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Cite as: [2017] WLR(D) 364, [2017] Bus LR 1309, [2017] EWHC 1275 (Comm)

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		Neutral Citation Number: [2017] EWHC 1275 (Comm)
		Claim No: Cl-2016-464

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

25 May 2017

B e f o r e :

HIS HONOUR JUDGE WAKSMAN QC
(sitting as a Judge of the High Court)
____________________

	(1) MARCUS WATSON (2) ROB HERSOV (3) TWYSDEN MOORE	Claimants
	- and - WATCHFINDER.CO.UK LIMITED

____________________

Tom Montagu-Smith QC (instructed by KWM Europe LLP, Solicitors) for the Claimants
Erin Hitchens (instructed by Brachers LLP Solicitors) for the Defendant
Hearing dates: 19-21 April 2017
____________________

HTML VERSION OF JUDGMENT
____________________

INTRODUCTION

This is a claim brought by 3 individuals, Marcus Watson, Rob Hersov and Twysden Moore (collectively "the Claimants") for specific performance of a written share option agreement made between them and the Defendant company, Watchfinder.co.uk Limited ("Watchfinder") on 1 December 2011 ("the Option Agreement"). It is common ground that all the formal steps required for the exercise of the option by the Claimants were fulfilled.

However, Watchfinder relies upon Clause 3.1 of the Option Agreement which provides thus:

"3.1 The Option may only be exercised with the consent of a majority of the board of directors of the Company.

3.2 If the consent specified in Clause 3.1 has not been obtained by the Investors before the Options Expiry Date the Option shall lapse and neither party to this agreement shall have any claim against the other under this agreement except in relation to any breach occurring before that date."

No such consent was given and accordingly, Watchfinder says that the option could not and cannot be exercised. The Claimants agree that no consent was given but contend that, having regard to the true construction of Clause 3.1 (or by an implied term), the context in which the Option Agreement was made and the events which have happened, the lack of consent may be disregarded.

OVERVIEW OF THE CLAIM AND PROCEDURAL HISTORY

The Claimants are all directors of and shareholders in a company called Adoreum Partners (" Adoreum") which is a business development consultancy. One of its key selling points is the number of relationships which it has with a large network of businesses, investors and high net worth individuals upon whom it can draw and as appropriate introduce to its clients particularly in the lifestyle and luxury goods sectors. Thus it has acted for Rolls Royce, Bentley and Cartier for example. In addition, Mr Hersov was a main board director of Richemont, the luxury goods group which owns famous brands such as Cartier, Piaget and Montblanc and continues to have strong links with it.

Watchfinder is a company which buys and sells pre-owned watches and deals in them through its website although it has shops as well. As its name suggests, it is directed towards individuals who wish to buy a particular brand or type of watch. They can see pre-owned watches of the kind they want (if available) on the website. These are likely to cost far less than new ones but will have been reconditioned by Watchfinder. There are also a number of ancillary services provided.

Watchfinder has grown enormously over the last 5 to 10 years. In 2008 its turnover was £6.3m with pre-tax profits of £213,000. In 2009 the figure was £8.3m and £325,000, in 2010 it was £11m and £67,000. In 2013 turnover was £16m with pre-tax profits of £508,000. In 2014 the figures were £25m and £997,000, in 2015, they were £38m and £1.7m and in 2016 turnover was £60m with pre-tax profits of £3m.

Up to about 2010, Watchfinder had also sold new watches on the "grey market". In other words, it bought them from authorised dealers and resold them as new. For obvious reasons, some retailers were not prepared to sell new watches to Watchfinder on that basis although they might sell them outdated models, albeit new, which Watchfinder would then resell as pre-owned; or if they sold new current watches to Watchfinder, they would not do so in large quantities lest this came to the attention of the brand concerned.

In 2009 Watchfinder was interested in having Richemont as an investor because it could benefit from its size and reputation in the luxury goods market and because it needed credibility and investment to grow its business. At that stage, Mr Watson's business was a different Adoreum company in fact also dealing in watches. A proposal under which they would join forces and Mr Hersov would go on to the board of Watchfinder came to nothing.

Contact was re-established with Adoreum in its present incarnation in late 2010 and this led to the making of two agreements. One was the Option Agreement referred to above and the other was a Sales and Marketing Services Agreement also made on 1 December 2011, but between Adoreum on the one hand and Watchfinder on the other ("the Services Agreement"). In fact, since early 2011, Adoreum had started to do work for Watchfinder and was being paid a retainer.

The Services Agreement provided that for an initial term of 12 months, Adoreum would introduce prospects to Watchfinder, create events in partnership with other synergistic brands, invite key Watchfinder personnel to other Adoreum events to facilitate introductions to prospective customers, investment investors and partners, introduce strategic marketing partnerships to extend the reach of the brand and introduce potential corporate investors and partners. In return, Watchfinder would pay a monthly retainer of £2,500 until March 2012 after which the retainer would rise to £5,000. Upon Watchfinder receiving invested funds or value the retainer would rise to £10,000. Further, if an investor should purchase or invest in the company and/or lend money, properties, patents or anything of value towards Watchfinder, regardless of form, then Watchfinder would pay to Adoreum 5% of the proceeds or value so received. At the end of the initial term the agreement would automatically renew for consecutive six-month periods until and unless terminated.

After making the Services Agreement, Adoreum continued to render services to Watchfinder, principally through Mr Watson and Mr Moore. In October 2012 the parties agreed to reduce the monthly retainer back down to £2,500. On 13 February 2013 and despite considerable efforts made on behalf of Watchfinder by Adoreum, Richemont indicated that it would not invest in Watchfinder. Much later, in March 2014 having been approached again, it explained that it was not interested in investing in the secondary watch market at that time.

By a written agreement made in July 2013, the Option Agreement was varied so that the entitlement of the Claimants was not by reference to a specific number of shares (500) but rather to a percentage of the issued share capital, being 5%. The total purchase price remained at £150,000.

On 7 August 2013 Mr Watson introduced another potential investor called Beringea LLP ("Beringea") to Watchfinder. By the end of 2013 Beringea had proposed heads of terms for investing in Watchfinder.

On 10 February 2014, and following an intimation made in earlier correspondence, Watchfinder issued a notice of termination of the Services Agreement. By then, Beringea and another investor (not introduced by Adoreum) called Piton had agreed terms for a joint investment in Watchfinder and this was completed in the summer of that year. Each investor paid US$5m for a 15% shareholding.

By a written settlement agreement made between Adoreum and Watchfinder dated 29 July 2014, Watchfinder agreed to pay to Adoreum £79,500 plus VAT which amounted to about half of the fee that it would have been entitled to under the Services Agreement for introducing Beringea.

By a letter dated 4 March 2016 the Claimants sought to exercise the option. On 24 March 2016, Brachers LLP, Watchfinder's solicitors, wrote back to say that no shares would be issued because the required board consent had not been obtained.

On 13 April 2016 the Claimants wrote to Brachers LLP asking for details of the board meeting if already convened, and the reasons given for the refusal of consent or if it had not yet taken place, when it would be held. They received no reply. On 27 May 2016 the Claimants sent a pre-action protocol letter. On 2 June 2016 Brachers LLP replied that the Claimants had no claim, again on the basis that no consent had been obtained.

On 21 July 2016 the Claimants issued the Part 8 Claim Form in this action. It sought specific performance of the obligation to allot the 5% of the shares and made no reference to Clause 3.1 of the Option Agreement. The witness statement in support made by Mr Watson dated 13 July 2016 did refer to that clause but then also referred to the lack of any response from Watchfinder as to the details of any board meeting.

On 5 September 2016, Mr Stewart Hennell, the Managing Director of and principal shareholder in Watchfinder made a witness statement in reply. In it, he stated, among other things, that consent was entirely within the discretion of the board and he later referred to it as an "unconditional veto". He also said that he had taken legal advice about this before the Option Agreement had been signed. He further said that the underlying agreement behind the Option Agreement was that the option could only be exercised if Richemont actually invested which it did not. In his second witness statement, made in reply, Mr Watson asserted that Clause 3.1 had never been intended to provide an unconditional veto.

On 5 October 2016, Watchfinder applied for summary judgment against the Claimants on the footing that the claim was bound to fail due to the lack of any board consent. This was supported by a witness statement from Ms Williams of Brachers LLP.

However, by the witness statement in reply to the application, made by Ms Chaturvedi of the Claimants' solicitors, she said that either as a matter of construction or by way of an implied term, it was not open to Watchfinder to refuse consent unreasonably, capriciously or arbitrarily, that Watchfinder had so acted and therefore the Court should treat consent as having been given and thus decide in favour of the Claimants. In response to that, and in the second witness statement of Ms Williams, it was contended for Watchfinder that:

(1) the only basis on which the shares would be issued was if Richemont had invested, which did not happen;

(2) if the option, on the other hand, was exercisable on the satisfaction of three conditions which were referred to in Mr Hennell's email of 27 April 2011 (though not embodied in the Option Agreement) namely ownership of or access to an authorised dealership, validation of the lead sales proposition and a first stage investor purchasing a minimum stake of 10%, none of those conditions had been satisfied.

It is no part of Watchfinder's case that Adoreum was in breach of the Service Agreement.

Ultimately, the summary judgment application did not proceed and the parties went directly to trial instead. A second witness statement of Mr Hennell was served on 9 December and a third on 23 March 2017, while Mr Watson served his third witness statement on 5 April 2017. In addition, Mr Moore served a witness statement on 5 April 2017.

At the trial I heard evidence from Mr Watson and Mr Moore for the Claimants and Mr Hennell for Watchfinder.

THE ISSUES

The following issues arise:

(1) Did Clause 3.1 amount to an unconditional right of veto in favour of Watchfinder, which is Watchfinder's primary case? If so, it is conceded by the Claimants that they must fail in this claim;

(2) If it did not, was the discretion to refuse inherent in Clause 3.1 subject to a qualification (either as a matter of construction or by reason of an implied term) that it must not be exercised capriciously, arbitrarily or unreasonably?

(3) If so, what was the subject matter of the consideration of the right to veto? Here,

(a) the Claimants contend that it was limited to a consideration of whether the Claimants were or were not suitable persons to be shareholders. On this basis, there was no proper or any exercise of discretion directed to that particular matter and so the claim must succeed;

(b) Watchfinder denies this and says (now) that all that was required was a consideration in general terms of the performance of the Claimants either as individuals or acting through Adoreum in the past - or a variation on that theme. If the board of Watchfinder formed the view (as it says it did) that their services were not such as to merit the grant of the option, it could so properly decide in the exercise of its discretion and if this analysis is correct, then the Claimants claim must fail.

(4) In addition, according to the Claimants, on the facts here there was in truth no meaningful exercise of any discretion at all and on that footing the claim must succeed.

I shall consider those issues after first dealing with the facts. I do not deal with every dispute that has arisen because it is not necessary to do so. In particular, in his third witness statement, Mr Hennell makes extensive criticism of Adoreum's services in a number of respects. Mr Watson, for his part, rebuts that. However, most of those disputed matters were not put to either side's witnesses in cross-examination and for reasons which will become clear, it is not necessary to make any findings on them.

THE EVIDENCE

This is not a case where one witness has generally given unreliable or untrue evidence. That said, I think that in some respects Mr Hennell is looking at matters very much in hindsight and is, I think, influenced by his desire not to dilute shareholding by allowing the Claimants to have the shares claimed which will now yield them a substantial profit in terms of the increase in value from the option price of £150,000. Further, as is explained below, his evidence as to what he thought and did at the time of the board meeting on 17 March 2016 was inconsistent and unsatisfactory.

As for Mr Watson and Mr Moore, generally, I thought that they were both essentially reliable witnesses.

I have been greatly assisted by the contemporaneous documents in this case principally emails passing between the parties. They provide a useful check to what the witnesses have contended and I make no apology for quoting from them extensively. Beyond this, I simply deal with the evidence and my findings thereon, in context.

THE FACTS

The making of the agreements

In general terms, there is little doubt that Mr Hersov in particular was extremely well-connected and Watchfinder did not suggest otherwise. Equally, and this was borne out by my impression of him as a witness, Mr Hennell is a bright and hard-working businessman and a tough negotiator. In terms of seeking investors, what he and Watchfinder really needed, in my view, were introductions to persons whom Watchfinder could not itself access and/or did not know. Once that happened, and they were prepared to talk to Mr Hennell, he was more than capable of getting the best deal he could for Watchfinder assisted if necessary by corporate lawyers or advisers and so on.

It is also plain that Mr Hennell was at all times very keen to have Richemont invest. Equally, the Claimants knew this and were prepared to use that prospect as a negotiating tool where appropriate.

In what follows, I refer on occasion to what the parties said were their intentions as to or expectations of the Option Agreement. Of course, evidence of negotiations or subjective intent is not admissible on the construction of a written agreement but these references are made simply in order to explain in more detail the history of this matter. They also have some bearing on the mind-set of Mr Hennell in particular at the time of the board meeting.

The first point to note is that once Watchfinder renewed contact with Adoreum for the purpose of engaging it as business consultant to assist it to move forward, a share option of some kind was always on the table as part of the package which otherwise included the Services Agreement; see, for example, Mr Watson's email of 5 January 2011 which refers to a written retainer for Adoreum of £2,500 per month, a fee of 5% of any investment funds raised, and options for shares in Watchfinder equal to 5% of issued share capital once an investor had been secured. By an email of 27 January 2011 Mr Hennell agreed in principle to terms along those lines.

On 1 February 2011 Mr Westoll, Adoreum's Operations Director sent a draft of the Services Agreement to Mr Hennell. By 1 March 2011 Mr Westoll had also sent a draft option agreement to Mr Hennell. At that stage, the number of shares and the option price had not been inserted. However, the basic agreement was set out and at that stage it included Clause 3.1. It is, in my view, an odd provision to insert in a share option agreement and there is no clear reason why it was included. Mr Westoll, who seems to have drafted both agreements, did not give evidence. Mr Watson thought that this provision had been taken from some other agreement but anyway considered that the necessary consent had somehow already been given at the outset by Watchfinder's board as opposed to being required much later when any option was exercised. But that does not make much sense and is contradicted by the words used.

For his part, Mr Hennell thought, at least initially, that the consent would be forthcoming anyway assuming that there was an investor, by reason of the investor's presence on the board and also some or all of the Claimants. Or if Richemont was the investor, there would be a need to keep the Claimants on side so they would get the shares. But that does not seem a very clear explanation either. No further clue is given in any of the contemporaneous documents.

At all events, Clause 3.1 remained in the draft. On 27 April 2011 Mr Hennell wrote that he was keen to have the Option Agreement because it would incentivise the Claimants to get involved and add significant value. However he said that Watchfinder needed formal milestones and an operative period of only 3 years. In the event, the milestone conditions were not taken any further and not incorporated into the Option Agreement.

I pause here to note that in paragraph 9 of his first witness statement, Mr Hennell said that:

"Both parties were absolutely clear throughout negotiations and before signature that clause 3.1 must be included in order for the Agreement to be signed by Watchfinder. I recall… Numerous occasions where I spoke with one or other of the Claimants confirming that the Defendant would only sign the agreement on the basis that the Watchfinder board had an absolute right to refuse to consent to the option being exercised."

But in evidence he accepted that this could not be right because Clause 3.1 was not insisted upon, or even drafted by Watchfinder. Rather it was already in the draft submitted by Mr Westoll at the outset.

In the meantime, and although neither agreement was yet signed, Adoreum was already working with and providing services to Watchfinder. An internal email from Mr Hennell to Mr Amsdon, his co-director, on 14 May 2011 is revealing. He gives a number of reasons, first, why not to get involved with Adoreum including the lack of a clear set of objectives they intended to achieve, that they had not yet visited Watchfinder's HQ or staff, had made a "hash" of the first introduction to a manufacturer (Bremont) (though he accepted in evidence that this was not a fair criticism) and whether they could do what they promised. On the other hand, reasons to get involved with Adoreum were that Mr Hersov was a "potential dream ticket" if he got behind them, that the Adoreum team was clearly extremely sophisticated and connected and that they would give them "credibility in the luxury watch market". He added that "we seem to have a get out of jail free card with respect to the Option agreement".

In evidence, Mr Hennell said that the reason why Mr Hersov would be a dream ticket was because of his connection with Richemont, and I accept that. As for "seeming" to have the "get out of jail free card" he agreed that this was because they had received some legal advice. Although he went on to say that the "jail" he was referring to here was if everything just went wrong with the business, I do not accept this. "Jail" must be a reference to the giving of shares under the option. That is consistent with him taking the view that Watchfinder had an unconditional right of veto which had been Watchfinder's (or its solicitors') initial answer to the claim and as set out in his first witness statement (see paragraph 19 above). On that footing, there would be no need or much less need to have specific conditions in the Option Agreement as well.

I do not consider that there was any express discussion between the parties about the meaning and scope of Clause 3.1.

Although Mr Hennell emphasised in his written and oral evidence that the key investor which Watchfinder wanted was Richemont, the Option Agreement made no mention of it specifically nor did Watchfinder suggest any amendment to this effect. Nor was it mentioned by name in the three conditions contained in Mr Hennell's email of 27 April 2011.

On 3 June 2011 Mr Amsdon emailed Mr Watson to say that they wanted to get the Option Agreement moving and so if the Claimants could provide a reasonable valuation figure then Watchfinder would sign it off and "we will not include any conditions to simplify the process". By 23 July 2011 the value of Watchfinder had been agreed for these purposes at £3m which meant that 5% of the shares would cost £150,000.

All of that said, and despite Adoreum already working for Watchfinder since the beginning of 2011, the Option Agreement was not signed at that point.

By 22 November 2011 and with no agreement yet in place, Mr Moore suggested to Mr Hennell that the monthly retainer should be at £10,000 (they were presently being paid £2,500) and a meeting followed. On 28 November, Mr Hennell wrote to say that Watchfinder wanted Adoreum to produce a detailed strategy, that there should be no monthly fees and that Adoreum should get first phase investors in place before the end of March 2012 and once this was done, Watchfinder would authorise the Option Agreement. He went on to say that Watchfinder had not signed that agreement because they were always under the opinion that an agreed strategy would be in place beforehand; the worst-case scenario for all shareholders, both Watchfinder and Adoreum, was that an agreement was signed and then they find they have a fundamental disagreement about how to take the business forward. He said that they had originally negotiated the Option Agreement as an alternative to standard client fees with a nominal monthly fee required to cover administrative costs. There was no mention of Watchfinder having to pay for work required by the shareholders (there being a reference to the Claimants). He concluded by saying that Adoreum needed to decide whether they wish to be shareholders of Watchfinder or whether they wish to have Watchfinder as a client. Acting as both was not viable going forward.

In response, Adoreum agreed to keep the monthly fee at £2,500 until 1 April 2012 when it would rise to £5,000 until funding was secured and then it would rise to £10,000. Also the Option Agreement should be signed immediately on the original terms. On 28 November, Mr Hennell agreed to all of that.

On 1 December 2011, the first planned meeting between Mr Hennell and Richemont was due to take place facilitated by Watchfinder. However, the Claimants would not permit the meeting to take place until the agreements were signed, which they were. That was a commercial decision for Watchfinder.

I have already recited in paragraph 10 above, the key terms of the Services Agreement as signed. As for the Option Agreement, apart from Clause 3.1 (cited in paragraph 2 above), the remainder of the Option Agreement is in very typical share option form. There is a defined option exercise period which is to expire on 31 July 2018. The option price and option shares for each of the Claimants are defined with Mr Watson and Mr Hersov each getting 200 and Mr Moore, 100. The formalities in relation to the notice to exercise the option were set out in detail along with the procedure to be adopted by Watchfinder upon exercise of the notice and provision of the consideration. Further provisions deal with events such as the reorganisation of Watchfinder or an offer by a third party for all of the issued shares in it. There is an entire agreement clause at Clause 4.1.

When the Option Agreement was varied by deed in 2013, it was changed principally to replace 500 shares with 5% and at a fixed price of £150,000. There was no change to Clause 3.1.

Richemont

Rather than proceed purely chronologically in respect of matters following the signing of the agreements, it is more helpful (given the nature of the parties' cases) to deal with particular topics. The first of these is Richemont. I have already noted that this company did not in the end invest. While that fact is heavily relied upon by Watchfinder it is not suggested to Mr Watson in cross-examination that to any real extent Adoreum was at fault in not getting Richemont in as an investor. The contemporaneous notes and unchallenged evidence shows that it made considerable efforts to get Richemont on board. That is hardly surprising since on any view it would have been the easiest way for the Claimants to get approval from Watchfinder for the exercise of any share option along with a substantial commission, regardless of the contractual niceties, since Richemont was a very important prospect for Watchfinder.

The fact that the Claimants appreciated this is reflected not only in the way in which they used Richemont as a lever on 1 December 2011 to get the agreements signed but also in September 2012. At this point Mr Hennell had proposed that the current monthly fee, by now £5,000 per month, be dropped to £1,000. This was because, he said, the increase had been justified on the basis that added resources would be needed by Adoreum but in the event they were not necessary. Mr Hennell's email of 19 September 2012 added that Mr Moore could be a non-executive director of Watchfinder but that Adoreum would not have to provide the services set out in the Services Agreement. He also said that "… It is essential for all Shareholders (including those with Options) that Watchfinder achieve our financial projections in the coming year. Otherwise it is unlikely that we will be in a position to attract any serious investor at the valuation required".

While I do not read Mr Hennell's reference to the shareholders "with Options" as indicating a belief on his part that the Claimants had an unconditional right to shares if the option was exercised, I do think that since this email was directed specifically at Adoreum and the Claimants, he intended to use the share options as his own lever to encourage them to agree revised terms.

On 19 September 2012, Mr Hersov responded pointing out the various conversations with investors and strategic partners that had taken place and that matters could not have progressed as far as they did without Adoreum's input. He also said that in the absence of options, the retainer of £5,000 per month would be much higher. Mr Hennell retorted that he did not draw £5,000 per month out of the business even for himself, in order to add value on behalf of all "Shareholders (including those with options)".

On 21 September 2012, Mr Hersov came back to suggest a revised retainer of £3,500 per month but that was rejected. However, on 28 September, Mr Hennell accepted a revised figure of £2,500 per month with Mr Hersov noting that he would continue to work behind the scenes with Richemont to encourage their interest in the business which he was sure would bear fruit. Again, it is fairly obvious that Richemont was being used here to try and support Adoreum's negotiating position with Mr Hennell. Mr Hennell also said that he wanted to set up a new agreement with a new strategy for Adoreum as he did not feel that the existing agreement had ever worked and he noted that Adoreum had only ever introduced two customers. In fact, and although the matter resurfaced later, there was never any new Services Agreement with the lower retainer. Ultimately, as noted above, Richemont did not invest.

Active

In January 2012 Mr Watson introduced Mr Hennell to Nick Evans, a partner in Active Private Equity ("Active"), and Chairman of Evans Cycles. On 11 May 2012 heads of terms from active were sent to Mr Moore for comment.

There was considerable criticism of Mr Watson by Mr Hennell in his evidence in particular because Mr Watson had said that the original offer (which was £1.75m of preference share funding - and so repayable - and £250,000 equity funding) was attractive. Mr Hennell disagreed and said that Mr Watson's suggestion that this was based on a pre-money valuation of £4,000,000 was wrong and that from a seller's point of view (i.e. Watchfinder) the debtor element would be excluded. In fact, that detailed point was not put clearly to Mr Watson in cross-examination but in any event, I do not think that there is much in this. Obviously, any offer was subject to negotiation which is what happened subsequently leading to a better offer.

However, what is material is that in an internal email dated 14 May 2012, Mr Hennell said that his cynical concern was that Adoreum's advice to proceed might be biased because they could see £100,000 commission coming from this transaction and for all Watchfinder knew, Adoreum may "desperately need the money". However Mr Hennell never put this to Mr Watson at the time and nor was it put explicitly to him in cross-examination. So I am not prepared to find that Mr Watson's advice was "tainted" in the way that Mr Hennell has suggested. And of course, if Mr Hennell was so concerned at the time, then he could have terminated the relationship there and then. He did not do so and continue to deal with Adoreum and the only reason could be that at this stage, he saw value in continuing, Richemont was not out of the picture and there could be other investors coming forward, as indeed there were.

On 31 May 2013, Mr Watson commented on an offer made by Piton which was a £1m loan. He said that he needed further details for reasons he gave. He then questioned whether Active would offer better terms and he understood that part of their offer was for equity. He also said that Active added value in terms of their industry experience. It was put to Mr Watson in cross-examination that he was (unduly) "pushing" Active but I did not see that myself. His comments seemed perfectly appropriate.

Active remained on the scene for some time and indeed at least up to when Beringea became involved in August 2013. However Adoreum was not generally informed about the position in respect of Active.

Overall, I do not consider that there was anything seriously amiss with the way that Adoreum dealt with the Active proposals. I do think that Watchfinder was not prepared to involve Adoreum as fully as it might have done in respect of Active. Mr Hennell accepted this to some extent in his evidence because he said that Adoreum's advice was tainted. But that is not a conclusion I can reach - see above.

Beringea

It is common ground that Adoreum introduced Beringea to Watchfinder. Beringea was a UK and US private equity group which also managed a number of venture capital trusts ("VCTs") and it had an investment in Monica Vinader, the well-known jewellery brand. Mr Watson had known Beringea from when it was managing the VCTs and at some point had been introduced to one of its partners and investment directors, Karen McCormick. He had at least one meeting with her on 23 April 2013 when they discussed a number of investment opportunities for Beringea including Watchfinder and his follow-up email to her of 24 April mentions this. It was suggested to Mr Watson (who was recalled for this purpose) that this might have been the first time that he had met Mr McCormick (because this was what Mr Hennell had been given to understand). Mr Watson was not sure that this was so but in any event, it does not matter. The fact is that Mr Watson knew Beringea already and had got to know Ms McCormick.

Ms McCormick came back to Mr Watson on 5 August 2013 having been in the US for some time and she said that she was interested in taking a look at Watchfinder if they were still trying to raise money. He responded later that day to say that he would speak to Watchfinder. Then on 7 August 2013 he introduced her to Watchfinder by email. Pausing there, Mr Hennell now says that this was not a proper way to introduce a potential investor but I fail to see why not. Mr Hennell was an experienced and shrewd businessman. Once the introduction was made to an interested potential investor Mr Hennell had the necessary wherewithal to arrange a meeting to take matters further which in fact he did.

The key point, and one which, in my judgment Watchfinder later overlooked was that the initial introduction was why they went to Adoreum in the first place-i.e. because Adoreum was very well connected. Adoreum was not there to provide itself detailed corporate finance services once an investor had been found.

In fact, and although a meeting with Ms McCormick was arranged, Mr Hennell then wrote to Mr Watson on 21 August 2013 to say that they had stopped looking for investors and the window was closing because they were preparing for Christmas. Further he said that he had been told that they needed an EBITDA of at least £2m to get the money that they needed. On 30 August, Mr Watson wrote to Mr Hennell to say that he understood there had been a good meeting with Ms McCormick and said that if Adoreum could engage properly then he could raise the funds. He later explained what could be done and said he should talk with Mr Hennell. He asked about Beringea again on 18 November and was told it was very interested.

Beringea offered heads of terms which were then sent to Mr Watson on 20 November 2013. So Mr Hennell had obviously been able to progress the matter himself. Those terms included the purchase of 20% of the shares in Watchfinder for £2.1m which implied a pre-money value of £12m, together with debt funding of £900,000 in the form of repayable loan notes. Mr Watson emailed Mr Hennell after he had spoken to Ms McCormick about the offer and gave reasons why he thought it was an attractive investment especially as Beringea had experience in the luxury goods market. Much was made of the fact that when Mr Watson forwarded the terms to Mr Hersov for his thoughts, the latter congratulated him and said that he (Mr Watson) could now pay off his mortgage. I do not see that this somewhat flippant remark means that Mr Watson was not dealing with the Beringea matter properly – and it was he (not Mr Hersov) who was the right person to deal with it since he had introduced them.

Mr Watson also emailed Mr Hennell on 27 November to say that it was important to decide on an offer that he was happy with and not continually seek investors and that the Beringea offer was better than the offer from Active and Piper (see above) had not yet issued heads of terms.

He sent a further email to Mr Hennell suggesting he do the deal with Beringea and suggested a meeting with him and Ms McCormick to discuss the key term commercial terms further.

On 9 December, Mr Watson emailed Mr Hennell because he was having a breakfast meeting with Ms McCormick and wanted to have the updated terms and he offered to introduce some corporate lawyers. As a result, Ms Chesson, who was Watchfinder's legal counsel, sent over the revised terms and said that she would like an introduction to a good corporate lawyer. Mr Watson gave her a name later that day.

On 14 January 2014 Mr Watson contacted Mr Amsdon to say that Ms McCormick had called him because she was concerned that the process was stalling - Watchfinder's lawyers had apparently not yet received the heads of terms and she was told that they might be hiring new lawyers. He reminded Mr Amsdon that he had given the name of a lawyer back on 9 December.

After that, Mr Watson was no longer involved in the Beringea deal not least because of the termination of the Services Agreement (see below).

Ultimately, and as noted above, Beringea did invest in Watchfinder by the end of 2014 and on better terms than those originally proposed. However, Mr Hennell was critical of and sought to diminish Adoreum's role by saying that Mr Watson's initial advice had been to take the original offer and that he did not get involved later. However, I consider that criticism quite unreasonable. It is plain from the emails that Mr Watson was offering to get more involved and indeed he kept up contact with Ms McCormick. There was no difficulty, in truth, in going back to ask for more if Mr Hennell himself wanted to, as he ultimately did. The main reason why Mr Watson was not further involved was because Watchfinder would not let him. Mr Hennell says that this was because by that time he was wary of Mr Watson's advice thinking that he was conflicted and simply recommending deals in order to get the commission. However I think that this was unfair and indeed it is a point which could be made to any adviser on a commission and moreover it was not something raised with Mr Watson at the time. Nor, in fact, was it a point clearly put to Mr Watson in cross-examination, as noted above. I have dealt with Mr Hennell's internal email in this vein sent 14 May 2012 in paragraph 57 above.

Beringea was (with Piton) the first and to date only investor in Watchfinder and the cash injection was obviously very important to its further growth. How much of that later growth was also due to Mr Hennell's own efforts (as he sought to emphasise in court) does not matter. The key point is that Adoreum introduced a substantial and important investor in Watchfinder at a critical time in its history.

I think that by the beginning of 2014, and as is shown by later emails, Watchfinder was ambivalent about the Claimants. On the one hand it was very happy to have accepted the introduction to Beringea and take that forward. It was also still keen to get investment from Richemont if possible. But on the other hand according to Mr Hennell he wanted to keep his distance from them somewhat. That was his decision but then the Claimants could hardly be blamed for not getting more involved in Beringea, for example, if Mr Hennell would not let them.

Termination of the Services Agreement

Following shortly after the correspondence about Piper and Adoreum's attempts to re-engage Watchfinder over Beringea Ms Chesson wrote to Adoreum as follows:

"Subject to contract

As you appreciate, it has become apparent that our aims don't seem to be aligned and the Agreement for Sales and Marketing Services dated 1 December 2011 (the Agreement) doesn't reflect the relationship between us.

In the circumstances, I think it would be in both of our interests to terminate the Agreement forthwith. Instead of working with a retainer, we would be happy to work with you in going forward on an ad hoc basis for targeted introductions agreed between us, either charged as a fixed fee or on a time basis, with a percentage commission on any future introductions to be agreed.

I also feel that we need to draw up another agreement to cover all introductions you have made previously, namely Active Private Equity, Beringea and Piper, so were completely clear on our respective obligations (particularly relating to payment). I feel this should be dealt with independently of the general termination of the Agreement, which should be arranged this month.

I look forward to hearing from you with your thoughts. Please note that this email isn't a purported termination of the Agreement. If you agree to the immediate termination, I'll arrange for the appropriate documentation to be drawn up so it may be signed by both parties."

By 22 January 2014 Mr Amsdon seems to have received some legal advice because he refers in an internal email to "a pleasant surprise on the option agreement, means we can negotiate hard, excellent" as well as saying that the fees under the "marketing agreement" were "easy to get around".

On 31 January 2014 Mr Watson sent through a proposed draft new marketing agreement including the deletion of the monthly retainers and proposing a 2.5% fee for the introduction of any investor. On 6 February he forwarded to Ms Chesson a revised version of the Option Agreement which he had earlier said would consist of "tweaks" mainly of a technical or mechanical nature. However, the changes he sent included the entire deletion of Clause 3.1 which can hardly be described as a "tweak" as Ms Chesson herself observed later.

The true position is obviously that having had a fallout with Watchfinder at least about fees and the Services Agreement, the Claimants felt somewhat exposed over the Option Agreement and wanted to remove Watchfinder's ability (however restricted or defined) to veto it. I can see why they wanted to do this but to describe the change as a "tweak", which Mr Watson maintained in evidence was disingenuous. That said, I do not think this is of much significance otherwise.

It was followed up by an email from Mr Moore saying that it had become apparent that the consent of the board was required even though it was thought that this had already been given on the making of the Option Agreement. He referred also to the reference by Mr Hennell to the Claimants as "option holders" when negotiating changes to commercial terms, and he asked for a meeting.

Mr Hennell's response to all of this was to say in a draft reply submitted to Ms Chesson for her consideration, that the agreement was in fact that if Richemont was introduced then this could result in an upside to Watchfinder's valuation and if so then Adoreum could benefit from some of the upside. Hence the board's consent was necessary. In the event, a truncated version of the reply was sent out to Mr Watson referring simply to the need to have board consent but without referring to the circumstances in which it might be exercised.

In addition, Ms Chesson sent a formal notice of termination of the Services Agreement on 10 April.

Mr Moore and Mr Hennell subsequently met. Mr Hennell wrote to him on 30 April to say that Watchfinder saw the Option Agreement as a mechanism whereby if Richemont invested and as a result Watchfinder experienced "stratospheric growth" then Adoreum would benefit from the upside of that scenario. By then, Richemont had explained why it would not be investing.

As noted above, no new Services Agreement was negotiated but rather the settlement agreement on 29 July 2014 by which Adoreum agreed to take £79,500 plus VAT essentially for the Beringea introduction, upon investment by Beringea and Piton. That was about half of the fee to which Adoreum would have been entitled.

The Exercise of the Share Option

The Claimants decided to exercise the option some time after termination of the Services Agreement because, according to Mr Watson, they were now able to raise the required price of £150,000.

Until Mr Hennell's second witness statement of 9 December 2016, it was not clear whether there even had been a board meeting to discuss the exercise of the option. Until then, Watchfinder's position, and Mr Hennell's evidence, had simply been that there was no board consent obtained by the Claimants and that there was an unconditional power of veto. In his second witness statement, however, Mr Hennell said, in paragraph 26, that the option was "voted on" at a board meeting though he gave no details, for example where and when it took place.

At that stage, Mr Hennell's position was that the underlying purpose of the Option Agreement was to reward the Claimants if Richemont invested - but it did not do so. Thus he said in paragraph 16 "Therefore Watchfinder elected to withhold its consent…". See also paragraph 22. He then added, as a further point, that Adoreum had not provided satisfactory performance.

At a hearing on 1 March 2017 and upon enquiry by me, I was told first that the board meeting had taken place in September 2016 but this was later corrected to March 2016.

Then, in his third witness statement Mr Hennell referred to the board meeting as having taken place on 17 March 2016. There are no minutes but there is a "board pack" dealing with figures and other financial information relating to Watchfinder's performance for February, together with an agenda. This would have been provided to the directors shortly before the meeting, perhaps the day before. The first part of the agenda was a review of the board pack and the second part was "Discussion Points". Point 2 of 5 was "Adoreum (Share Option)". The only contemporaneous evidence of this meeting having taken place on 17 March was an electronic diary note for that day. But it was not suggested by the Claimants that the meeting had not taken place when alleged.

In his third witness statement, Mr Hennell said that there had been full consultation previously with the other directors and that they had "constantly updated" themselves about Adoreum's performance. Mr Hennell's view was that Adoreum had failed to make any contribution to the growth or success of the business. As for the meeting itself, Mr Hennell said that given Adoreum's unsatisfactory performance he would be voting "no" and all the other directors voted "no" as well. The directors present at the meeting were Mr Hennell, Mr Amsdon, Jonathan Gill, Malcolm Moss (for Beringea) and Greg Lockwood (Piton).

Following the meeting, Mr Lockwood sent the following undated note to Mr Hennell:

"Adoreum Option Agreement - Greg Lockwood

I am an FCA authorized person (GKL01007) and director of Watchfinder (the "Company") as appointed by shareholder Piton Capital, and as such have had to act on my own independent interpretation of the Adoreum Option Agreement that pre-existed Piton's membership in the Company. I have had to consider this agreement on two occasions 1) in making the initial investment into the Company on behalf of Piton Capital, and 2) as a director on the occasion of the March 2016 vote to consent / not consent to the exercise of the option agreement before its expiry.

I see two possible interpretations of this agreement, the first one purely technical, and the second one commercial.

Technical interpretation:

According to the plain language of the agreement the options cannot be exercised without board consent The board has met and unanimously voted to withhold consent, and if this is not reversed the options are not exercisable and will expire by 31 July 2018.

Commercial interpretation:

An option has an intrinsic value above its strike price (the strike price may or not be paid at the discretion of the option holder), and this is known as the "time value" of the option. For this option value to be conferred in the form of an agreement there would have had to be some consideration - a monetary payment, or valuable service or in-kind contribution to the Company. As the option agreement was for shares comprising a 5% shareholding in the Company, I can only believe that the consideration had to be substantive. I have not seen nor heard of any evidence of substantive consideration to the Company provided by Adoreum.

Adoreum further agreed that the receipt and exercise of these options would be subject to approval by the board of the Company, and this was at their risk, While 1 cannot know the reason Adoreum agreed to this provision, I can imagine a party would agree to that condition if they felt they had leverage or control over the consideration being provided to the Company, which would be the impetus for the Company to ultimately consent to the exercise of the options. This seems consistent with Adoreum's business, where they hold "unique relationships" with key decision makers to which they provide access and influence as a service (see Adoreum's description below of its service from its website).

To my understanding Adoreum has neither provided consideration for the option, and certainly not consideration in a way that would persuade the Company to approve the exercise of the options."

Mr Hennell says that this was a note to explain why Mr Lockwood voted "no". However, that does not appear to be the purpose of most of the document as far as Mr Lockwood was concerned. I discuss it further below.

The other feature about Mr Hennell's third witness statement is that the emphasis had now shifted from the failure to introduce Richemont to generally unsatisfactory performance on the part of Adoreum. Given Mr Hennell's earlier concentration on Richemont as the main reason for refusing consent (see his second witness statement) I treat this shift of emphasis with some caution especially as there is not a single contemporaneous document recording what was actually said at the meeting nor any pre-meeting discussion document dealing with the option or indeed any document other than the agenda. In addition, Watchfinder's own solicitors had said in the second witness statement of Ms Williams that if there was an implied term in the Option Agreement so that any consent should not be unreasonably withheld, "it would not have been unreasonable for the Defendant to sell withhold its consent…" That rather suggests that any refusal of consent would have to be justified after the event as opposed to being based on a substantive discussion at the time. Mr Hennell stated that the first time that he was asked to go into full detail about the meeting was in preparation for his third witness statement but that cannot explain his concentration on the failure of Richemont to invest in the second witness statement. It is, after all a question of fact as to what he and the other directors thought and did at the time. Indeed, in answer to questions from me at the end of his evidence. Mr Hennell accepted that the Claimants were not to blame for Richemont not investing but said that the understanding was that "no Richemont – no shares".

In oral evidence, Mr Hennell accepted that at the time of the meeting he was not thinking about any constraints on the exercise of the discretion and so was not aware that reasons for the decision had to be given. That is useful evidence to explain why he may have acted as he did but of course if there was a lack of reasons or reasoning which mean that there was an improper exercise of the discretion his understanding at the time does not help, whether or not based upon legal advice.

Mr Hennell said that the meeting itself was "fractious" at around the time when the option was discussed because of a dispute between Beringea and Piton resulting from the fact that Piton had apparently invested in a competitor of Watchfinder. Notwithstanding its place on the agenda he said that the option was in fact the last item to be discussed. He confirmed that he had said that Adoreum's performance had been unsatisfactory and everyone just agreed. If that is all he said, it is not consistent with his evidence in his second witness statement that the main reason for refusing consent was the lack of investment by Richemont, and in respect of which no real blame was attached to Adoreum at trial. Furthermore, in his oral evidence, Mr Hennell said that neither Mr Lockwood nor Mr Gill knew who Adoreum was. (That this was his evidence is confirmed by the short transcript provided to me). Mr Hennell said that this was because the Claimants had not visited Watchfinder's premises and had dealt only with Mr Hennell, Mr Amsdon and Mr Bowling on the telephone. But if that is right, it contradicts the assertions made in paragraphs 7 and 40 of his third witness statement that all the directors were constantly updating each other on Adoreum. In particular, Mr Gill as a founder of Watchfinder seemed not to know about Adoreum. Moreover, in answer to questions from me, Mr Hennell then said that the earlier consultation between the directors was not in the form of some discussion before and for the purpose of the board meeting but really back in 2014. On that footing, it seems that there was no discussion about whether the veto should be exercised following the Claimant's letter of 4 March and prior to the meeting itself. I should add that Mr Gill seems generally not to have been copied into internal emails concerning Adoreum and the Claimants, for example Mr Hennell's email of 14 May 2012.

For all the reasons given above, the only conclusion I can safely draw about the meeting is that the question of the exercise of the share option was discussed extremely quickly and the only one who made any comment at all was Mr Hennell, the other directors merely indicating their agreement. Further, it is wholly unclear what he actually said other than it was obviously negative. Two of those present, moreover, did not even know who Adoreum was prior to this discussion. The whole matter was dealt with very casually.

I should add that although Mr Hennell continued to say that had Richemont invested he would have allowed the Claimants to obtain the shares, he also accepted that his own personal interest (in not having his shareholding diluted) was part of his motivation in refusing consent. I suspect that this was in the minds of the other directors, too. I think that this is supported by the fact that at the time of the meeting, a venture capital company called Oakley Capital had expressed an interest in investing in Watchfinder. Although Mr Hennell said in evidence that he would not have discussed the exercise of the option by the Claimants with Oakley, that cannot be right because in an email from Fred Raikes of Oakley on 15 March (ie two days before the board meeting), he refers to an earlier conversation with Mr Hennell and the "option letter". Mr Raikes said that he wanted to see the original Option Agreement and the variation made in 2013 (both of which are referred to in the letter of 4 March) and he was provided with them by Ms Chesson later that day. This email correspondence was copied to Mr Amsdon as well. Mr Hennell later accepted, in the face of those emails, that he must have discussed the purported exercise of the option with Mr Raikes but he would not have said any more than that the board would have to vote. I have to say that I found that rather unconvincing. If he was prepared to provide all of the above information to Mr Raikes at the time, when Oakley was seen as a prospective investor, it seems likely that he would have gone on to say that (as he understood it) the board had a veto and would exercise it.

CONSTRUCTION AND CONTENT OF CLAUSE 3.1

Principles of Construction

I remind myself of the following principles set out by Lord Neuberger in the decision of the Supreme Court in Arnold v Britton [2015] AC 1619 at paragraphs 17-22:

(1) Commercial common sense should not be invoked to undervalue the importance of the language used;

(2) The less clear the centrally relevant words are, the more readily the court can properly depart from their meaning;

(3) Commercial common sense should not be invoked retrospectively. The mere fact that a contractual arrangement has worked out badly, or even disastrously for one of the parties is not a reason to depart from the natural language;

(4) A court should be slow to reject the natural meaning as correct simply because it appears be have been very imprudent for one party to have agreed it;

(5) Facts known only to one of the parties cannot be taken into account;

(6) If an event occurs which had plainly not been intended by the parties, the court will give effect to what the parties would have intended if clear.

Implied Terms

The exercise of implying terms is to be conducted having regard to the observations of the Supreme Court in Marks & Spencer Plc v BNP Paribas [2016] AC 742 at paragraphs 18 and 21:

" 18. In the Privy Council case BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283, Lord Simon of Glaisdale… said that: "for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."…..

21. In my judgment, the judicial observations so far considered represent a clear, consistent and principled approach. It could be dangerous to reformulate the principles, but I would add six comments on the summary given by Lord Simon in the BP Refinery case 180 CLR 266, 283 as extended by Bingham MR in the Philips case [1995] EMLR 472 and exemplified in The APJ Priti [1987] 2 Lloyd's Rep 37. First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was "not critically dependent on proof of an actual intention of the parties" when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but pot sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon's first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, para 27, although Lord Simon's requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is "vital to formulate the question to be posed by [him] with the utmost care", to quote from Lewison, The Interpretation of Contracts 5th ed (2011), p 300, para 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of "absolute necessity", not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon's second requirement is, as suggested by Lord Sumption JSC in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence."

Does Watchfinder have an unconditional right of veto?

This cannot be the correct construction of Clause 3.1. If it was, then the option is meaningless because the grant of shares is entirely within the gift of Watchfinder. But in that event the position would be no different from when any person sought to buy shares in Watchfinder. Ms Hitchens for Watchfinder sought to maintain this construction, however, by saying that in truth and despite its appearance and the clear and numerous references to an "option" within it, the Option Agreement was nothing of the kind. The Court should therefore not be troubled if Clause 3.1 undermined the purpose of the option -because there was no option to speak of in the first place. I regard that as a "bootstraps" argument which cannot be correct. It defies common sense and the detailed provisions of the Option Agreement as well as its title and terms and indeed the references to it as such by the parties (albeit subjectively). Moreover, the Option Agreement was always intended to be, and became, part of an overall contractual package for Adoreum and the Claimants in relation to their relationship with Watchfinder. That is why they required both agreements to be signed before proceeding with the initial meeting with Richemont. In that context, it is a commercial absurdity to conclude that objectively, one part of that package was in fact worthless. Moreover, it is not as if the option was contained in a mass of other contractual terms where it might have been easier to downplay its importance or read it down. It was a separate agreement whose only purpose was the option albeit part of a package with the Services Agreement. This is not one of those cases where (as noted by Lord Neuberger) the importance of commercial common sense is being overstated or over-used

Accordingly, I reject this construction of Clause 3.1.

Is the exercise of the veto under Clause 3.1 subject to an implied duty not to exercise it unreasonably, capriciously or arbitrarily?

The Claimants do not suggest that Clause 3.1 should be disregarded entirely, nor could they. Although it is unusual to find such a provision in a share option of this kind, which usually contains an unqualified right to shares provided that specific formalities and conditions are met, this does not mean that it can be ignored. It clearly purports to act as some sort of restriction or qualification to the right.

Although the parties' subjective intentions are inadmissible on questions of construction, it is notable that there is no contemporaneous documentary evidence to suggest what the purpose of this qualification might be. Mr Watson did not really know even though it was Mr Westoll who produced the draft containing it. And Mr Hennell's understanding that it referred to a situation where it was contemplated that the directors would somehow already include the Claimants and perhaps an investor, did not take the matter much further. On any objective basis, the veto contained in Clause 3.1 must constitute a discretionary power subject to implied limits on the part of Watchfinder. I did not understand Ms Hitchens to argue otherwise if I rejected her primary argument on construction.

If there is, therefore, to be a limit on the discretion, it is now well-established that whether as a matter of construction or the implication of a term, the Court may find that such a discretion is to be exercised in a way which is not arbitrary, capricious or irrational in the public law sense. This is not inevitable in every case but in my judgment it is clearly so here. There is an obvious potential conflict of interest as far as the existing shareholders of Watchfinder are concerned since the grant of further shares would dilute their own holdings and/or restrict at least to some extent their availability for other investors who may have to pay much more. See the Supreme Court decision in Braganza v BP Shipping [2015] 1 WLR 1661 at paragraphs 27-31, 52-53 and 102-103. For ease of reference I shall refer to these limitations on the exercise of the discretion as "the Braganza Duty". The fulfilment of that duty will entail a proper process for the decision in question including taking into account the material points and not taking into account irrelevant considerations. It would also entail not reaching an outcome which was outside what any reasonable decision-maker could decide, regardless of the process adopted.

As noted in Braganza, however, the duty does not mean that the Court can substitute what it thinks would have been a reasonable decision. Further it may well not be appropriate to apply to contractual decision-makers the same high standards of decision-making as are expected of the modern state.

To the extent that the application of the Braganza Duty arises as a result of the implication of a term as opposed to construction of Clause 3.1 (and I do not think it really matters which, here) I reject Ms Hitchens' submission (essentially made as part of her primary argument) that the implied term test is not satisfied here. For all of the reasons given above, such an implication is clearly necessary for business efficacy, is obvious and its content, as explained above, is reasonable.

The Target of the Duty

In order to assess whether there has been compliance with the Braganza Duty in connection with any particular contractual discretion it is necessary to know what the "target" of that discretion is, in the sense of what the decision-maker is meant to be considering when deciding whether or not to exercise it. In many cases this is straightforward and is stated as part of the discretion. That is so, for example, if the discretion relates to one party's opinion as to what is a "reasonable value" or its judgment or opinion as to whether a particular event has happened, for example whether the deceased in Braganza had committed suicide. Alternatively, the Court has explained the ambit of the discretion by reference to its ostensible purpose; so the exercise of the landlord's discretion as to whether or not to permit an assignment of the lease to a new potential tenant is not open-ended but is directed to the suitability or otherwise of that person as a tenant for the purpose of the performance of his obligations going forward, both in relation to the landlord and also other tenants.

But here, there is no clear guidance in Clause 3.1 itself. For the reasons already given, the right of veto cannot be wholly open-ended so that Watchfinder could take into account whatever it wanted because in that event there is in truth no restriction on the discretion at all; it would amount to the unconditional right of veto which I have already rejected.

There are two broad possibilities: either the consideration is (essentially) forward- looking or it is backwards-looking.

The Claimants say that it is forward-looking and is all about whether they would make suitable shareholders in Watchfinder. Thus they say that this case is analogous to the landlord and tenant situation. Once the option is exercised, the Claimants assume a new status as shareholders and thereby join the other shareholders in Watchfinder in that endeavour. There will be occasions on which they will have to deal with each other, for example in general meeting, or on the board if any of them become directors. I follow that, but this role does not require any particular qualities and there are not present the concerns which a landlord might have about a prospective tenant in relation to his ability to pay rent or comply with covenants, for example. Indeed, in the course of argument, the only kind of person which Mr Montagu-Smith QC could articulate as being unsuitable to be a shareholder was someone who might have a conviction for a dishonesty or who was commercially conflicted because he had a competing business of his own. But if the class of unsuitable shareholders is so narrow, then in reality there is not much of a discretion for Watchfinder. So although this notion is attractively simple and straightforward, I do not think that it works. Mr Montagu-Smith QC referred me to a number of cases in this regard but none of them seemed to me to be particularly relevant to the present dispute.

Watchfinder, on the other hand contends for a backwards-facing target, that is to say it is concerned, very broadly, with the past performance of Adoreum and/or the Claimants and whether in the light of that, the Claimants deserve, or have earned the right to exercise the option. In the course of this trial, different and more nuanced versions of this contention have appeared. I have discerned three particular versions:

(1) Has the performance been satisfactory in the opinion of Watchfinder?

(2) Did Richemont invest?

(3) Have Adoreum and/or the Claimants contributed to the growth or value or prospects of Watchfinder in some significant way?

I consider each in turn.