Matchbet Ltd v Openbet Retail Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henderson |
| Judgment Date | 11 October 2013 |
| Neutral Citation | [2013] EWHC 3067 (Ch) |
| Docket Number | Case No: HC11C00214 |
| Court | Chancery Division |
| Date | 11 October 2013 |
[2013] EWHC 3067 (Ch)
Mr Justice Henderson
Case No: HC11C00214
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building,
Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
Mr Bernard Weatherill QC and Mr James Pickering (instructed by Bell Lax Limited) for the Claimant
Mr Kenneth MacLean QC and Ms Zoe O'Sullivan (instructed by Nabarro LLP) for the Defendant
Hearing dates: March 13, 18–22, 25–6; April 9–12, 16–18; May 1–2, 2013
Index
Topic
Introduction
This is a claim for damages for alleged breaches of a software licensing and development agreement ("the SDLA") entered into between the parties on 9 May 2006.
The claimant, Matchbet Limited ("Matchbet"), was incorporated on 26 November 2004 to carry on the business of developing betting exchange software and systems. The promoter, principal director and chairman of Matchbet was at all material times Dr Benedict ("Ben") Gabriel Seifert ("Dr Seifert"), an Oxford-based academic mathematician and businessman. The particular concept which Dr Seifert originally sought to develop and exploit through Matchbet was a new form of online betting exchange service with enhanced "liquidity", making use of an algorithm which he had devised and patented for matching trades in the financial sector.
"MatchBet" had previously been the trading name of a company called Virtual Betting Exchange Limited ("VBX"), which Dr Seifert incorporated for the purpose of applying the technology and principles developed by him in the financial sector to the making of bets in the betting industry. VBX was the parent company of Matchbet, owning approximately 65% of Matchbet's issued share capital. VBX was itself a nearly wholly-owned subsidiary of Oxford Virtual Markets Limited ("OVM"), another company of which Dr Seifert was a director and shareholder. The intellectual property which Matchbet sought to exploit was owned by VBX and licensed by it to Matchbet.
The defendant, Openbet Retail Limited, was at all material times named either Alphameric Leisure Limited or (from 30 March 2007) Alphameric Solutions Limited, and I will therefore refer to it in this judgment as "Alphameric". It formed part of the Alphameric group of companies, headed by Alphameric Plc (later renamed Timeweave Plc, before changing its name to Timeweave Limited). Alphameric was, and is, a market leader in the supply of technology to bookmakers for use in their physical premises at licensed betting offices ("LBOs"). This technology included electronic point of sale ("EPOS") systems, and a proprietary information display system known by the acronym "ALBOS" (Alphameric Licensed Betting Office Systems).
Alphameric's customers included the "Big Three" high street providers of betting shops, Ladbrokes, Coral and William Hill, as well as smaller independent chains and sole traders. The group chief executive of Alphameric Plc from April 1995 until April 2010 was Mr Alan Morcombe ("Mr Morcombe").
Matchbet obtained its funding from a group of private investors and corporate funders. Its lack of adequate capitalisation and chronic under-funding are recurrent themes in the evidence. One of the funders approached by Matchbet in 2005 was Alphameric. After protracted negotiations, the parties signed written Heads of Terms on 23 December 2005 ("the Heads of Terms"). The provisions of the Heads of Terms were agreed not to be legally binding except where the contrary was expressly stated. In broad outline, they envisaged that Alphameric would lend Matchbet £250,000 in instalments linked to the achievement by Matchbet of milestones to be specified in a development and licensing agreement to be entered into between the parties (i.e. the future SDLA), in return for which Matchbet would grant Alphameric exclusive worldwide rights to distribute access to the Matchbet Betting Exchange ("MBE") service which was in the course of development by Matchbet. The first instalment of £50,000 was payable immediately on the signing of the Heads of Terms.
After further negotiation, the definitive agreement between the parties was set out in the SDLA. By virtue of clause 31, the SDLA was stated to contain "the entire agreement and understanding between the parties", and to supersede "all proposals and prior agreements, arrangements and understandings between the parties, relating to its subject matter".
I will need to examine the terms of the SDLA in considerable detail later in this judgment. For now, it is enough to record that it included terms whereby:
(a) Alphameric would lend £250,000 to Matchbet by five instalments (including the £50,000 already paid), on payment dates (other than the first) specified in Schedule 3 by reference to completion of Stages 2, 3, 4 and 5 of the Implementation Plan set out in Schedule 2;
(b) Matchbet would develop the betting exchange service and associated computer programs and would provide them to Alphameric by no later than 28 weeks from the date of the SDLA;
(c) Alphameric would then have an exclusive and perpetual licence to market access to the service and programs to operators of LBOs throughout the world, and would act as Matchbet's agent in securing end-user agreements between such operators and Matchbet on terms to be prescribed by Matchbet; and
(d) Matchbet would make royalty payments to Alphameric during the currency of the agreement at the rate of 50% of gross revenue derived by Matchbet from end user agreements, and 10% of all other revenue received by Matchbet arising out of the supply of the service.
The SDLA was mainly drafted by Alphameric's in-house lawyers, and it is a striking feature of it that it imposed relatively few express obligations on Alphameric. It is nevertheless Matchbet's case that, on the true construction of the SDLA as a whole, including in particular the stages of the Implementation Plan as formulated in Schedule 2, and/or by a process of necessary implication, Alphameric came under obligations, broadly stated:
(a) to achieve integration of the Matchbet service and programs with its own EPOS and ALBOS systems;
(b) to act as Matchbet's marketing agent and secure end-user agreements with LBOs; and
(c) to promote, and not to hinder, the commercial purpose of the SDLA, which according to Matchbet was the achievement of such an integrated system and its marketing and commercial exploitation for the mutual benefit of both parties.
The remaining instalments of the £250,000 loan were duly paid by Alphameric to Matchbet, although the timetable slipped by a few months from that laid down in the SDLA. The MBE was also developed to at least the stage of a working prototype, and it was successfully demonstrated by Alphameric at the Birmingham Betting Show in October 2007. But although the prototype attracted some interest in the industry, and although Mr Morcombe, among others, remained enthusiastic about its commercial potential, by April 2008 no bookmaker had yet reached the stage of agreeing to buy the product. Presentations were made to Ladbrokes and Coral, and there was some exploration of other possible marketing opportunities, but for various reasons they all came to nothing.
The reasons for this failure lie at the heart of the present case. The court's assessment of those reasons will depend on a careful examination of what actually happened, viewed in the light of the parties' respective obligations under the SDLA. Matchbet's case, in outline, is that Alphameric breached its alleged obligations under the SDLA (see paragraph 9 above) by failing to integrate the MBE with its own systems in such a way that the MBE could be marketed generally to LBOs, and by failing to take any adequate steps to find purchasers or market the product. Alphameric's answer to this is that the SDLA, properly construed, did not oblige it to do any of those things, but even assuming it did, Alphameric performed its obligations satisfactorily.
Matters came to a head in April 2008. According to Matchbet's pleaded case, a meeting took place on 16 April between Dr Seifert, Mr Morcombe and a French friend and business associate of Dr Seifert's, Mr Guy Somekh, at which Alphameric allegedly made it clear for the first time that no integration of Matchbet's service and programs with Alphameric's system had taken place, that Alphameric was not taking any steps to enable such integration to take place, and that it would not do so in the future unless the costs of the exercise were to be funded by a customer or potential customer. It is claimed that Alphameric was thereby acting in repudiatory breach of the SDLA, and that Matchbet accepted the repudiation by a letter to Alphameric dated 8 May 2008. Alphameric's defence to this allegation is that it was not in breach of the SDLA at all, let alone in repudiatory breach, and that Matchbet's letter of 8 May 2008 was itself a repudiatory breach of the SDLA which Alphameric subsequently accepted, either by a letter dated 16 June 2008 (which was in other respects stated to be "without prejudice") or alternatively by service of its defence.
In their written opening submissions at the start of the trial on 13 March 2013, counsel for Alphameric (Mr Kenneth MacLean QC leading Ms Zoe O'Sullivan) sought to characterise Matchbet's case as:
"… an extravagant and fanciful claim, brought by a start-up company which was hopelessly under-capitalised at all material times, in respect of an untested product for which it had done no market research, whose development was not nearly complete at the date of the contract, and in which no bookmaker has shown any serious interest at any time."
By the time of their written closing submissions, prepared after 15 days of trial, counsel for Alphameric had upped the stakes, describing the claim...
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