSF) a shorter, related information request on the same day.
714. On the same day (6 June), Mr Upton e-mailed Mr Reek of Rcapital concerning the mutual visits previously discussed, asking for any feedback for Gardner and reporting that "[a]fter a few "quiet days" of reflection, I would like to take on a new challenge and I believe I have a lot to offer to Nasmyth and Rcapital. I am keen to get moving!" Mr Reek responded in relation to Gardner that " ? we are making enquiries at our end to see if we can get anywhere ..". Mr Upton testified that the Nasmyth element was, again, concerned with helping that business to improve. The Rcapital element was, again, working on its acquisition project in support of due diligence. When asked whether he was looking for employment, Mr Upton said that he knew this could be a helpful by-product of his interactions but he did not solicit Rcapital for employment at this time. He was supporting Rcapital in its projects outside his employment with Gardner and only began to discuss employment opportunities after 4 July. By that stage, he was no longer in a position to influence Gardner's contingency planning and, although he did have limited communication with ISU after 4 July, that was only in a narrow window.
717. On 7 June 2022, NatWest wrote to GGL's board, noting that:-
720. (i) Based on current forecasting, the ?20m funding from LAT appeared sufficient to fund the Group to September 2023;
722. (ii) The timing of payments would not allow for any headroom if receipt of such funding was delayed;
724. (iii) The first ?7.5m instalment should be received by 30 June 2022, with the second instalment of ?12.5m by 15 September, ahead of any further liquidity deterioration expected in October;
726. (iv) The timing of the second instalment would resolve the potential material uncertainty relating to going concern review for the annual audit and would allow the Group to comply with the ?5m minimum liquidity covenant going forward;
728. (v) Given HMG's delay in its decision relating to the Transaction until 29 July 2022, it was expected that PwC's involvement with GGL would continue to address any potential outcomes of that decision, including any remedies;
730. (vi) Given the uncertainty in this regard, it was expected that PwC would work to continue to progress the readiness of GGL to pursue all strategic options;
732. (vii) It may be challenging for the Bank to consent to partial disposals given their impact on GGL's viability and diluting effect on the Bank's security;
734. (viii) All rights continued to be reserved; and
736. (ix) The covenants would be further tested on 30 June 2022.
738. GAH board meeting ? 9 June 2022
740. On 9 June 2022, GAH held a further board meeting, attended by Mr Upton, Mr Ford, Mr Scott, Mr Yu Wei, Mr Visotschnig, Mr Wang and Ms Storer. The purpose of the meeting was to discuss the PwC report into the current financial situation, the response letter from NatWest and Gardner's future actions. The minutes record:-
743. (i) Mr Upton's observation as to the insufficiency of the contingency plans from NatWest's perspective, meaning that the Bank could only sanction Gardner's insolvency or (which SDH and LAT did not want) Gardner's sale as a whole. Given NatWest's unwillingness to force an insolvency or divestment, the 'balance of power' had tilted back to SDH and LAT. There was therefore a need to work with SDH and LAT to secure funding but not too much in terms of contingency, subject to planning to keep the Bank 'at ease';
745. (ii) Mr Visotschnig's reminder of the element of timing such that, if funding did not arrive by the end of June or the start of July, time would be short to implement a 'Plan B'. Given NatWest's unwillingness to consent to the sale of a substantial part, if funding did not arrive in time, the only plan would be the sale of the business, with insolvency quite likely by 10 July 2022;
747. (iii) Mr Upton's confidence that the required funding would arrive and insolvency would not be necessary and his view that a sale of the Consett business would constrain Gardner long term and not solve the liquidity issue;
749. (iv) Mr Yu Wei's view that the funding would be forthcoming and that it was not necessary to go to market now but that preparations should continue;
751. (v) Mr Upton's proposal of low cost and discrete ('non-market facing') processes involving the board and PwC, enabling Gardner to tell NatWest that it was taking cautious steps focused on updating the information memorandum, without preparing for an insolvency event;
753. (vi) The difficulties of NatWest's requests with respect to the timing of payment of the funds and the proposal to extend the cashflow planning and create a timeline for funding to ensure that the Bank had no concern;
755. (vii) The auditor's concern that LAT might not be able to support Gardner if the Transaction was not approved;
757. (viii) Mr Upton's explanation that SDH and Gardner had received an information notice from HMG, that the Gardner notice related to the Deeds, the need to respond honestly at risk of criminal sanction and the anticipated impact on the timing of HMG's decision which Mr Upton now expected in August 2022;
759. (ix) Mr Upton's summary that "they" were now essentially discussing remedies, with HMG likely looking to strengthen the Deed with respect to control of data sharing with Chinese entities and nationals and possible remedies in the form of cessation or ringfencing of military work;
761. (x) Mr Upton's surmise, based on both the information notices and the investigation of the Transaction on national security grounds, that HMG were concerned about military content under Chinese state ownership;
763. (xi) Mr Yu Wei's question as to whether Gardner had "done anything wrong" to prompt the information notice, Mr Upton's response in the negative and explanation that Gardner had reported as appropriate to the authorities and had been independently assessed, and Mr Visotschnig's query about accelerating information provision; and
765. (xii) Mr Upton's view that SDH needed to align with Gardner with the ongoing NSIA process.
767. Mr Visotschnig stated in his oral evidence in relation to his 'reminder' that he was not talking about the funds that might flow through to Gardner from LAT as a result of the Transaction rather than from the short term funding awaited from LAT. If that was not forthcoming, there was a risk that NatWest might call in its debt, potentially leading to a distressed sale. However, Mr Visotschnig did not accept that there was a realistic possibility of insolvency at this point. The short term funding requirement was small compared to the much larger amounts required to refinance the sums due to the Bank in 2023. The more likely insolvency scenario was the inability to repay those larger sums if the Transaction did not proceed. Mr Visotschnig testified that 'Plan B' being discussed here was the divestment of subsidiaries. He confirmed that he was aware of PwC's involvement in that aspect of the contingency planning which followed NatWest's reservation of rights. He also accepted that Mr Upton had not agreed with anyone to sell the Gardner business. However, since Mr Upton was not the owner, he could not do so. Nevertheless, he had negotiated with Montana and Liberty Hall to that end which only stopped when Mr Visotschnig 'spiked' the discussions with Montana and Liberty Hall's counsel became nervous.
770. It is again apparent from the 9 June 2022 meeting of the GAH board that Gardner was in contact with HMG about the NSIA process. As to the reference in the minutes to discussion of remedies and HMG's likely interest in strengthening the Deed, Mr Upton said that he would have seen ISU's 6 June 2022 information notice relating to Deed compliance which indicated that this was an area of focus. However, he confirmed that he did not share with the GAH board then what he had told ISU in the 8 April 2022 'remedies letter' about the strengthening of the Deed not being a workable solution for Gardner. Nor did he reveal that the remedies he had proposed concerned divestment. Nor did not do so at the May or June 2022 GAH board meetings. According to Mr Upton, he did not consider himself obliged to disclose these matters given the absence of an "authorisation matrix". I found most unsatisfactory this aspect of Mr Upton's evidence. The GAH board agreed that the Transaction was in Gardner's interest. The board would obviously have wanted to know (at this or any of the prior meetings) if Mr Upton had proposed remedies in relation to the Transaction. It was also entitled to that information from its CEO. Instead, Mr Upton speculated at this June meeting about other remedies under possible consideration and against which he himself had (unbeknownst to his co-directors as well) cautioned ISU. His suggestion that he believed the 'remedies letter' to be a "past matter" in light of the information notice was not credible.
773. On 10 June 2022, HSF reached out to Mr Upton concerning potential adjustments to the undertakings entered into by LAT in 2017 to make them more workable given some of the challenges experienced by Gardner. To that end, HSF provided Mr Upton on 24 June 2022 with a mark-up of the Deed. Mr Upton provided comments on 5 July 2022.
776. Gardner's response to ISU (6 June) information notice
778. In the meantime, on 14 June 2022, Ms Storer sent Mr Upton an incomplete proposed response to ISU's information request, asking in her cover e-mail for Mr Upton's "thoughts on the contentious bits" since "[i]t is hard not to sound accusatory!" Those contentious aspects related to areas of concern with Deed compliance apparently raised in previous calls between GAH and MoD.
781. The final response letter dated 20 June 2022 (seemingly without the "contentious bits") was sent to ISU the next day, having been shared with HSF. Mr Upton confirmed in evidence that the message conveyed by the letter was that Gardner was in compliance with the Deeds, concluding that "[w]ith the ongoing support from its shareholder, LAT, Gardner will be able to continue to comply with equivalent provisions in the future." In relation to Chengdu, the letter noted that "future provisions should be better defined around scenarios or processes such as transfer of work, ensuring that clear direction is given on the ability of Gardner employees to fully support the establishment of operations in GA Chengdu with both know how and data transfer." Mr Upton said in evidence that this reflected Gardner's efforts to ensure adherence whilst acknowledging that this was not easy. He also confirmed his belief, subject to audit, that Gardner was compliant with the Deeds and would remain so with LAT's support.
784. On 21 June 2022, Mr Upton sent a separate "supplemental response" on behalf of Gardner dated 17 June 2022. He testified that the information came from reports from his team, with the letter having started as one document which he split into two. This supplemental letter appears to reflect and develop the "contentious bits" in Ms Storer's earlier composite draft. Mr Upton did not share this with SDH or LAT, saying that LAT individuals would not have reacted well, which would have impacted him and his team. However, he said that he was required to explain the "whole process" to meet his obligations to HMG, also offering in the letter to discuss this and the reasons behind it. In the letter, Mr Upton noted-
787. (i) Contemplated difficulties with LAT and SDH if the supplemental response came to be shared with them or their advisers;
789. (ii) Gardner leadership's belief that LAT executives viewed the Deed as a hindrance to their ownership of Gardner, something difficult to operate in China and placing Gardner leadership in the difficult position of acting against shareholder's wishes;
791. (iii) Difficulties of ensuring compliance with the security manual within the Gardner Chengdu facility, the employees being employed by an LAT (not GAH) subsidiary, with free physical access by LAT employees and access control directed by LAT personnel;
793. (iv) Areas of concern about Deed compliance raised in earlier calls between GAH representatives and MoD, largely relating to increased influence by Chinese nationals, the application of visitor controls within the GAH security manual and data access for Chinese nationals;
795. (v) The stationing full-time of an LAT representative (GAH non-executive director) and LAT financial executive in GAH's Derby HQ, with freedom of physical access and site access cards expected or requested;
797. (vi) Mr Yu Wei's suggested self-appointment as GAH Chairman and his initial efforts (albeit not pursued) to seek executive control of Gardner, activity performed while entering the UK under a tourist visa, said perhaps to reflect "the attitude to UK legal compliance held by certain LAT Executives";
799. (vii) The requirements of the security manual which suggested that shareholder representatives should not be given free access to Gardner facilities, the mitigating steps taken by Gardner to restrict such access and the continuing point of tension with LAT employees asking for wider access; and
801. (viii) Mr Upton's belief that the provisions of the Deed were correct and sufficient but with insufficient avenues of enforcement or protection for Gardner employees when the shareholder's objective diverged from its intention, the risks increasing in light of the approval of the Chengdu facility and increasing need to transfer operational data and know-how there.
803. Mr Upton testified that this supplemental letter did not seek to suggest non-compliance with the Deed rather than to identify issues that had troubled Gardner but had not previously been notified to HMG. However, as Mr Upton himself noted in evidence, some of the matters at least had apparently been raised by Gardner before in calls with HMG.
806. In relation to systems access, for example, Mr Upton testified that it was not being suggested that the "shareholder in general" was seeking to undermine the Deed. As the letter makes clear, the comment was directed at specific individuals.
809. In relation to Chengdu, for example, Mr Upton confirmed that there had been no report to SoS of a breach of the Deed as would have been required in that event. However, he denied "scaremongering", saying that work was being transferred to Chengdu but it did not "comply to security standards", not even having a secure fence. He was making "full disclosure".
812. In relation to security access, Mr Upton confirmed that there was no prohibition in the Deed on Chinese nationals working in the Derby office, his belief that the individuals concerned had not accessed confidential information and, ultimately, that it was his responsibility as CEO to ensure that only the appropriate passes were given. Again, he was not aware of any breach of the Deed, albeit he said that there were opportunities for such breaches and he had been troubled by the demand for full site access.
815. In relation to Mr Yu Wei's position, Mr Upton confirmed that it was not a breach of the Deed for GAH to have a Chinese national Chairman but observed that "it is not appropriate to corporate governance". Moreover, although Mr Yu Wei working on a tourist visa was not a breach of the Deed, it was a breach of UK employment regulations and the manner in which he sought to assert executive control was "completely unacceptable."
818. Mr Upton denied representing to HMG that "the Chinese were up to no good", engaging in an LAT "character assassination" or using the letter to further his suggested "agenda" of encouraging HMG to require LAT to divest control. The issues raised in the letter were later developed by Mr Upton in his 11 July 2022 letter in response to ISU's further information notice from 6 July (discussed below).
821. On 22 June 2022, Mr Upton and Mr Reek of Rcapital traded e-mails, Mr Upton asking "[w]hat are the next steps re Nasmyth". Mr Reek explained the next day that there was a Nasmyth investment committee meeting on 24 June to agree next steps and suggested a catch up shortly.
824. On 23 June 2022, NatWest wrote to the GGL board following further engagement concerning short term liquidity. NatWest had asked in its 7 June 2022 letter for the first funding instalment of ?7.5m to be in place by 30 June but GGL had confirmed that this was due to be received on or before 11 July and requested forbearance with respect to the sums due to the Bank on 27 June. NatWest responded that it would need to see significant progress in PwC's contingency planning, identifying information required for that purpose.
827. On 24 June 2022, ISU confirmed that the information provided by GGL was satisfactory. Similar confirmation was apparently given in respect of the information provided by SDH.
830. Mr Upton is informed of his departure from Gardner ? 4 July 2022
832. On 4 July 2022, Mr Upton met Mr Visotschnig when the latter informed the former that LAT had decided to remove him as director of the Group companies. In the (recorded) meeting, Mr Visotschnig indicated that the reason was the lack of performance in 2022 and the late visibility on that which had led to a loss of trust. There was also some discussion of divestments for when Mr Upton would be "on the other side", including FDM, Blade and Basildon. Mr Upton testified that there was clearly some interest from Mr Visotschnig in divestment of Gardner suitable subsidiaries.
835. Following a conversation on 5 July 2022, Mr Upton sent his CV to the Red Diamond executive search firm.
838. On 6 July 2022, ISU wrote to Mr Upton with a further information notice concerning (i) LAT's access to information about the design, production and testing of certain types of turbine blades (ii) the incidents reported in his 17 June 2022 letter (iii) any additional challenges arising as a result of the Transaction (iv) the purpose of LAT's acquisition of Gardner and (v) any shift in that purpose over the last five years.
841. On 7 July 2022, Mr Reek from Rcapital sent Mr Upton a proposal for the Nasmyth CEO role, including salary and other terms. On the same day, Mr Reek also e-mailed Mr Upton to confirm a meeting the following week "to go through some of the Gardner opportunities". Mr Reek said that he and his investment director would deal with this initially. Mr Upton confirmed the same day that he was "good to go with the proposal". Mr Upton testified that the discussion about acquisition activity around this time began to encompass Nasmyth becoming a potential home for Blade and FDM. He also acknowledged that, still being employed by Gardner, working unofficially with a potential acquirer of part of the business represented a conflict of interest, albeit he was told on 4 July that his services were no longer required, that the business was considering divestments and that Gardner would be interested in hearing related proposals. Mr Upton also appeared to acknowledge that his written evidence about Rcapital not being considered a potential acquirer until after his departure from Gardner was incorrect, albeit he said it felt like he had departed in the first week of July.
844. On 7 July, Mr Upton responded to an e-mail from a colleague concerning a new employment opportunity, Mr Upton stating that "[a]ll being well, I will shortly be a CEO at another UK aerospace company."
847. There was also quite some internal Gardner discussion concerning the extent of any non-compete covenants affecting Mr Upton post-termination. Mr Visotschnig produced a list of proposed companies or firms which would be off-limits, including Montana, Liberty Hall and Rcapital. This was more extensive than Mr Upton wanted or believed that his existing covenants provided for. Mr Upton told Mr Asplin on 7 July 2022 that "[o]bviously I need to be free to work with RCap. I'd like to keep the options open on working with the other Strategic Aerospace PE in case of BEIS intervention or other." He was not yet keen to 'show his hand' on Rcapital.
850. On the same day, Mr Upton proposed internally that there be no restriction on his ability to work with the three private equity houses (including Rcapital) which had no competing business with Gardner. He also expressed his preference for permission to work with those private equity houses to present divestment offers to Gardner for individual Gardner entities and to work on a whole Group acquisition only in the event of an HMG directed divestment.
853. On 8 July 2022, Mr Visotschnig notified SDH that he had spoken to NatWest. He noted, by way of background, Gardner's breach of banking covenants since 30 May 2022 and how the Bank had reserved its rights, monitored Gardner and requested phased further funding, with ?7.5m by June 2022 and ?12.5m by September. He also explained how Gardner had defaulted on the payment of the bank instalment due on 30 June 2022 but had since made payment following the receipt of funds that week. Mr Visotschnig considered that the Bank was unlikely to withdraw its request for phased funding but believed it would be satisfied with ?7.5m by 30 September 2022 and a further ?5m by 31 December. He sought SDH's guidance in this regard.
856. On 8 July, Mr Upton e-mailed Chairman Zhang, stating that his departure from Gardner was disappointing, if unsurprising, and acknowledging that Gardner's financial performance was still short of expectation but that there was a strong baseline from which the new team could begin to grow. In his reply, Chairman Zhang wished him the best and thanked him for his support, stating that he was quite sure that excellent people like him could be successful wherever they stayed.
859. Gardner's response to ISU's further (6 July) information notice - 11 July 2022
861. On 12 July 2022, Mr Upton responded to ISU's letter of 6 July from his own personal e-mail account (later re-sent on his behalf through solicitors). In written evidence, he said that he occasionally used his personal account for technical reasons although, in oral evidence about this letter (dated 11 July), he said he did so out of concern about how the letter would be viewed, particularly by Mr Yu Wei, if it went across the Gardner firewall. In relation to the issues raised by ISU, Mr Upton responded in his letter that:-
864. (i) He was not aware of any data breach or access by Chinese nationals to the Blade facility that would lead him to believe that turbine blade design, production or test capabilities had been accessed by LAT.
866. (Mr Upton agreed in his evidence that he was effectively saying that there had been no breach of the Deeds.)
868. (ii) However, some of the generic manufacturing processes adopted in the design, production and/ or testing of turbine blades, specifically around heat treatment, quality assurance and quality control, would have been transferred and trained into LAT's Chengdu's subsidiary to gain production certification for aerospace parts production.
870. (Mr Upton accepted in evidence that Gardner Chengdu did not design, produce or test turbine blades but said that he was referring here to manufacturing processes common to any metallic part production, including turbine blades. Although Blade did not design, produce or test turbine blades either, Mr Upton stated that it produced tooling for turbine blades, suggesting that the latter was "very adjacent to" and inherent in the former. I accept that, perceiving HMG sensitivity around Blade and the SoS Deed, Mr Upton deliberately emphasised in the letter, and exaggerated, Gardner Chengdu's potential for involvement with turbine blade manufacture. That view is reinforced by Mr Upton's subsequent editing for Mr Visotschnig's eyes of the relevant parts of the 11 July letter, discussed below.)
872. (iii) The concerns previously raised with HMG were not documented in a formal manner, albeit they were raised with legal advisers in July 2021. His contemporaneous notes indicated (a) efforts by Gardner Chairman, Mr Yu Wei, and LAT CFO, Ms Hongmei Zhai, to seek access to Gardner systems, albeit access was not given or confidential information disseminated (b) site access by Mr Yu Wei (and later Mr Yadong Nui), affording them the opportunity to observe data in the engineering office area, albeit there was no recorded breach and (c) although improved, access controls within Gardner's Chengdu facility being of a lower standard than other Gardner facilities, affording the potential to access engineering and process data relating to the manufacture of aerospace components (but not turbine blades in isolation) and (d) the opportunity for employees of LAT subsidiaries to take manufacturing and process knowledge learnt from Gardner and to apply it to other LAT projects, including military programme turbine blade manufacturing.
874. (When some of these concerns were tested in evidence, their stitching also came apart. So, for example, Mr Upton had apparently previously canvassed with ISU his concern about Mr Yu Wei and Ms Hongmei Zhai giving instructions to end Gardner's work from home policy. However, Mr Upton could not explain why this might implicate national security considerations.
876. Moreover, the issue about Mr Yu Wei's indication of LAT taking responsibility for Gardner functions, including finance and HR, did not seem to concern the assumption of executive responsibilities as such, rather than the difficulty in disentangling restricted and unrestricted information in the relevant Gardner systems. In the event, legal advice was taken, access was not given and Deed compliance maintained. The significance of this incident too was exaggerated.
878. Likewise, the concern about Mr Yu Wei's request for access to Mr Cartwright's laptop seemed to be that he might access Gardner's Home Office account for the purpose of his Gardner sponsored visa application. It was again not clear what this had to do with the Deed or national security considerations. In the event, the laptop could not be located. The significance of this incident too was exaggerated.
880. As for Derby site access granted to Mr Yu Wei and, later, Mr Yadong Nui, Mr Upton stated in the 11 July letter that "there was an opportunity for them to observe data (for example drawings) in the Engineering office area." Gardner's engineering office is in Blackburn but, in oral evidence, Mr Upton also mentioned the presence of drawings at Derby. However, his witness statement stated that access to shared areas in the Derby office did not extend to restricted drawings or classified technical data. In his further oral evidence, he said that there was the opportunity to observe restricted data but was not clear whether this included drawings. Ultimately, he did not believe that such restricted information was accessed or seen in any event. This suggested concern was confused as to what restricted information Mr Yu Wei and Mr Yadong Nui might potentially be able to access. Its significance was also exaggerated.)
882. (iv) Although Chinese ownership had historically provided Gardner with financial support and market access, there were increasing signs of challenges with ongoing geo-political risks of foreign ownership (including reduced access to technology programmes, reduced ability to diversify into defence activity and exclusion from corporate acquisition activity and developing aerospace manufacturing geographies, leading to Gardner falling short of the Chinese owner's growth expectations, prioritisation of Chinese activity to the detriment of UK investment, skill, capacity and employment and the continuing transfer of know how to Chengdu).
884. (Mr Upton's explanation of the suggested challenges of Chinese ownership here did not answer the actual question asked by ISU concerning the additional challenges presented by the Transaction.)
886. (v) LAT had not given a straight answer to the reasons for the Gardner acquisition nor any evidence of a subsequent LAT business plan for Gardner ownership, with anecdotal comments ranging from it being a 'safe store' for foreign currency held by SDH to Gardner's manufacturing capabilities being much sought after in China. According to Mr Visotschnig, the main aspiration of SDH leadership and Chairman Zhang was to develop the area around the LAT Chengdu campus, attracting further companies into the park. LAT's input into Gardner's operational and strategic development was limited, their main interest to maximise Gardner financial performance to facilitate their own debt reduction. Beyond growth in size and capability, Mr Upton did not consider that LAT had a business plan for Gardner. Post-acquisition, its main interest was to develop, and transfer work into, the Chengdu facility. LAT's pursuit of acquisitions had been half-hearted and it was only when the Bank threatened to take control of Gardner in 2020 (and twice since) that SDH/ LAT had been able to provide the minimum funding required to maintain 100% ownership.
888. (vi) The apparent absence of a plan for Gardner's European business suggested that there had been no shift in plans or purpose over the five years since acquisition. The joint Gardner/ LAT enterprise was not on the correct path and circumstances were unlikely to allow LAT's preferred direction to succeed. No 'Plan B' had been developed in response to the changing political and market circumstances, this lack of strategic agility thought to be common in state-owned Chinese enterprises. Save for the development of Chengdu, LAT and SDH had shown little interest in Gardner's technology, capability and processes. LAT was now more cautious about sharing information about other activities in Chengdu with Gardner employees. SDH appeared to have underestimated the NSIA regime and ISU's appetite to properly investigate the matter, Mr Upton's last discussions being about limiting the impact of the current Deed, rather than making concessions to facilitate consent to the Transaction. The incoming CEO was in favour of selective divestments if this would help remedy HMG's concerns, including the sale of certain Gardner companies and the ring-fencing of all Gardner's military contracts. Mr Upton was working with him to be free of covenants to allow such an option to be pursued and would be happy to provide further details to ISU about this proposed remedy. His belief was that continued Chinese ownership, state or otherwise, would be an impediment to UK job security, the preservation of capabilities and technology development if left unchecked.
890. In my view, Mr Upton's comments under ISU's last two questions were a remarkable attack against LAT and, irrespective of the identity of the owner, Chinese ownership of Gardner generally. This was inconsistent with the expression of the views of someone who supposedly saw the Transaction as the "best outcome" and who recognised it as his duty to promote its approval. Moreover, his motive for going about matters in this way was not difficult to discern, his comments culminating in divestments as a suggested remedy, consistent with the proposal in his earlier (similarly remarkable) 'remedies letter', albeit now tailored to the potential sale of individual sites, a "proposed remedy" which Mr Upton offered to discuss further with ISU.
893. Indeed, on 12 July 2022, ahead of a meeting the next day with Rcapital, Mr Upton sent Mr Reek some background to "Gardner units that are in play", appearing to comprise GAH board and PwC materials on divestment possibilities and related Gardner site reports for FDM, Blade and Basildon (which Mr Upton had mentioned in his 11 July letter as possible candidates for a divestment order). Mr Upton did so from his own personal e-mail account but denied that this was for reasons of secrecy, Mr Visotschnig having welcomed interest in divestment of Gardner subsidiaries at their earlier meeting on 4 July 2022. I do not accept this evidence. Mr Upton had told Mr Asplin only a few days earlier that he did not wish to show his hand to Mr Visotschnig about Rcapital. Moreover, the GAH board had agreed on 9 June 2022 that any continuing divestment work would be discrete and 'non-market' facing. Mr Upton provided these materials to a potential buyer. The discussion with Mr Visotschnig concerned when Mr Upton would be "on the other side". Mr Upton was still employed by Gardner on 12 July.
896. On 14 July 2022, Mr Visotschnig sent Mr Upton a draft settlement agreement said to reflect the agreement reached with respect to the termination of his employment.
899. On 15 July 2022, Mr Upton sent his CV to another executive search firm.
902. On 18 July 2022, ISU confirmed that the information provided by Mr Upton was satisfactory and that the assessment period would resume, with a revised date of 7 September 2022 for completion of its assessment.
905. On 21 July 2022, Mr Upton exchanged e-mails with Mr Reek from Rcapital concerning his draft contract for review. Mr Upton proposed an official start date with Nasmyth of 1 September but said that he looked forward to getting engaged in both Nasmyth and "the acquisition activity" before then. Mr Upton testified that this did not mean that he was proposing to start work unofficially for Nasmyth before formally leaving Gardner. Rather, he was proposing to continue to support acquisition activity including, by now, potential Gardner divestments.
908. On 25 July 2022, Mr Upton received a candidate brief for a CFO role from an executive search firm.
911. Between 23 and 28 July 2022, Mr Upton and Mr Visotschnig exchanged e-mails concerning the former acting in a 'buyside' role in a potential sale of Blade and FDM. Mr Visotschnig was content for him to do so, albeit making clear that he had no mandate to act 'sell side' and that Basildon was not for sale. In his evidence, Mr Upton appeared to acknowledge that he did not make Mr Visotschnig aware that he was already working with a potential acquirer he was about to join.
914. On 4 August 2022, Mr Upton traded e-mails concerning his settlement agreement with Gardner. During that exchange, Mr Upton made clear that he would not be acting on the 'sell side' of any subsidiary divestment. He had offered to put together a financial offer for any subsidiaries that the GAH board considered 'non-core' to which Mr Visotschnig had responded positively. His limited actions since had been consistent with that.
917. Edited version of Gardner's 11 July 2022 response to ISU
919. On 8 and 9 August 2022, Ms Storer forwarded to Mr Visotschnig e-mails to and from Mr Upton's Gardner e-mail address concerning ISU's 6 June and 6 July 2022 information notices (revealing Mr Upton's related use of his personal e-mail account and solicitors to transmit the 11 July letter to ISU). On 10 August 2022, Mr Visotschnig contacted those solicitors for a copy of the letter which they provided. On the same day, Mr Visotschnig also asked Mr Upton directly for the e-mail sent from his personal address. Mr Upton responded on 11 August, explaining that he had used his personal address because of "uncertainty over Gardner email access" and the fact that the information notice was addressed to him rather than, as with the previous letters, Gardner. I accept that, as Mr Upton testified, the real reason he used his personal account was because he did not want LAT to see the letter he had sent.
922. It was common ground that Mr Upton deliberately changed his 11 July response to ISU's letter of 6 July such that the version he sent to Mr Visotschnig on 11 August was heavily edited. As such, Mr Upton was not truthful in his covering e-mail when he said that "[m]y response to the 6 July IN is attached." It was not. Just as the original version of the letter was remarkable in content, so too was Mr Upton's later excision and editing to make it seem much more anodyne than as sent to ISU. In relation to this edited version:-
925. (i) Mr Upton testified that he withheld the actual version of the letter sent to HMG because some of the facts pertaining to Mr Yu Wei were contentious and would not reflect well on Mr Upton if fully shared. He also said that the broader nature of the questions in ISU's 6 July letter and their difference to what had gone before in context and tone led him to that view.
927. (Although I agree that sharing the matters imparted to HMG by Mr Upton concerning Mr Yu Wei (and more broadly) would not have reflected well on Mr Upton, this was in large part due to his exaggeration of the matters he described. That more readily explains his sensitivity.)
929. (ii) He also testified that he removed his opinions in relation to questions 3-5 in ISU's letter of 6 July 2022 because he did not think that they had any relevance to the process or ISU's ultimate decision.
931. (I did not understand this evidence. The suggestion that he thought it irrelevant because of the absence of meaningful follow-up to his 8 April 2022 letter made little sense given that Mr Upton re-visited the remedy of divestment in his 11 July letter. Moreover, the suggestion of irrelevance begs the question why he answered ISU's questions at such length when he could otherwise have done so much more briefly.)
933. (iii) As noted, my view concerning Mr Upton's exaggeration of Gardner Chengdu's potential for involvement in turbine blade design, production and testing is reinforced by the deletion in his edited version of the specific references thereto.
935. (iv) Having answered the second question about the events involving LAT management around security and systems access in such detail, the "contentious bits" were excised from Mr Upton's edited version, leaving his answer much more innocuous in terms of the absence of any formal written record of the relevant events and lack of system access or information leakage. The picture of distrust of LAT management (not limited to Mr Yu Wei) that Mr Upton had imparted to ISU on 11 July was removed completely.
937. (v) Finally, in answer to questions 3-5, Mr Upton removed large tracts, including reference to the development of Gardner's Chinese operations at the expense of those in the UK and Europe, the absence of an LAT business plan and acquisitions strategy, LAT's historical failure to provide critical funding, LAT's increasing lack of transparency with respect to Chinese operations, SDH's underestimation of the NSIA process, divestment of Basildon, the extent of Mr Upton's interest in divestment as a proposed remedy and his concluding expression of belief that Chinese ownership (of whatever source) was an impediment.
939. Mr Upton obviously did not wish to share with Mr Visotschnig his criticisms of LAT management and Chinese ownership. Doing so at a time when he was still trying to negotiate his exit from Gardner would likely have made things difficult for him. It would have immediately revealed that, far from supporting 'Plan A' in the interests of Gardner, Mr Upton had been working to support an outcome which would have torpedoed the Transaction. He heavily edited the letter believing that the unpalatable prospect of revealing his hand could be avoided. However, this was thwarted by Mr Visotschnig contacting the solicitors who sent the (unedited) 11 July letter on Mr Upton's behalf to obtain a copy from them.
942. On 10 August 2022, ISU wrote to GAH, LAT and SDH, explaining that the NSIA assessment period would end on 12 September 2022 and offering them the opportunity to make representations in advance of SoS taking a final decision on whether to make a final order under s.26(3) of NISA, including whether this should include remedies such as the conversion and expansion of the restrictions in the Deeds, the restructuring of GAH's board or LAT's divestment of GGL. The national security risks in this case were identified as relating to military and dual use applications of sensitive information and know-how held by GAH and the potential that the technology could be used to develop defence or technological capabilities.
945. On 22 August 2022, Mr Visotschnig provided the response on behalf of GAH, confirming GAH's willingness to enter into a new deed in the terms of the Deed and to remove the category of 'special director' on the GAH board, with all directors having equal status and none simultaneously holding a position within SDH or LAT or another entity in the aerospace and defence industry in China. GAH explained that a divestment of GGL would strip GAH of its value and SDH would not proceed with the Transaction, leading to GGL's insolvency before year end. GAH was, however, willing to divest Blade within 12 months. LAT was aligned with GAH and SDH and its response framed in similar terms.
948. When questioned, Mr Visotschnig did not accept that the suggested changes to the GAH board reflected those proposed by Mr Upton in April 2022, pointing out that Mr Upton's proposal of an independent board would not allow SDH or LAT to appoint directors at all. Mr Visotschnig also explained that Blade was a non-core entity and if, as the focus of the SoS Deed indicated, that was a concern, GAH was willing to undertake its divestment within 12 months. He confirmed that there was no specific board resolution to authorise him to propose that divestment.
951. On 16 August 2022, NatWest sent GAH and certain Gardner subsidiaries further reservation of rights letters, including with respect to breaches of covenants relating to cashflow cover, gross leverage, leverage, minimum liquidity cover and EBITDA.
954. On 16 August 2022, Mr Upton attended a meeting with representatives of an aviation component parts, repair and supply chain solutions provider. That meeting was apparently positive with e-mail follow up over the following days.
957. On 25 August 2022, Mr Visotschnig e-mailed Mr Upton in response to the chaser from the latter to finalise the settlement agreement. Mr Visotschnig noted the unexpected challenges related to NSIA approval process which had prevented the discussion from continuing. The draft settlement agreement was also withdrawn. He asked Mr Upton to work from home on a business development study. Mr Upton considered this change in approach surprising and asked for a call.
960. On 30 August 2022, ISU asked SDH whether it was willing to agree to more time until 10 October for ISU to consider the representations made. On 1 September 2022, SDH agreed to this request.
963. On 5 September 2022, following a conversation with Mr Visotschnig concerning the termination of Mr Upton's employment, Mr Upton put forward a revised exit agreement proposal.
966. On the same day (5 September), Directorbank sent Mr Upton a brief for a CFO role in an engineering manufacturing business.
969. On 8 September 2022, Mr Visotschnig provided ISU with GAH financial information, explaining that, for the (financial) reasons given, it was critical for SoS to reach a decision as soon as possible.
972. On 8 September 2022, LAT provided written confirmation to GGL (and NatWest) that it would provide ?12.5m in funding by the end of 2022, payable in four tranches. LAT also confirmed that it was continuing to work on a refinancing solution for the balloon payment due in 2023.
975. On 12 September 2022, an alternative exit arrangement was proposed whereby Mr Upton would resign on 30 September 2022, with GAH agreeing to release him from his post-termination restrictions with respect to his new employer, Nasmyth, with which he said there was "immaterial crossover." On 13 September 2022, Mr Visotschnig confirmed that this exit route was acceptable. GAH subsequently prepared a waiver letter, later turned into a deed which was executed electronically on 23 September 2022. Mr Upton confirmed in his evidence that he did not tell Mr Visotschnig that he was working to support Nasmyth in a potential acquisition of part of Gardner's business but pointed out that there was no formal sale process at the time and that FDM and Blade were not material parts of Gardner. He denied misleading Mr Visotschnig by concealing Nasmyth's contemplated acquisition of part of Gardner.
978. On 15 September 2022, ISU served a further information notice on GAH, seeking information concerning its financial, banking and borrowing position and the Chengdu facility accreditation.
981. On 16 September 2022, following a request from GGL, NatWest declined to provide a 'comfort letter'. Without the ?12.5m funds being in place or appropriately guaranteed, the Bank continued to reserve its rights.
984. On 19 September 2022, Mr Visotschnig provided the financial and other information requested by, and asked for a meeting with, ISU. This took place on 22 September 2022.
987. On 29 September 2022, Mr Upton signed his new employment contract with Nasmyth.
990. On 30 September 2022, Mr Upton formally left his employment with Gardner and ceased to be a director of any of the Group companies.
993. On 10 October 2022, SoS issued the Final Order.
996. Mr Upton's duties as director/ employee
998. The Claimants plead that Mr Upton owed the following duties while a director of GAH and GGL pursuant to the Companies Act 2006 (CA06) and/ or the common law, namely (APoC [21]):-
1001. (i) To act within his powers, and to exercise those powers for a proper purpose, pursuant to CA06, s.171;
1003. (ii) To promote the success of the companies for the benefit of their members as a whole, pursuant to s.172;
1005. (iii) To exercise reasonable care, skill and diligence, pursuant to s.174; and
1007. (iv) To avoid placing himself in a position of conflicting personal interests, pursuant to s.175.
1009. The Claimants also plead that Mr Upton owed the following duties in the course of his employment by GGL pursuant to the ESA (APoC [22]), namely to:-
1012. (i) faithfully and competently perform such duties and exercise such powers, authorities and discretions as are consistent with his position and as may be vested in, or assigned or delegated to, him by the board of a relevant Gardner Group company (clause 4.1.2);
1014. (ii) use his best endeavours to promote, develop and protect the business, interests, goodwill and reputation of those Gardner Group companies for which he is required to perform duties (clause 4.1.3); and
1016. (iii) keep the board of the relevant Gardner Group company for which he is required to perform duties promptly and fully informed of his conduct of its business or affairs (clause 4.1.4).
1018. Pausing there, although GGL was Mr Upton's employing company, the ESA was also concerned with the performance of his duties in relation to other Gardner Group companies, most relevantly here, GAH. There was no dispute that Mr Upton owed these duties while a director and employee. There was some limited discussion in closing submissions as to whether, given how the Claimants had put their to Mr Upton in cross-examination as to his alleged lack of good faith, they were, in fact, pursuing their pleaded claims for breach of the duty to exercise reasonable care and skill (CA06, s.174) and under Mr Upton's contract of employment. The Claimants confirmed that they were. I accept that there was no impediment to them doing so.
1021. The scope of Mr Upton's duties as director
1023. (a) CA06, s.171(a)
1025. For the purpose of a director's duty to act in accordance with the company's constitution (s.171(a)), the question of whether there had been a breach of the constitution is to be determined objectively. However, Mr Upton submitted that a director would have to have known that they had no authority to act to be found in breach of s.171(a) (Wright v Chappell [2025] Bus LR 1639 at [522]; Stimpson v Southern Private Landlords Association [2010] BCC 387 at [33]).
1028. (b) CA06, s.171(b)
1030. As to the second distinct limb (s.171(b)), the court must identify (i) the power the exercise of which is in question (ii) the proper purpose for which that power was delegated to the directors (iii) the substantial purpose for which that power was, in fact, exercised (involving a question of fact turning on the director's actual motives) and (iv) whether that purpose was proper (Extrasure Travel Insurance Ltd v Scattergood [2003] 1 BCLC 598 at [92]-[93]). As Leech J held in Wright v Chappell (at [527]), the test is " ?. objective in the sense that it is unnecessary to demonstrate that the director knew or believed that they were acting for a collateral or improper purpose ..." but " ? subjective in the sense that the Court is required to examine the purpose or motive for which the power was exercised and decide whether it was a proper purpose."
1033. Where multiple purposes are present, the traditional approach is to enquire as to the 'dominant' or 'primary' purpose of its exercise. However, as noted in Eclairs Group Ltd v JKX Oil & Gas Plc [2016] 3 All ER 641 ([17]-[21]), this may be difficult to identify. Lord Sumption (with Lord Hodge in agreement) indicated that, in those circumstances, the focus is on the improper purpose and whether the impugned decision would have been made if the directors had not been affected by it. If not, it would be irrational to allow it to stand merely because the directors also had other, proper considerations in mind to which perhaps they attached greater importance. Although obiter, that approach was applied in Re Cardiff City Football Club (Holdings) Ltd [2023] 1 BCLC 133 (at [120]) where it was difficult, if not impossible, to discern the 'primary' or 'dominant' purpose.
1036. (c) CA06, s.172
1038. S.172 provides that a director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. In doing so, he must have regard (amongst other things) to (i) the likely consequences of any decision in the long term (ii) the interests of the company's employees (iii) the need to foster the company's business relationships with suppliers, customers and others (iv) the impact of the company's operations on the community and the environment (v) the desirability of the company maintaining a reputation for high standards of business conduct and (vi) the need to act fairly as between members of the company. That duty is subject to any rule of law requiring directors, in certain circumstances, to consider or act in the interests of the creditors of the company.
1041. In Saxon Woods Investments Limited v Francesco Costa [2025] EWCA Civ 708, the Court of Appeal held that the duty of good faith being fiduciary in nature, s.172 required honesty on the director's part. As Lord Hodge explained in Ivey v Genting Casinos (UK) Ltd) (trading as Crockfords Club)? [2017] UKSC 67; [2018] AC 391 (at [74]), whether the defendant acted dishonestly requires the tribunal first to ascertain (subjectively) the actual state of his knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. Once his actual state of mind has been established, the tribunal determines whether his conduct was honest or dishonest by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest. Mr Upton observes that this subjective and objective assessment of a director's honesty does not detract from the best commercial approach for the company being a matter for the directors' decision. So long as honestly held, a mistaken or unreasonable belief that a particular course of conduct was in the company's best interests would not place the director on the wrong side of s.172.
1044. Mr Upton also points out that the duty under s.172 relates to the promotion of the interest of the company, not that of the interests of the members directly. This proposition is expressed in the following terms in Palmers Company Law (at [8.2605]):-
1047. "This primacy of the company is significant. If the interests of the company as a separate entity are in conflict with the interests of the members as a whole, or at least some of them, it would appear that the interests of the company should be preferred. Perhaps a better way of putting this is that the general duty under s.172 is to promote the success of the company for the benefit of its members, not to promote the interests of the members directly."
1049. Finally, s.172(1)(b) specifically recognises that directors are to have regard to the interests of employees. Mr Upton says that the spectre of loss of UK job and investment in favour of Chengdu was one of the considerations that guided him in his actions sought to be impugned in this case.
1052. (d) CA06, s.174
1054. The s.174 duty to exercise reasonable care, skill and diligence is not a fiduciary duty but the statutory embodiment of a director's common law duty of care. S.174(2) requires the care, skill and diligence that would be exercised by a reasonably diligent person with (i) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company and (ii) the general knowledge, skill and experience that the director has. The first limb is an objective test, the second subjective. According to Optaglio Ltd v Tethal [2015] EWCA Civ 1002 (at [23]), the decision complained of must go beyond a mere error of commercial judgment but must be one which no reasonable director could have reached.
1057. A director will be in breach of his duty of skill and care only if the Court is satisfied that no reasonably diligent director with the material degree of knowledge, skill and expertise could have acted in the way in which the particular defendant director did act.
1060. (e) CA06, s.175
1062. Finally, a director must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. S.175(2)-(7) clarify that the duty:-
1065. (i) applies in particular to the exploitation of property, information or opportunity (whether or not the company could have taken advantage itself);
1067. (ii) does not apply to a transaction or arrangement with the company (as to which, other provisions in CA06 are engaged);
1069. (iii) is not infringed if the situation cannot be regarded as likely to give rise to a conflict or has been authorised by the directors; and
1071. (iv) includes a conflict of interest and duty and conflict of duties.
1073. The presence of the potential for conflict is to be ascertained by enquiring "whether a reasonable man, looking at the relevant facts, would think that there was a real, sensible possibility of conflict" (Breitenfeld UK Ltd v Harrison and others [2015] EWHC 399 (Ch) at [60(f)]). The analysis is an objective one, not whether the director, in fact, "succumbed to temptation" (Breitenfeld at [67]).
1076. Dishonesty
1078. Given the Claimants' focus, there was also some consideration of the Court's approach to the pleading and proof of dishonesty. ED&F Man Capital Markets v Come Harvest Holdings Ltd [2022] EWHC 229 (Comm) helpfully draws together a number of authorities in this area (at [69]-[71]):-
1080. "69. I bear in mind at all times that where fraud is alleged, cogent evidence is required by a claimant to prove it.
1081. 70. In Foodco UK LLP v Henry Boot Developments Ltd [2010] EWHC 358 (Ch), at ?3 Lewison J stated that "The burden of proof lies on the [claimants] ? Although the standard of proof is the same in every civil case, where fraud is alleged cogent evidence is needed to prove it, because the evidence must overcome the inherent improbability that people act dishonestly rather than carelessly. On the other hand inherent improbabilities must be assessed in the light of the actual circumstances of the case." In other words, the cogency of the evidence relied upon must be commensurate with the seriousness of the allegation: JSC BTA Bank v Ablyazov [2013] EWHC 510 (Comm) per Teare J at ?76. See also Bank of St Petersburg PJSC v Arkhangelsky [2020] EWCA Civ 408 at ??44-47 per Vos C and ?117 per Males LJ.
1082. 71. I also bear in mind that as to inferring fraud or dishonest conduct generally:
1083. i) It is not open to the Court to infer dishonesty from facts which are consistent with honesty or negligence, there must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved: Three Rivers District Council v Bank of England [2001] UKHL 16; [2003] 2 AC 1, ??55-56 per Lord Hope and ??184-186 per Lord Millett.
1084. ii) The requirement for a claimant in proving fraud is that the primary facts proved give rise to an inference of dishonesty or fraud which is more probable than one of innocence or negligence: JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm) at ?20 per Bryan J; Surkis & Ors v Poroshenko & Anr [2021] EWHC 2512 (Comm) at ?169(iv) per Calver J.
1085. iii) Although not strictly a requirement for such a claim, motive "is a vital ingredient of any rational assessment" of dishonesty: Bank of Toyo-Mitsubishi UFJ Ltd v Baskan Sanayi Ve Pazarlama AS [2009] EWHC 1276 (Ch) at ?858 per Briggs J. By and large dishonest people are dishonest for a reason; while establishing a motive for conspiracy is not a legal requirement, the less likely the motive, the less likely the intention to conspire unlawfully: Group Seven Ltd v Nasir [2017] EWHC 2466 (Ch) at ?440 per Morgan J.
1086. iv) Assessing a party's motive to participate in a fraud also requires taking into account the disincentives to participation in the fraud; this includes the disinclination to behave immorally or dishonestly, but also the damage to reputation (both for the individual and, where applicable, the business) and the potential risk to the "liberty of the individuals involved" in case they are found out: Bank of Tokyo-Mitsubishi UFJ Ltd v Baskan Sanayi Ve Pazarlama AS [2009] EWHC 1276 (Ch) at ??858, 865 per Briggs J."
1087. Breach of duty ? motive
1089. Before turning to potential breach, I first consider Mr Upton's alleged motive, starting with his suggested national security concerns. In the context of his related representations to ISU, there was quite some discussion of whether the Transaction presented a national security risk. There was also some emphasis in this context (at the outset at least) on the presumption of validity with respect to HMG's decisions to the effect that "[a]ll official decisions are presumed to be valid until set aside or otherwise held to be invalid by a court of competent jurisdiction" (De Smith's Judicial Review 9th ed. at [4-066]). The rationale for this is that " ? the public must be entitled to rely upon the validity of official decisions and individuals should not take the law into their own hands." Since the Claimants plead that "no national security risk was discernible in the Transaction" (APoC at [36.2]), Mr Upton says that it must be their case that SoS was wrong to impose the Final Order, otherwise he cannot be held liable for what were otherwise valid decisions. HMG not being a party (and the NSIA statutory review process not having been invoked), these proceedings would represent a collateral attack on HMG's decision. Given the related evidence, the significance of this point seemed to have diminished by the conclusion of the trial. In any event, I have not found it an impediment to the decisions falling to me at this stage.
1092. Ms Hu and, more closely, Mr Visotschnig were cross-examined about national security risk associated with the Transaction, including whether Chinese state control of LAT would give rise to a materially different position from 2017 when LAT acquired control and was required to enter into the Deeds. Both testified that SDH was merely proposing to increase its stake in LAT which remained subject to the relevant regulations applicable to Chinese public listed companies. Ms Hu also explained that, as an investment company with interests in a number of companies, SDH did not control the daily operations of every subsidiary. Mr Visotschnig added that the Deeds were concerned with potential national security concerns arising from access to restricted information and export controls, not GAH's governance arrangements. Although caution was required on the part of GAH directors in not providing such restricted information to LAT-appointed directors, this did not present significant issues. Likewise, although the NSIA notification was apparently not shown to LAT management, Mr Visotschnig did not consider that there was anything preventing its discussion at GAH board level. To the extent that it might be suggested that such sensitivity was an impediment to Mr Upton's disclosure of his communications with ISU to the LAT board, I would reject this. He did not suggest such sensitivity and NSIA-related matters were freely discussed at board level, the minutes indicating that the directors were keen to obtain more information from ISU.
1095. According to Mr Visotschnig, Chinese state owned enterprises had a controlling stake in many other aerospace companies in the UK. The concern was not 'aerospace' per se but the nature of the product and technology. That concern, as it related to Gardner, was explored in some detail, Mr Visotschnig accepting that (i) the extent of Gardner's military and dual use products manufactured at the time of the NSIA notification was more extensive than indicated in his witness statement, albeit still limited in number and nature (ii) ISU had concerns about national security risks relating to military and dual use applications of sensitive information held by Gardner and (iii) national security concerns arising from Chinese ownership excluded Gardner from significant military work. He also accepted that the Transaction led to SDH obtaining indirect control of Gardner and that Chinese state control would present HMG with greater national security concerns, albeit with checks in place, both in terms of LAT's shareholding and governance structure and Gardner's compliance with the Deed and E&S measures.
1098. Given Gardner's military and dual use activities, HMG obviously had national security concerns about LAT's proposed acquisition in 2017 (and later in the Northern and Impcross proposed transactions). The Deeds rather speak for themselves. I accept that such concerns would have been heightened in 2022 with the prospect of a Chinese state entity now proposing to acquire control of LAT and, indirectly, Gardner. The Claimants also fairly conceded in light of the evidence that related aspects of their pleaded case concerning Mr Upton's alleged prejudicial communications with ISU could not be pressed. I also accept that Mr Upton did have a reasonable and genuine belief that the Transaction presented a national security risk. As Mr Upton submitted, it is not necessary for me to determine whether such a risk, in fact, existed or its extent. However, as the Claimants said, that Mr Upton held such belief does not mean that it motivated him to take the actions now sought to be impugned. As to his suggested motives, the Claimants plead (APoC at [24.5]) that:-
1101. "He pursued this course of conduct not in order to advance the interests of GAH, Gardner or their subsidiaries, but instead with a view to obtaining an order for divestment of LAT's interest in GAH or otherwise undermining LAT's desire and ability to remain owner of GAH, with the ultimate aim that a new buyer of the Gardner business would retain him in employment."
1103. Mr Upton denies that his action was driven by these aims rather than the desire to protect Gardner jobs and capability in the UK as well national security concerns. Although some of his action may have been prejudicial to the interests of LAT as shareholder, Mr Upton submitted that this was not a relevant consideration if, taking into account the matters identified in CA06, s.172, he genuinely thought that he was acting in the Claimants' interests. I agree that care is required here. There was much criticism of Mr Upton's actions vis-?-vis LAT and Chinese ownership. However, the interests of Gardner and LAT are not necessarily the same and his actions could still be in Gardner's best interests even if detrimental to LAT.
1106. For this purpose, it is sufficient to look at the 'remedies letter' of 8 April 2022 and his communications to Mr Holden and Dame Margaret. Mr Upton was their author, he wrote them unilaterally and they shine a bright light on his true motives. He refers in that correspondence to investment and employment concerns. Indeed, evidence of potential risk to UK employment and investment is not hard to find in the wider record. As noted, there was some discussion at GAH board level of the transfer of work to Chengdu, both as a matter of Gardner's business planning and in an industrial relations context. Although the source of the comment is somewhat unclear, Mr Upton also told ISU on 10 January 2022 of Mr Yu Wei's desire for Gardner manufacturing to be carried out in China. As to LAT investment, the documents record difficulties in obtaining funding from China, including that the Chinese authorities did not look kindly on funds being transferred to over-extended companies outside China. Mr Upton also spoke at the GAH board about LAT's lack of investment appetite and the related difficulties of growing the business. Chinese ownership was also said to prevent Gardner gaining access to certain work programmes. Some of these difficulties were tied up with national security concerns arising from Chinese ownership of a business engaged in some military and dual use activity. These concerns would be heightened by the prospect of Chinese state control.
1109. Despite these matters, the suggestion that concerns about UK jobs and investment or national security motivated Mr Upton was not availing here. The starting point is what the GAH board (including Mr Upton) agreed as Gardner's 'Plan A', namely approval and completion of the Transaction. Despite reservations about the Transaction not being a panacea, Mr Upton told the board on 1 April 2022 that HMG's consent thereto was the "best case" and refusal the "worst-case scenario". The reasons for this are not difficult to discern: the Transaction would secure both the refinancing of Gardner's NatWest facilities and relieve Gardner of its inter-company indebtedness to LAT. Without it, there was a risk of Gardner's insolvency. As Mr Upton accepted in evidence, it was his duty throughout the 'call-in' process, in the interests of Gardner, to do his best to help obtain HMG approval.
1112. Despite this, Mr Upton took steps that he knew would undermine the Transaction. He actively lobbied Mr Holden and Dame Margaret for that "worst-case scenario" in preference to job and investment guarantees. He proposed remedies to ISU, not in the form of such guarantees, but of LAT's divestment of Gardner. Such divestment would have led to the failure of the Transaction and risk of insolvency and job losses if the NatWest debt could not be refinanced. Even if a buyer could be found, there was no guarantee of Gardner's UK jobs and investment position. That would depend on the (unknown) intentions of any (unknown) purchaser. Indeed, although Mr Upton did deploy concerns about employment, funding and national security in lobbying MPs and ISU, these were mostly directed to the existing position under LAT's ownership rather than the impact of the Transaction itself. His approaches in this manner were not a clumsy but honest response to such concerns in light of SDH acquiring a controlling interest. They were quite extraordinary steps for any director of Gardner to have taken in light of the agreed and pressing need for Transaction approval. Mr Upton well appreciated that his actions directed to Gardner divestment were directly contrary to its interests and that the GAH board would have objected. That is why he took those actions unilaterally and without disclosing them to the board.
1115. Nor, as he also sought to suggest, were Mr Upton's divestment proposals in his 'remedies letter' a contingency measure or Gardner's 'Plan B' in case of Transaction non-approval or continued short term funding difficulties. Gardner clearly continued to experience liquidity issues in 2022, causing ongoing problems and concerns with NatWest, including covenant compliance. There was also uncertainty for some time as to LAT's willingness to meet Gardner's funding requirements and the timing of payment. The GAH board discussed these difficulties as well as potential Transaction non-approval and their associated risks, including possible insolvency. It also recognised the need to undertake contingency planning, including potential divestment of parts of the Gardner business. However, Mr Upton lobbying MPs for his preferred outcome of HMG consent refusal or ISU for Gardner's proposed divestment was not contingency planning. Mr Upton intended the Transaction to fail and bring an end to Chinese ownership. The involuntary divestment of Gardner was his own undisclosed 'Plan A'.
1118. There was quite some discussion whether Mr Upton took these steps with a view to a potential buyer of the Gardner business keeping him in Gardner employment. As noted, Mr Upton testified with respect to his employment prospects generally that, in November 2021, he considered there to be a serious risk that he was on the way out once Mr Visotschnig took over. However, he discussed future plans for Gardner with Mr Visotschnig after January 2022, he was not given the impression then that he would not be kept on and he was therefore more confident by July that he would be retained. Although he had applied for jobs before January 2022, he did not do so thereafter, only exploring approaches made to him (albeit acknowledging that he had, in fact, 'applied' for the Solihull position). Likewise, he testified that he did not actively pursue employment with Nasmyth before he was told in July 2022 that he would be leaving Gardner. However, he accepted as inaccurate his pleaded case that he expected to return to his former CFO role and that he had discussed this with Mr Visotschnig.
1121. Mr Visotschnig testified that, having been told to build his own team, he had been open to working with Mr Upton but later decided not to do so. LAT management had lost confidence and had no intention of retaining him in employment once Mr Visotschnig was in post. Mr Visotschnig also said that Mr Upton told him in July 2022 that he had seen his removal coming. Although kept in 'suspense' for a number of months about his future at Gardner, I am satisfied on the evidence, principally the documents, but also unsatisfactory aspects of his oral evidence about alternative employment, that Mr Upton recognised throughout that his remaining time with Gardner was limited, that he was actively seeking a new role in the first half of 2022 and that he was discussing earlier than suggested by his evidence such an opportunity with Rcapital. The proposal for the Nasmyth CEO role was forthcoming on 7 July 2022. By that stage, Mr Upton had been communicating with Rcapital for nearly two months.
1124. Mr Upton was dismissive of the idea that he sought Gardner's divestment with a view to a new owner retaining him in employment. He suggested, for example, that he had alternative options but this was somewhat belied by his extensive interest in opportunities outside Gardner compared to the single Nasmyth offer of employment. More substantively, that offer came in the context of Mr Upton assisting Rcapital in connection with acquisitions, including of parts of the Gardner business. Mr Upton had also earlier sought to court potential investors in the form of Montana and Liberty Hall, even speculating that Mr Visotschnig's appointment might be re-visited if HMG imposed an order requiring Gardner divestment by 1 July 2022. I agree that overtures of this nature to prospective purchasers amidst his efforts to sever Gardner's ties with LAT through divestment lend significant support to Mr Upton being motivated by a desire to remain with Gardner.
1127. I found somewhat forensic the other reasons Mr Upton suggested for not being motivated by a desire to be kept on at Gardner. It was pointed out, for example, that the first of Mr Upton's acts complained of, namely his e-mail to Mr Holden, did not occur until 7 March 2022 even though he knew from as early as November 2021 that Mr Visotschnig would be taking over as CEO in due course. This did not seem compelling, particularly in circumstances in which the NSIA notification was only submitted in February 2022 and, by the time of his e-mail to Mr Holden on 7 March 2022, Mr Upton had already "tabled a potential solution with BEIS should the application be refused" (most likely on or after 18 February and in the nature of Gardner divestment).
1130. Likewise, the fact that Mr Upton communicated from his Gardner e-mail address such that he created an internal record did not seem to advance the point. The CEO would obviously communicate with HMG and NatWest using the company e-mail. His reason for sending his 11 July 2022 letter to ISU from his personal account was that he did not want LAT to find out about it. In a similar vein, as he told Mr Asplin on 7 July 2022, he did not want to 'show his hand' to Gardner about Rcapital. It is also unremarkable that Ms Storer (with her governance role) participated in ISU meetings, was copied on related communications or helped draft correspondence to ISU. As CFO, Mr Ford would obviously be involved in discussions and communications with NatWest. They were members of the Gardner 'management team' with whom Mr Upton worked daily. Sharing certain information with those reporting to him is different from not sharing with the GAH board as a whole - who could stop him if they had known - that he had been working to undermine 'Plan A' through Gardner's involuntary divestment.
1133. Finally, Mr Upton contended that the alleged means to achieve continued employment with Gardner were "remarkably convoluted and uncertain". I agree that the steps taken by Mr Upton were elaborate and their potential outcome uncertain. However, it is apparent from his own documents that those steps were calculated and that his motive for taking them was not UK jobs and investment or national security concerns. He took the actions he did knowing that, if successful, the Transaction would not go ahead. He did so contrary to Gardner's interests and with a view to furthering his own. I accept that he was motivated in that way from at least the time of his discussion with BEIS on or after 18 February 2022.
1136. Alleged breaches of duty
1138. I now set out my findings on the specific breaches asserted by the Claimants by reference to the four heads of conduct relied on (APoC, Sections E-F).
1141. (a) Seeking political intervention in the NSIA process (APoC [26]-[33])
1143. As for Mr Upton's efforts to seek political intervention in the NSIA process, I find that he acted in breach of his duties to the Claimants by:-
1146. (i) Positively seeking in his e-mails to Mr Holden and Dame Margaret dated 7 and 24 March 2022 respectively to subject the Transaction to close scrutiny by HMG;
1148. (ii) Taking these steps unilaterally and with the express aim, at a minimum, of the imposition of investment and job guarantees, but a stated preference for the refusal of HMG consent;
1150. (iii) Seeking that refusal with the aim of furthering his "potential solution" of LAT's divestment of Gardner already canvassed with BEIS on or after 18 February 2022;
1152. (iv) Communicating with Mr Holden on 18 March 2022, thanking him for his efforts leading to the "welcome intervention" of the 'call-in' notice, indicating a continuing "fight" in the NSIA process and welcoming scrutiny of the Transaction;
1154. (v) Communicating with Mr Holden at Gardner's Consett site on 22 April 2022 to lobby for continued intervention in the NSIA process with a view to HMG making an order for LAT's divestment of Gardner; and
1156. (vi) Failing to disclose to the GAH board that he was undertaking these communications or their substance.
1158. Mr Upton accepted that, as a director, he was obliged to do his best to help obtain HMG's approval for the Transaction. As the GAH board agreed, this outcome was in Gardner's interests. Despite this, Mr Upton took the above steps knowing that, if his own plan for Gardner's divestment was successful, it would lead to the failure of the Transaction and Gardner's possible insolvency through the inability to refinance the outstanding NatWest facilities. As he was also aware, neither outcome was in Gardner's interests. Mr Upton took these steps to further his own.
1161. In doing so, Mr Upton failed to promote the success of the Claimants for the benefit of their members as a whole (in breach of CA06, s.172).
1164. By seeking to further his own prospects of employment by Gardner under new ownership, he also placed himself in a position of conflicting personal interests (in breach of CA06, s.175).
1167. By taking these steps, Mr Upton also acted in breach of his duties under the ESA by failing to:-
1170. (i) perform his duties and exercise his powers faithfully as Gardner CEO (in breach of clause 4.1.2);
1172. (ii) use his best endeavours to develop and protect Gardner's business (in breach of clause 4.1.3); and
1174. (iii) keep the GAH board promptly and fully informed about his related conduct of Gardner's affairs (in breach of clause 4.1.4).
1176. (b) Prejudicial communications to ISU (APoC [34]-[43])
1178. (i) ' Remedies letter' ? 8 April 2022
1180. In relation to the 'remedies letter' sent by Mr Upton to ISU on 8 April 2022, the Claimants allege breach of duty based on the following matters:-
1183. (i) Mr Upton's proposal in the letter for HMG to make an order for LAT's divestment of Gardner (APoC [38.1]). As noted, such an order would have sounded the death knell for the Transaction; and
1185. (ii) Mr Upton's representations in the letter that the Transaction could harm Gardner's interests in terms of loss of UK jobs and capability and lack of investment in the European entities (APoC [36.11]-[36.12]). As noted, some of the concerns stated in the letter were undermined by the evidence, Mr Upton accepting relevantly in this context that no work or jobs or UK capability had been transferred to Chengdu at that point. The letter also failed to mention the NatWest refinancing and related SDH guarantee which would follow from the Transaction. These were significant omissions which would have helped to explain the GAH board's view that the Transaction was in Gardner's interest and why Mr Upton himself described HMG's approval as the "best case".
1187. As noted, Mr Upton accepted in evidence that it was a "reasonable assumption" that he was telling HMG that the Transaction "would be a bad thing for Gardner". In fact, the letter was remarkable, both for its attempt to 'sink' the Transaction by proposing divestment of Gardner by LAT and, to the same end, disparaging LAT ownership as being damaging to Gardner's interests. Mr Upton may have held genuine concerns that the Transaction would not solve all Gardner's difficulties. However, by seeking unilaterally to undermine the Transaction in furtherance of his own plan and personal interests and without disclosure of his actions to the GAH board, Mr Upton breached his fiduciary and contractual duties at [231]-[233] above.
1190. In addition, Mr Upton exercised his relevant powers for improper purposes. His 'remedies letter' was not sent, for example, for the purpose of ensuring Deed compliance and as part of his related communication and information exchange with MoD (and now BEIS) to that end, but for the purpose of pursuing Gardner's involuntary divestment. This was an improper purpose since it would cause the Transaction to fail. Mr Upton knew that this action had not been authorised by the GAH board (and would not have been if disclosed). For these reasons, Mr Upton also acted in breach CA06, s.171(a) and (b).
1193. I do not, however, accept that Mr Upton's reference in the letter to a "perceived national security risk" and "national security concerns" represented a breach of his duties (APoC [36.1]-[36.2]). As noted, such concerns were present, including because of the Transaction. Likewise, there was no breach of duty through the reference in the letter to "Chinese state control" (APoC [36.9]-[36.10]). Such control over Gardner was to be achieved through the Transaction, albeit indirectly through LAT.
1196. (ii) Mr Upton's 11 July 2022 letter to ISU
1198. As for Mr Upton's letter to ISU dated 11 July 2022 sent in response to ISU's information request of 6 July, as noted above:-
1201. (i) Mr Upton exaggerated Gardner Chengdu's potential for involvement with turbine blade manufacture (APoC [36.3]-[36.4]), later removing the relevant parts from the edited version shared with Mr Visotschnig;
1203. (ii) Mr Upton also exaggerated the issue of Mr Yu Wei's access to Gardner's IT systems, the problem appearing not to be one of access to Gardner company information per se rather than an inability to separate restricted from unrestricted information. The concern about Mr Yu Wei's request for access to Mr Cartwright's laptop did not seem to implicate national security considerations (APoC [36.5]-[36.6]). These issues too did not feature in the edited letter; and
1205. (iii) Mr Upton's evidence about potential access by Mr Yu Wei and Mr Yadong Nui to restricted information at the Derby site was confused, particularly as to whether engineering drawings were implicated. The significance of the issue was also exaggerated, Mr Upton confirming that there was no evidence of breach (APoC [36.7]). This issue too did not feature in the edited letter.
1207. I accept that Mr Upton deliberately exaggerated or distorted these matters in the letter to suggest controversy and even confrontation with LAT around Deed compliance. That view is reinforced by certain other matters: first, the forerunner of this 11 July letter was Mr Upton's supplemental response to ISU dated 17 June 2022. That earlier letter was not as far-ranging in its criticism of LAT but it was scathing nonetheless, particularly with respect to LAT's suggested disdain for the Deeds. That earlier letter was deliberately not shared by Mr Upton with LAT or SDH. The 11 July letter was sent privately to ISU, Mr Upton knowing that it would cause justified offence to his colleagues and, as was revealed in oral evidence, that its content would not withstand close scrutiny. In a further effort to avoid scrutiny, Mr Upton heavily edited the 11 July letter when he sent this to Mr Visotschnig.
1210. Moreover, as noted, Mr Upton's motive for going about matters in this elaborate, and in my view irresponsible, way was not difficult to discern, his concluding comments in the letter again suggesting a "proposed remedy" in the form of divestment, albeit now of individual sites. Again, he took this step to further his own interests. He had just been offered a job by Rcapital with which he was undertaking acquisitions work, including considering Gardner divestments. Again, unilaterally, and without knowledge of the GAH board, Mr Upton proposed further remedies to ISU which, if ordered, would benefit Rcapital and, indirectly at least, him, by potentially facilitating such an acquisition. Although there had been some prior discussion with Mr Visotschnig on 4 July 2022 concerning his divestment intentions when Mr Upton was "on the other side", the latter was still a Gardner director and employee at the time of his 11 July letter. On the same day as he sent the letter to ISU, he also sent voluminous materials to Rcapital relevant to potential divestment, again from his personal e-mail. However, it was not until 28 July that Mr Visotschnig gave permission for him to work on the 'buy' side. Even then, Mr Upton did not reveal that he had already been doing so for Rcapital.
1213. I do not consider it an answer to this aspect of the claim to say that Mr Upton could have been subject to criminal prosecution for misstating or failing to disclose matters in response ISU's information notices. Mr Upton was, of course, required to take care to provide HMG with accurate information. However, it was clear from his oral evidence that he was searching for an argument for some potential technical cross-over between Blade and Chengdu with respect to turbine blades. There was little substance to the point. I accept that the incidents concerning LAT personnel were based, at least in part, on information previously collated by Ms Storer. However, Mr Upton took these incidents and exaggerated their relevance and significance. He also conveyed them in much more "accusatory" fashion than did Ms Storer. He did so as part of a wider broadside against LAT, its record and strategy as shareholder and the Transaction itself. Finally, ISU had not solicited in its information notice a remedies proposal but Mr Upton provided one anyway. He was not constrained to write in these terms by the apprehension of potential criminal sanction.
1216. In taking these steps in furtherance of his own plan and personal interests to the detriment of the Transaction and Gardner's interests and without disclosure to the GAH board, Mr Upton breached his fiduciary and contractual duties at [231]-[233] above. In addition, he exercised his powers for improper purposes. Although ostensibly a response to ISU's further information notice dated 6 July 2022, he sent his 11 July letter (and earlier 17 June supplemental letter) in the terms he did to disparage LAT's (and continuing Chinese) ownership of Gardner to undermine the Transaction. He no longer proposed LAT's divestment of Gardner but, without solicitation by ISU, he now sought a proposed remedy of divestment of individual sites. This was an improper purpose since the imposition of onerous conditions for approval would hinder the Transaction. Mr Upton knew that this action had not been authorised by the GAH board (and would not have been if disclosed). For these reasons, Mr Upton also acted in breach CA06, s.171(a) and (b).
1219. I do not, however, accept that Mr Upton's reference in the letter to "Chinese state ownership" (or similar) in the 11 July letter represented a breach of his duties (APoC (APoC [36.9]-[36.10]). Although 'control' (rather than ownership) was perhaps more accurate, the expression was not misleading given the context.
1222. (c) Engagement with potential buyers (APoC [44]-[52])
1224. The Claimants also say that Mr Upton breached his duties by holding himself out to Montana and Liberty as authorised to negotiate a potential sale of Gardner (APoC [44]). Mr Upton drew comfort in this regard from the contingency planning document which refers to the agreement at the 1 April 2022 GAH board call to "test the market for divestments from Gardner to reduce indebtedness and provide funding for investments." However, this overstates what was an early discussion on that call about possible divestment of Gardner sites. Mr Upton summarised matters then in the following terms:-
1227. "I think Phillip's clearly outlined an appetite that we, we consider how we dress, um, Basildon up for sale, so. Um, begin to make, take, take action on that. Um, not, I don't, I don't mean in an overt way, but we will begin the planning for, for such a transaction. Um, I will, um, continue to do the scenario planning around, um, That mid-range options, it will be very reactionary, because I think it can only be reactionary to event, events, but clearly, uh, I think there will be frequent communication between, Uh, yourself, Dennis, and Philipp, uh, on, on those, on those options, and, um, if we need to talk to anybody or engage with anybody, then I will be reaching out to, to, to, on that, on that topic."
1229. The discussion about divestments on that call arose from Gardner's short term liquidity difficulties, it was tentative, it focused on a possible sale of Basildon, any action taken would be 'low key' and there would be further discussion among the directors. The contingency planning document also talked of "divestments from Gardner" (not the divestment of Gardner), further sites considered for that purpose and the need for LAT's consent to implement any offers. Even if Mr Upton could rely on these matters to suggest that he was clothed with authority for potential Gardner divestments, this could not, on any view, extend to his discussions with Montana and Liberty Hall. Mr Upton had already reached out to Montana on 28 March 2022 before the GAH board call on 1 April. He did so, not with a view to plugging a funding shortfall through the possible sale of Gardner sites, but to canvass the opportunity for Gardner's possible change of ownership. That was consistent with what Mr Upton said later about the sale of Gardner being involuntary, whether pursuant to an order for divestment or NatWest enforcing its rights, both routes circumventing LAT consent. This was also consistent with Mr Upton's own plan to seek the divestment of Gardner. There was no GAH board authority for that plan, nor would there have been. The GAH board had agreed that the Transaction was in Gardner's interests. Despite this, Mr Upton 'teed up' the interest of Montana and Liberty Hall for the purpose of his own 'Plan A' which he could then more easily present as liquidity shortfall planning when his plan all along was to change Gardner ownership.
1232. Nor did Mr Upton disclose his dealings with Montana and Liberty Hall to the GAH board (APoC at [45]). Mr Upton did refer obliquely to change of Gardner ownership at the GAH board meeting on 1 April 2022 but did not mention then his contact with Montana to that end only three days earlier. He also referred obliquely at the 3 May 2022 GAH board meeting to a "proposal for the whole" being forthcoming if Gardner went to market to divest elements of the business. However, he did not say then that he had been discussing such a proposal with Montana for a month or so. At the 26 May 2022 GAH board meeting, PwC said that they were not yet looking at the sale of the business as a whole, describing this as the "very worst-case scenario". Mr Upton was present at that meeting but did not tell his co-directors that he had until recently been in discussion with Montana to bring about that worst case. By the time of the 9 June GAH board meeting, it appears that Mr Upton had formed the view that the Bank was unwilling to force an insolvency or divestment of the whole of Gardner such that little contingency planning work would be required going forward. Mr Upton went on to say that no "external work" had yet been undertaken to ensure that information was not leaked, an approach he believed the Bank would support. Again, Mr Upton did not disclose his own "external work" in April and May 2022 with Montana and Liberty Hall about the involuntary divestment of Gardner or his sharing of Montana's interest with NatWest and Mr Holden. He kept quiet about these matters because he knew that the involuntary sale of Gardner following a divestment order (or NatWest's actions) was the antithesis of Gardner's 'Plan A'.
1235. As noted, Mr Upton also positively encouraged Montana and Liberty to lobby others to help create the environment for the involuntary divestment of Gardner by LAT to a third party (APoC at [51]). This was consistent with Mr Upton's 'remedies letter' from early April but, again, inconsistent with Gardner's 'Plan A'.
1238. Finally, Mr Upton sought to undermine the Transaction in this way to promote his continued employment by Gardner under new ownership, thereby advancing his own personal interests (APoC at [52]).
1241. In taking these steps in furtherance of his own plan and personal interests to the detriment of the Transaction and Gardner's interests and without disclosure to the GAH board, Mr Upton breached his fiduciary and contractual duties at [231]-[233] above. In addition, Mr Upton exercised his powers for improper purposes. His dealings with Montana and Liberty Hall were not undertaken to further Gardner's liquidity shortfall contingency planning but for the purpose of pursuing Gardner's involuntary divestment. This was an improper purpose since it would cause Gardner's 'Plan A' to fail. Mr Upton knew that this action had not been authorised by the GAH board (and would not have been if disclosed). For these reasons, Mr Upton also acted in breach CA06, s.171(a) and (b).
1244. (d) Communications with NatWest (APoC [53]-[58])
1246. The Claimants say that, in his communications with NatWest in late April and early May 2022, Mr Upton misrepresented the level of uncertainty associated with investment by LAT or SDH in Gardner. For the reasons already noted above, I accept that:-
1249. (i) Mr Upton and Mr Visotschnig provided assurances at their meeting with NatWest on 12 April 2022 that LAT was committed to provide the short term funding required from June 2022;
1251. (ii) Mr Upton deliberately undermined those assurances by suggesting in his letter of 25 April 2022 to NatWest that "on-going uncertainty around ISU weighs on LAT's ability to provide further cash";
1253. (iii) Such linkage between the NSIA process and Gardner's ability to secure funding was not warranted but Mr Upton deliberately made that connection to unsettle NatWest and heighten concern that Gardner would not be able to meet its banking obligations;
1255. (iv) Although Mr Upton's request for a covenant waiver and provision of a 'worst case' liquidity cashflow may have been justified, he again deliberately undermined his prior assurances to NatWest by requesting in the same letter such waiver to operate until "a time when the outcome of the Call-In Notice is known and further shareholder funding becomes possible". Such linkage was again not justified;
1257. (v) Mr Upton also deliberately sought to unsettle NatWest further when writing to the Bank on 29 April 2022 about the suggested 'blocking' of the ?2.5m loan, saying how reliance on funds from China was "likely to be difficult and unpredictable";
1259. (vi) Such comments were, again, unwarranted, the delay in payment being an administrative problem which Mr Upton should have properly explained to the Bank. He failed to do so;
1261. (vii) Mr Upton provided NatWest instead with the Montana LOI to show that external parties had "an interest in supporting a change of ownership". He sent this with his own board paper, thereby suggesting that such change formed part of Gardner's contingency planning when, in fact, the GAH board had not authorised, and did not know about, his Montana dealings;
1263. (viii) In painting Gardner's liquidity position and planning in a bleaker light than was justified and accompanying this with the "reassurance" of a willing purchaser, Mr Upton sought to advance his "desired solution" of Gardner's involuntary sale through its "secondary scenario" of action to be taken by NatWest;
1265. (ix) In taking these steps, Mr Upton sought deliberately to destabilise NatWest's relationship with Garder to set up that secondary scenario; and
1267. (x) He failed to disclose his actions to the GAH board.
1269. These steps were taken to the obvious detriment of Gardner's interests, Mr Upton effectively setting up an erroneous basis for LAT's suggested funding shortcomings with a view to NatWest considering its position under its facilities, even seeking to make that prospect more palatable for the Bank by indicating the availability of divestment opportunities. Mr Upton was not averse to 'laying it on thick' with the Bank. He did so again here to further his own plan and personal interests, not Gardner's. In doing so, he breached his fiduciary and contractual duties at [231]-[233] above.
1272. Mr Upton also exercised his powers for improper purposes. The above communications with NatWest were not sent for the purpose of the proper conduct of Gardner's banking relationship rather than for the improper purpose of advancing Mr Upton's plan for Gardner's divestment and his own personal interests. Moreover, just as Mr Upton knew that his dealings with Montana had not been authorised by the GAH board, he also knew that his sharing of the product of those dealings in the form of the Montana LOI had not been authorised (and would not have been if disclosed). For these reasons, Mr Upton also acted in breach CA06, s.171(a) and (b).
1275. Conclusion/ disposal
1277. Mr Upton acted in breach of his duties as director and employee to the extent indicated above. Given those findings, I have not considered it necessary or appropriate to make findings with respect to Mr Upton's duty of care and skill under CA06, s.174. I make clear that, in reaching these conclusions, I have made no finding, and I express no view, as to what effect(s) his breaches may have had, if any. That will be a matter for any further trial.
1280. In the meantime, I would invite the parties to seek to agree matters consequential upon this judgment, including a draft minute of order. If this cannot be agreed or a hearing is otherwise required, the parties can make the necessary arrangements through my clerk. I would also encourage the parties to seek to resolve their remaining differences in these proceedings. It strikes me that this is a case in which mediation (even if attempted unsuccessfully before) would be appropriate.

Note 1    As it was known at the relevant time, since re-named Gardner Aerospace Limited. [Back]

Note 2    As it was known at the relevant time, since re-named Gardner Aerospace Operations UK Limited. [Back]

BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: https://www.bailii.org/ew/cases/EWHC/Ch/2026/555.html