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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Matchbet Ltd v Openbet Retail Ltd [2013] EWHC 3067 (Ch) (11 October 2013) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2013/3067.html Cite as: [2013] EWHC 3067 (Ch) |
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CHANCERY DIVISION
Royal Courts of Justice Fetter Lane, London, EC4A 1NL |
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B e f o r e :
____________________
MATCHBET LIMITED |
Claimant |
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| - and - |
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| OPENBET RETAIL LIMITED |
Defendant |
____________________
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
____________________
Crown Copyright ©
Mr Justice Henderson:
| Topic | Para |
| Introduction | 1-19 |
Licensed betting offices, betting exchanges and the Matchbet Betting Exchange |
20-39 |
| The witnesses of fact | 40-83 |
(1) The witnesses for Matchbet |
40-66 |
| (2) The witnesses for Alphameric | 67-83 |
| Events leading up to the SDLA | 84-102 |
| The Heads of Terms | 103-110 |
| The SDLA | 111-128 |
| Are the Heads of Terms admissible in construing the SDLA? | 129-134 |
| The obligations of Alphameric under the SDLA | 135-146 |
| Construction of the SDLA: discussion and conclusions | 147-154 |
| Events after the SDLA | 155-259 |
| The meeting on 18 April 2008 and the purported termination of the SDLA | 260-286 |
| Was Alphameric in breach of the SDLA? | 287-303 |
| Causation, quantum and the expert evidence | 304-326 |
Matchbet's invoice/quantum meruit claim |
327-330 |
| Alphameric's counterclaim | 331 |
| Conclusion | 332 |
Introduction
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.
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.
(a) Alphameric would lend £250,000 toMatchbet
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 asMatchbet'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.
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 theMatchbet
service and programs with its own EPOS and ALBOS systems;
(b) to act asMatchbet'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 toMatchbet
was the achievement of such an integrated system and its marketing and commercial exploitation for the mutual benefit of both parties.
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.
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.
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.
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."
"2. Having received from Alphameric all that it was entitled to receive under the [SDLA], it wasMatchbet,
not Alphameric, which repudiated it in May 2008.
Matchbet
did so in order the better to cultivate and reap (in conjunction with a long standing contact of Dr Seifert, Mr Somekh) what it then perceived to be more lucrative opportunities in France and elsewhere free of and unrestricted by any obligation to Alphameric.
3. When those opportunities proved to have as little substance as all the other aspects ofMatchbet's
grandiose plans,
Matchbet
launched these proceedings for jackpot damages no doubt hoping that Alphameric would prefer to settle with
Matchbet
rather than incur the costs, risks and distraction of a protracted legal dispute."
Matchbet's
claim was initially pitched very high. The pleaded particulars of loss and damage, in paragraph 18 of the particulars of claim, sought to recover no less than £64.64 million representing loss of anticipated profit over four years. The losses were further said to be "continuing", with updated particulars to be provided at trial. The pleaded particulars did not, however, explain how the damages were calculated, and provided no more than a breakdown for each year of the expected loss of profit from LBOs and from online business, with the former beginning to outstrip the latter in the third year. In response to a request for further information,
Matchbet
then set out its case on how the damages were calculated in a document dated 19 December 2011. In relation to both LBOs and online clients,
Matchbet
explained that the rate of "roll out" of the integrated product by Alphameric was based on a spreadsheet which had been prepared in May 2007, with input from Alphameric, for the purpose of seeking investment from the specialist investment bank Investec. A fuller explanation of the relevant assumptions was later given by Dr Seifert in his principal witness statement which he signed on 19 October 2012.
Matchbet's
pleaded case on quantum until almost the eve of the trial. Following service on 28 February 2013 of the supplemental report of
Matchbet's
accounting expert, Mr Christopher Swinson,
Matchbet
belatedly realised that its claim for damages on the basis originally pleaded was in some major respects unsustainable. It also decided to abandon its claim for loss of profits from online business, presumably accepting the force of the obvious point that this was a claim for consequential loss which was precluded by the express terms of the SDLA. The result was to reduce the quantum of the claim by more than three quarters, in relation to the four year period from 2007 to 2010, to a figure of less than £11 million.
Matchbet
nevertheless argued that it did not need to amend the particulars of claim, because it was merely "updating" its original claim in the light of its own recently obtained expert evidence.
Matchbet
also sought to extend the claim for a further two years, by a process of simple extrapolation from the figures for 2010, without any disclosure of documents relating to the later years and without any examination of the question whether the underlying assumptions for 2010 remained valid.
Matchbet
to seek, and obtain, permission to amend its statements of case in order to advance its claim on the new basis. That in turn would require
Matchbet
to satisfy the stringent criteria for the grant of permission to amend at such a late stage: see generally Swain-Mason v Mills & Reeve LLP [2011] EWCA Civ 14, [2011] 1 WLR 2735.
Matchbet
to pursue its claim in relation to the first four years on the new basis, but to refuse permission for any extension of the claim to 2011 and 2012. In giving this indication, I was influenced by Mr MacLean's acceptance in oral argument that the proposed changes in relation to the first four years could probably be accommodated within the agreed trial timetable without prejudice to Alphameric. Perhaps fortunately from
Matchbet's
point of view, the Easter vacation was anyway going to intervene before Alphameric's main witnesses of fact, and the expert witnesses on both sides, were scheduled to give their evidence.
Matchbet's
amended particulars of quantum, and I heard argument from leading counsel on both sides on the application to amend. I gave my ruling at the start of day 3. For the reasons which I then gave, I saw no reason to depart from my provisional view on day one. I therefore indicated my willingness in principle to grant permission to amend in respect of the first four years, refused permission to extend the claim to later years, and gave
Matchbet
until 1 pm on 21 March to finalise the draft amendments with a view to resolving any outstanding points of detail on the following morning. Accordingly,
Matchbet
produced a further revised draft, together with an associated spreadsheet, on 21 March; and on 22 March I granted permission for those amendments to be made, subject to removal of a potentially misleading reference to "loss of a chance" to make future profits. As Mr Weatherill QC readily accepted,
Matchbet's
claim was never intended to be a claim for loss of an opportunity, in the sense explained in the "loss of a chance" cases, but was instead a claim to recover the expected loss of profits caused by Alphameric's alleged breaches of contract. Thus clarified, the claim for damages down to the end of 2010 was finally quantified as £10.88 million, all of it representing future loss of profits derived from LBOs.
Licensed betting offices, betting exchanges and the
Matchbet
Betting Exchange
(1) LBOs
(2) Betting exchanges
Matchbet
put it in their written closing submissions:
"Rather than the punter betting against the bookmaker as in fixed odds betting, punters bet against each other. The betting exchange therefore has no interest in the outcome, and instead makes money by matching the punters and taking a commission."
"The betting exchange is an order-driven system which allows customers to bet at odds sought by themselves or offered by other customers. A bet is only confirmed on the betting exchange once its risk is exactly matched by Betfair with another customer or group of customers with an equal and opposite view. When betting on the betting exchange, customers can either place a "back" bet or a "lay" bet. A "back" bet is a bet on something to happen (for example, a football team to win a match) and a "lay" bet is a bet on something not to happen (for example, a football match not to end in a draw). Betting on the betting exchange allows a customer not only to "back" or "lay" a selection, but also to choose the price at which that customer wishes to "back" or "lay" and how much he or she is prepared to risk. If the price at which the customer wishes to bet improves while a customer is in the process of placing his bet, that customer will be automatically matched by the best available price – higher for "backing", lower for "laying" – in other words, in accordance with the "best execution principle"."
"It is, I think, pertinent to point out that the sequence in which transactions are concluded (to use wholly neutral terms) may be unknown to the user of the exchange when he inputs his order. When he seeks to bet that Camelot will win the Derby, it may be that someone else has already indicated that he is willing to accept that bet. It may also be that the transaction is concluded in part with someone who has already entered the countervailing bet on the exchange website, and in part with someone who does so subsequently … Furthermore, even if a customer can see on the Betfair website that someone has offered to accept his bet, by the time he enters his bet someone else may have taken up that bet, so that the customer, believing that he is accepting an offer, in fact makes one that may or may not be accepted by a later customer."
Matchbet,
Mr Tobin Ireland, in February 2005:
"Betting exchanges were first introduced in the UK in 2001, and have since been a phenomenally successful component of the enormous UK betting industry, mainly due to the success of the market leader Betfair. Betfair has grown from a standing start four years ago to seeing weekly matched bet volumes of around £100m, generating some £8m in monthly commission, and is still growing rapidly.
…
Over the last three years, bookmakers have lost increasing market share to the betting exchanges, mainly due to the higher odds available to punters on the exchange mechanism … There is no end in sight to the relative as well as absolute growth of the betting exchange model. The ability for users to define the odds required generally results in a more competitive "purer" market with more value than traditional bookmakers can offer where a profit margin is always included in the odds offered.
The reason for the great attraction of the exchange model is very simple: it is that, generally, the prices on offer are better than those offered by the bookmakers. 20% better prices (actually a bit less on average), liquidity, winners welcome (traditional bookmakers will black list you if you win too much), in-play, range of events and bets, functionality, and critically, reliability. Successful punters don't suffer the problem of having the size of their bets restricted. They also allow you to bet in-running on the majority of horse races."
"When comparing exchanges, of any sort, it is a common practice to focus on liquidity. In terms of betting exchanges, this can be measured in terms of debt (the size of the bet on offer), tightness (the spread between the back and lay sides) and immediacy (the availability of the bets on offer). In simple terms, betting exchanges require liquidity in order to survive, whilst the traders that use them seek to reduce their trading costs. The search for economies of scale and liquidity has proved [elusive] for many of the smaller exchanges, and they have thus been forced, for their survival, into competing on the basis of low commission rates."
"Internet betting, both exchange and bookmaking, has led to more transparency in prices and increased liquidity, where liquidity refers to the number of participants involved in the exchange, in turn leading to price efficiency improvements in the industry."
Betfair's business has at all times been exclusively online, and according to Dr Seifert Betfair achieves a great deal of liquidity from a small number of professional gamblers known as "the Betfair 500". These are people who wish to bet on a large scale, but are unable to place bets with traditional bookmakers because the risks are greater than they are prepared to accept.
"… a unique, open and organic ecosystem through its application programming interface ("API"), which allows a range of businesses and individuals to interact with, and develop applications linked to, the Exchange Platform. The Directors believe that Betfair's Betting Exchange prices are accessed and used extensively by other betting companies (including traditional bookmakers) to assist with odds compilation and anti-arbitrage strategies … In addition, the API provides a platform for third party developers and software vendors to create and integrate their applications into the Exchange Platform. In the year ended 30 April 2010, the API was used by approximately 38,000 Betfair customers, over 850 direct access developers and more than 60 third party software vendors. The software and applications developed and integrated through the API further contribute to the "network effect" for Betfair, helping to grow its customer base and community."
(3) The
Matchbet
Betting Exchange
"9. The fundamental difference betweenMATCHBET
and the current betting exchanges lies in the fact that
MATCHBET
is capable of generating and channelling liquidity from one set of products to related products, using a model "virtual bookmaker" technology. The virtual bookmaker is equipped with "betting expertise", represented by a sophisticated and proprietary algorithm, thus enabling the exchange to bet against a collection of punters, each of whom is able to bet on the event that is of interest to them without relying on having to receive a matching bet from another punter. The virtual bookmaker is risk-averse and when in the default mode avoids all possible market risk. In other settings, a bookmaker (using the white-label service) can take an element of risk and thus increase his profit margin within strict bounds, agreed with the Company.
10. This approach allows an unprecedented range of betting opportunities to be offered to punters, who will be able to define their own bets, rather than selecting from a pre-defined and restrictive menu. This is akin to "over the counter" financial market[s], serviced by banks which can create structured products, as opposed to exchanges that can only offer a limited number of predefined contracts. Investors will note that the over the counter markets tend to carry much higher margins than standardised exchanges. None of the current bookmakers, or exchanges delivers such range, liquidity or diversity of betting offers. As a result, the casual punter can indulge their prejudices and beliefs, whereas professional punters are able to trade sophisticated dynamic strategies, laying as well as backing events that represent their specific requirements. Bookmakers can lay off their exposure in the marketplace or use their expertise to exploit "soft arbitrage opportunities". Bets can be placed prior to or during sporting events, elections or other dynamically evolving events."
(a) the ability to generate increased liquidity through use of the proprietary "virtual bookmaker" technology;
(b) the ability to offer an increased range of betting opportunities to punters; and
(c) the facility for LBOs using the service either to eliminate all risks, or to undertake a chosen and strictly controlled margin of risk.
Matchbet
platform would, if it wished, be able to add a margin to the prices generated by the exchange before they were offered to the customer. The potential appeal of this facility to LBOs was expressed as follows, under the heading "Synthetic pricing":
"The object of this service proposition is to enable the bookmaker to have access to a supply of betting propositions, generated by theMatchbet
engine, that they can offer to their clients and, when accepted by that client, simultaneously laid off in the exchange, with a spread determined by the bookmaker.
…
This service works by means of showing the bookmaker synthetic prices and volumes, based on the current order book of the exchange: The bookmaker automatically lays off the bets taken with the client on the exchange, with a margin determined by the bookmaker themselves.
…
This functionality would enable a bookmaker (either on the Internet or on the High Street) to run their business without incurring the expense of either risk management or odds compiling professionals.
Under this service proposition, the bookmaker is fully in charge of his/her client relationship and determines the level of access to the full market they wish to provide to the client. For instance, the system can be configured so that the client can only back, and not lay, and does not directly see the spreads or margin by eitherMatchbet
or the bookmaker."
"If you are a Software Vendor wanting to use the Free Access API to develop software for customers, you need to obtain a Software Vendor licence."
This is a small, but in my judgment typical, example of Dr Seifert's tendency to gloss over possible difficulties, and to talk up the supposed attractions of the MBE at the expense of complete accuracy.
Matchbet
had succeeded in selling or developing the concept after the rupture with Alphameric in 2008; but such evidence is conspicuous by its absence. Nevertheless, despite some indications in the documents and witness statements that a number of people with whom
Matchbet
dealt found it difficult to understand how the product was intended to work, or were sceptical about its viability, I accept the submission of counsel for
Matchbet
that I should approach this case on the basis that the MBE was technically sound. Indeed, Alphameric's principal witness, Mr Morcombe, confirmed as much, both implicitly in his witness statement (para 155) and expressly in cross-examination (transcript, day 10, page 3).
The witnesses of fact
(1) The witnesses for
Matchbet
Matchbet,
apart from Dr Seifert himself, were:
(a) Mrs Anne-Marie Harvatt, née Bryceson;
(b) Mr David Poirier;
(c) (under a witness summons) Mr Philip Zenon Siers;
(d) Mr Charles James ("Jamie") Maskey;
(e) Mr Guy Somekh; and
(f) Mr Daniel O'Mahony.
Dr Seifert
Matchbet.
"Ben is a typical what I would call boffin. He was clearly a very intelligent man and had a product which had potential, but I didn't think Ben's business skills were perhaps the match of his skills in creating algorithms for financial modelling."
To similar effect, Mr Morcombe said of
Matchbet
in an email which he sent on 4 January 2008 to Investec that "They have egg-heads and no business sense". Under cross-examination, Dr Seifert described his role in the following terms (transcript, day 3, page 66):
"My role in the organisation, as I keep spelling out, at least aspirationally, is to create the algorithms that make this platform work, and to the extent that I can find other people like Ian Winton, Tobin Ireland, who are infinitely more experienced and confident than me in these areas, I get them to write business plans, and when that's not possible because they are not available, then I will ask Anne-Marie [Bryceson], for example, to, if you like, co-ordinate the process by which information will be collated from competent sources, which neither she nor I were."
This answer was given in response to a question why Dr Seifert had delegated to Ms Bryceson (as she then was) the important task of putting together financial projections for a presentation to Investec.
Matchbet
was seriously under capitalised from the very beginning. The evidence shows that Dr Seifert was not always as careful as he should have been in statements that he made to potential investors, while expressions of interest, however qualified, were prone to be regarded by him as firm commitments. A number of examples of this were given by counsel for Alphameric in paragraph 19 of their closing written submissions, which I accept but need not repeat. As to commercial exploitation of the MBE, I consider that Dr Seifert had no guiding principles and would take up one idea after another in uncritical fashion.
Mrs Harvatt
Matchbet
at the age of 22 in January 2006, having recently graduated from Oxford University with a degree in English. She had previously been employed by Centrica for a few months, but had no prior knowledge of the betting industry. She was employed by
Matchbet
as general administrator, and this remained her role during 2007. She has continued to work for
Matchbet
or OVM until the present day.
Mr Poirier
Matchbet
which led to the conclusion of the SDLA. In particular, it was his task to validate the technical aspects of the various milestones which had to be achieved, and he worked with Dr Seifert in their formulation.
Matchbet
for the integration of the MBE with Finsoft's own systems. He realised that
Matchbet
could not enter into a contract with Finsoft in relation to LBOs while
Matchbet
was still in a contractual relationship with Alphameric, and he had of course been closely involved in the
Matchbet
project at Alphameric for some 18 months. None of this deterred him from his rapid switch of allegiance, although to be fair to Mr Poirier there is no suggestion that he acted in breach of any contractual or other obligations which he owed to Alphameric after he joined Finsoft. It is, however, a striking fact that in his witness statement he says nothing about his role with Finsoft, saying merely "I was offered another job and decided to leave Alphameric". His involvement with Finsoft (by whom he is still employed today, albeit under a different name) had to be elicited by Ms O'Sullivan in cross-examination, as did the fact that Mr Poirier had helped Dr Seifert to gather evidence for the purpose of these proceedings.
Matchbet
wins. Nevertheless, it appears that, for whatever reason, Mr Poirier is a supporter of Dr Seifert and no friend of Alphameric. He would clearly have been content for the court to know nothing about his move to Finsoft, or his immediate involvement in what was essentially the same project on behalf of Alphameric's main commercial competitor. I need to bear these points in mind when evaluating his evidence.
Mr Siers
"To be completely frank, I'm not here on the basis that I want to be here. I have associates and friends on both sides of this argument, and I was reluctant to come here today. I had a court case last year … and it wasn't a great experience for me, and I don't necessarily like being in court."
The reference to a court case was to the trial of a claim for breach of confidence and breach of contract brought by Racecourse Media Group Limited and AMRAC against Mr Siers in the Queen's Bench Division of the High Court in June 2012. In his judgment handed down on 13 July 2012, His Honour Judge Reid QC found in favour of the claimants and disbelieved Mr Siers' evidence in several material respects.
Mr Maskey
Matchbet
proceeded instead with Alphameric. Mr Maskey is disparaging about Alphameric, saying that when he next met Dr Seifert at the Birmingham Betting Show in October 2006 he voiced to Dr Seifert his concerns about Alphameric, including "their reputation for consistent failure to deliver promised enhanced technical upgrades to their systems and their reputation for poor delivery and even poorer service". He says he was "hugely disappointed" by
Matchbet's
decision to join up with Alphameric, but they both agreed to remain in touch and be open to any future opportunities that might arise. In view of his low opinion of Alphameric's management and technology, he was "not entirely surprised" to find out later from Dr Seifert about the failure of
Matchbet's
project with Alphameric. His statement concluded as follows:
"27. Unfortunately, at the time when Dr Seifert told me thatMatchbet's
relationship with Alphameric had come to an end, sometime in 2008, Finsoft as a company had been sold to GTECH Corporation ("GTECH"). The entrepreneurial and innovative board and management style of Finsoft that had existed up until then and which had been passionate about the land based betting industry then became subordinate to the much more "corporate" approach of GTECH, who had more of a focus on gaming applications with none of the previous board's interest in the land based betting market."
Matchbet
and Finsoft, in which Mr Maskey played a part, had begun in December 2007 and were still continuing when the relationship between
Matchbet
and Alphameric came to an end in April 2008. Nor does Mr Maskey see fit to mention that, shortly before signing his statement, he had become a shareholder in
Matchbet's
ultimate parent company, OVM. These points were only elicited by Ms O'Sullivan in cross-examination. Taken together with the highly partisan tone in which Mr Maskey's statement is drafted, they leave me in real doubt about his reliability save in relation to uncontroversial matters of fact. I therefore treat his evidence with considerable caution.
Mr Somekh
Matchbet,
and they met in Normandy (where Dr Seifert had a home) to discuss whether the
Matchbet
technology would be attractive to the French market. Mr Somekh was interested in this as a business opportunity, because the French gambling market had in his view stagnated by reason of the monopoly enjoyed by the two State run betting organisations, Française des Jeux ("FDJ"), which mainly operated terrestrial lotteries and fixed odds betting on games and sports, and Pari Mutuel Urbain ("PMU"), which ran horserace pools betting. The French government had plans to liberalise the French betting industry, and it was in the context of such proposed liberalisation that Mr Somekh saw enormous potential for exploiting
Matchbet's
technology. In the event, this liberalisation did not materialise until much later, but its enticing prospect, no doubt fostered by Mr Somekh's high-level contacts at FDJ, formed the backdrop to Mr Somekh's involvement in the present case.
Matchbet
was "now being fully integrated with Alphameric's EPOS payment and ALBOS price broadcast systems", thereby causing Mr Somekh grave embarrassment and loss of credibility in France. In this letter Mr Somekh said, among other things:
"I deeply resent that the callous actions of your Executive Directors have caused me this deeply humiliating and damaging situation. I have been dismayed by the cynical disregard and casual contempt for the truth displayed by the executive directors of your company, with whom I have met on a number of occasions who seem to consider the truth as an entirely expendable commodity when money is at stake."
Mr MacLean put this passage to Mr Somekh, and continued "That sentence perfectly describes the evidence which you have been giving to this court today, doesn't it?", to which Mr Somekh replied "Yes".
Mr O'Mahony
(2) The witnesses for Alphameric
(a) Mr Morcombe;
(b) Mr Christopher Ian Lindsey;
(c) Mr Eduardo Ovidio Addario; and
(d) Mr Stephen Charles Sutton.
In addition, Alphameric served a notice under section 2 of the Civil Evidence Act 1995, indicating their intention to rely on hearsay evidence contained in an email dated 19 September 2012 from Mr Jamie Hart of William Hill to a Mr Sam Dibb. The notice stated that Mr Hart would not be called to give evidence because he was unwilling to provide a witness statement.
Mr Morcombe
"7. Alphameric Plc was the holding company of the Alphameric Group, which comprised two businesses, Leisure and Hospitality. The Leisure business supplied proprietary bet settling systems and display systems to [LBOs] the Leisure Business was operated through Alphameric.
8. Alphameric was the market leader in the provision of bet settling and display systems to LBOs, delivering its first product to Coral in 1989. Alphameric marketed and sold a range of systems for LBOs in the UK and Ireland. It sold two different bet settling systems. The first, marketed as "SCS" or "Slip Capture System", was used by smaller and medium sized bookmakers and the second, referred to as EPOS, was more sophisticated and included a terminal device marketed as "iTerm", and was used by larger bookmakers. In addition, Alphameric marketed and sold a display system referred to as [ALBOS] that displayed on television screens all betting opportunities being offered to punters and live television pictures within the [LBOs] utilising the Alphameric systems. All of the systems were integrated to the extent that they utilised a common data feed.
9. The products were established on various hardware platforms that were frequently updated but in all cases utilised Alphameric's proprietary software. It was common for the hardware platforms to be built after receipt of a customer order and prior to delivery, in order to take advantage of the latest and most cost effective hardware platforms available. In the case of major customers, like Ladbrokes, William Hills and Coral, if the customers wanted to ensure that their hardware platforms were identical into the future they would purchase sufficient items of hardware for their rollout needs at the time of the original order, and these would be stored by Alphameric to be called off by the customer at a future date. Whilst Alphameric's systems utilised proprietary software, the hardware platforms utilised industry standard PC hardware and Microsoft operating software."
Matchbet's
initial involvement with Alphameric was in some material respects unbalanced and unfair to
Matchbet:
see paragraphs 101 to 102 below.
Mr Lindsey
Matchbet
of the MBE to the retail board of Ladbrokes in January 2007, and an explanation of why Ladbrokes eventually decided not to proceed with
Matchbet.
Both sides agree, and I accept, that Mr Lindsey was a completely honest and reliable witness.
Mr Addario
Matchbet
and the MBE from January 2007 until the termination of the SDLA in May 2008. As in the case of Mr Lindsey, both sides agree, and I accept, that Mr Addario was an honest witness who did his best to assist the court. It is worth mentioning in this context that Mr Addario has no continuing relationship with Alphameric, having left the company several years ago.
Mr Sutton
Matchbet
in about April or May 2005, but was more heavily involved with
Matchbet
from about February 2006 until his secondment to AMRAC at the end of that year. At that stage Mr Sutton's effective involvement with
Matchbet
came to an end.
Matchbet
submitted that in one passage of his cross-examination Mr Sutton had invented the existence of a fictitious email in a clumsy attempt to assist Alphameric's case, and that this undermined his credibility generally. The incident in question concerned the MBE's functional specification, which according to Dr Seifert was signed off by Alphameric on 5 October 2006 after an amended copy of it had been supplied to Mr Poirier. When this was put to Mr Sutton, he said he had not been involved in this at all, and Mr Poirier had signed off the specification without contacting him or any of the technical staff at Alphameric. Mr Sutton said he thought he had become aware of this in the last week in November, and had been shocked. He then wrote to Mr Morcombe on 7 December, expressing his dismay that the documents had been signed off without his sight or approval, and saying that "this would come back to haunt us".
Mr Hart
Matchbet
that I should disregard the hearsay evidence of Mr Hart. It is impossible to make a fair evaluation of what he said in his email of 19 September 2012 to Mr Dibb without any knowledge of its context or of the questions put to him in the prior conversation which the email was intended to confirm. Nor has any explanation been provided of why Mr Hart could not be called to give evidence, if necessary under a witness summons. In the circumstances, I am unable to gain any assistance from his evidence; and I note that, sensibly, no reference was made to it by counsel for Alphameric in their closing submissions.
Events leading up to the SDLA
Matchbet's
initial business aim, before Alphameric appeared on the scene, was to compete directly with existing betting exchanges and "aggressively take market share from [them]": see paragraph 4 of Mr Ireland's draft business plan for VBX. This would clearly have been a considerable challenge, as Mr Ireland went on to explain when commenting on the "difficulties facing other smaller players".
Matchbet's
answer to this problem lay in its supposed ability to generate superior liquidity.
Matchbet
approached Investec as a possible source of funding. An initial presentation was made, and on 10 February Investec said they liked the concept enough to take it to the next stage, which "should include an emphasis on the business plan and financial outlook".
"We are pleased to confirm that we shall be most interested in receiving your proposal/draft specifications in respect of your suggestion that we may collaborate in developing a new service offering to your clients, which you would roll out initially to one or several of your independents, and which in due course could be offered to all your bookmaking clients.
If we understood your thinking, such a service would be based on your existing real time data services to the industry, and use VIRTEX in "finite risk mode", i.e. in a way in which the specific expertise of the odds compiler, in terms of risk management as well as estimates of probabilities and trading strategies, could be combined, in a real time computational sense, with the VIRTEX matching capabilities.
…
We understand that you intend to send us a proposal/draft specifications on how such a combined product offering should work …
We also understand that, subject to internal deliberations, you may wish to put forward ideas in respect of either a direct (but low key) investment inMatchbet,
or a more high profile investment that may involve you offering an "Alphameric Exchange" to your bookmaking clients. We would be most interested in either of these arrangements …"
"Do we know that the bookmakers will want to put an exchange product in their shops which directly competes with their fixed odds sports book? This seems like a bit of a red herring to me – the reason FOBT [Fixed Odds Betting Terminals] have worked so well is that they are simple games that fill the minutes of boredom between races for the unsophisticated punter who still spends his time in the traditional betting shop. These people are unlikely to be tech savvy enough to operate a betting exchange product from a touch screen in store … Or is this where the Alphameric discussion comes in?"
Matchbet
scored an initial success. An online bookmaker, Blue Square, agreed to pay £29,000 for a pilot of
Matchbet's
online exchange. However, the pilot was evidently not a success. On 1 August 2005 Blue Square reported to Dr Seifert that "not many of our guys actually tried to place bets and those who did found it difficult and not straightforward. Those who did not got confused by the interface".
Matchbet's
current business plan and share register. In his covering email, he said that
Matchbet
was "in a number of investment discussions with institutional investors", and continued:
"As you know, we attach great significance to the synergies that we believe could flow from a business relationship with Alphameric and hence would have a clear preference to an investment that would go hand in hand with collaboration along the lines we have discussed with you."
The enclosed business plan was a substantial document, running to 64 pages and appendices.
Matchbet
and the potential commercial collaboration between the two companies. He said
Matchbet
"would very much welcome your investment, but from our viewpoint it is the commercial collaboration that is crucial". Shortly afterwards, Alphameric brought in Mr Siers and Mr Sutton to reinforce their
Matchbet
team, and on 21 April Mr Siers emailed Dr Seifert to introduce himself and Mr Sutton and to ask for a technical demonstration of the
Matchbet
System. Mr Siers said that they wanted "to look at the system from a practical and technical perspective, and what it can do".
Matchbet
system could be delivered to Alphameric's customers through Alphameric's systems. There was further discussion of commercial co-operation along these lines at a meeting on 23 June between Dr Seifert, Mr Siers and Mr Morcombe. According to Dr Seifert's recollection, which both Mr Siers and Mr Morcombe were prepared to accept as substantially accurate, the discussion envisaged that
Matchbet
would develop the system to a stage where it could be connected to Alphameric's own systems for LBOs, and Alphameric would then market the service to its LBO customers over the next year. Alphameric also made it clear that they wanted to have an exclusive licence to market and use the developed system.
Matchbet's
latest financial statements to David Currie of Investec. He commented that if Alphameric and
Matchbet
were to "join forces to bring the exchange to the offline betting world, this will add another, potentially huge component, which is not reflected in the business plan or projections". He said it was proposed to value
Matchbet's
current share capital at £6 million. The basis of this proposed valuation is obscure to me, and in view of
Matchbet's
recurrent financial difficulties I suspect it was over-optimistic.
"If you wish to invest, then it would be useful to know this as soon as possible, and to understand whether Investec have endorsed our valuation.
We are convinced that, joining forces, we can indeed bring about a revolution in the betting market, and we look forward to working with you to this end."
Matchbet
when Investec made it clear that they were not interested in investing in
Matchbet
at that stage. On 23 August Mr Cottrell emailed Dr Seifert saying:
"I have spoken to Alan [Morcombe] and made it clear that we are not interested in investing [inMatchbet]
with Alphameric at this stage and that we needed further proof of concept before doing so."
Dr Seifert put a characteristically optimistic and inaccurate gloss on this disappointing news by saying in an email to Mr Siers later the same day:
"At this stage in time we have agreed with Investec that we shall not enter into an investment agreement with them, but will keep them informed … of the progress of our pilot."
Matchbet,
but as Mr Siers had said in an email to Dr Seifert on 23 August the decision was "not something we can ignore". Mr Siers also emphasised that all of their discussions were subject to board approval. For its part,
Matchbet
was anxious to follow up other possible leads. A first meeting with Finsoft (Alphameric's main competitor) was arranged for 26 August 2005, and in September Dr Seifert made an initial presentation to Boylesports in Ireland.
Matchbet
was in a desperate financial plight. Dr Seifert explained the problems in an email to his fellow directors of
Matchbet,
Mr Porteous and Mr Winton, on 1 October. He said, among other things, that the funding which Mr Ireland had been confident he could easily raise from external investors had "turned out to be totally illusory", and that there was a desperate need to find £20,000 over the next week, with another £20,000 by the end of the month "to be reasonably solvent".
Matchbet
by way of convertible loan stock, to be issued in five tranches against milestones to be formulated by
Matchbet.
This proposal was the germ of what subsequently became the Heads of Terms, and following further discussions Mr Morcombe on 12 December 2005 sent Dr Seifert draft Heads of Terms which had been prepared by Mr Soulsby. The draft was then the subject of further discussion and amendment in the usual way, before the Heads of Terms were signed on 23 December 2005 by Dr Seifert on behalf of
Matchbet.
Matchbet
submits that they are both relevant and admissible in construing the SDLA. Before I do so, however, there is one general point which it is convenient to dispose of at this stage. In his written evidence, Mr Morcombe paints a disparaging picture of the proposals which
Matchbet
initially put to Alphameric. He says his initial impression was that the product being promoted by
Matchbet
was "similar in operation to Betfair"; that it would only support sports betting and not horse racing; that it could be accessed only via the internet; and that it had little chance of success, because Betfair were already established operators in the marketplace and
Matchbet
was under-funded. He says he recommended that Alphameric should not invest in the
Matchbet
proposition as proposed by Dr Seifert, but the situation then changed when Alphameric approached Dr Seifert with a different proposition "that had been brainstormed inside Alphameric by our new business development personnel and other like-minded individuals". The essence of the new proposal, according to Mr Morcombe, was to use Alphameric's LBO technology as a way of offering the MBE to punters in LBOs. He says the idea for this solution was Alphameric's, and it "was a completely different proposition to the one offered by Dr Seifert to Alphameric".
Matchbet's
original concept and Alphameric's LBO technology was first suggested by Phil Smith on 31 January 2005 and then evolved in the course of discussions between the two companies. Mr Morcombe was not much involved in the detail of those discussions, and I do not accept that he ever recommended that Alphameric should not invest in the proposition first put forward by Dr Seifert (a recommendation for which Mr Morcombe was unable to point to any documentary evidence). Nor do I accept that the proposal was the fruit of a brainstorming exercise within Alphameric. I am sure Mr Morcombe did not intend to misrepresent the position in his evidence, and in cross-examination he was ready to concede that his memory may have been at fault in various respects. Nevertheless, I think the episode does betray an undue readiness on his part to belittle
Matchbet
and its proposed product, and a lack of objectivity probably engendered by the subsequent history of the dispute as he saw it.
The Heads of Terms
"BACKGROUND
…
(B) [Alphameric] has been in discussions withMatchbet
in relation to the possible investment by Alphameric in
Matchbet
by way of a loan to enable the completion of the development of the
Matchbet
Software and the subsequent grant to Alphameric of exclusive distribution rights in relation to access to the [MBE].
(C) These heads of terms set out principal terms and conditions subject to which Alphameric is willing to proceed with the proposed transaction, which is to include:
(i) the development byMatchbet
of the
Matchbet
Software under a development and licensing agreement to be agreed and entered into between the parties ("the Development Agreement");
(ii) a loan of £250,000 payable by Alphameric toMatchbet
in instalments linked to the achievement by
Matchbet
of milestones to be set out in the Development Agreement;
(iii) the creation byMatchbet
of special Convertible Redeemable Loan Notes ("the Loan Notes") and the issuing to Alphameric by
Matchbet
of the Loan Notes in respect of the loan payments made by Alphameric, such Loan Notes to be redeemable or convertible into shares in
Matchbet,
full details of which are to be set out in a Loan Note Instrument to be agreed between the parties and executed by
Matchbet
("the Loan Note Instrument");
(iv) the grant to Alphameric of exclusive worldwide rights (with the exception of specific exclusions) to distribute access to the [MBE] service, intended to be by way of a "front end" to be known as AlphaMatch which is to operate on EPoS systems or such other suitable devices as Alphameric may choose and permit communication with and operation in conjunction with theMatchbet
Software and [MBE] ("AlphaMatch").
(D) These heads of terms are not exhaustive and are not, and are not intended to be, legally binding between Alphameric andMatchbet
except as expressly set out in this letter.
It is agreed as follows:
[Paragraphs 1 to 3 dealt with the proposed loan of £250,000 bearing interest at 7.5% per annum, the first instalment of £50,000 to be payable on signature of the Heads of Terms; the issue of the Loan Notes; the share capital ofMatchbet;
and the intended terms of the convertible loan stock]
4. SOFTWARE DEVELOPMENT
4.1 The principal purpose of the loan provided by Alphameric toMatchbet
is to enable
Matchbet
to complete the development of the
Matchbet
Software. The parties shall use reasonable endeavours within the period of exclusivity referred to in paragraph 9 below, to negotiate and enter into [the Development Agreement].
4.2 The Development Agreement shall contain provisions under whichMatchbet
shall be obliged to develop the
Matchbet
software in accordance with the detailed specifications (the "Specifications") to be agreed between the parties. The Specifications shall be signed off by the parties in accordance with the Development Agreement.
4.3 Under the Development Agreement,Matchbet
shall also be obliged to achieve the development Milestones referred to in the Development Agreement not later than the dates set out in the Project Plan. Following acceptance by Alphameric of the software developed by
Matchbet
under the Development Agreement, Alphameric shall progress to roll out as referred to in paragraph 5 below and in accordance with the Development Agreement.
5. ROLLOUT AGREEMENT
5.1 The Development Agreement shall also contain provisions under which, following the completion of the development of theMatchbet
software in accordance with the Development Agreement,
Matchbet
shall provide to Alphameric the application protocol interface required by Alphameric to enable it to develop AlphaMatch as a front end user interface to the
Matchbet
Software and the service available through the [MBE].
5.2 Following completion of the integration work Alphameric andMatchbet
shall run the Integration Tests to be referred to in the Development Agreement. Upon successful completion of those Integration Tests, Alphameric shall market and roll out the AlphaMatch platform to enable its customers to connect to the [MBE], owned and run by
Matchbet,
and its associates, in accordance with the Project Plan and the Development Agreement.
…
7. EXCLUSIVE DISTRIBUTION
7.1 This clause 7 is binding on Alphameric andMatchbet.
7.2 In consideration of the initial payment of £50,000 to be made by Alphameric toMatchbet
under paragraph 1.1 of this Heads of Agreement,
Matchbet
grants to Alphameric a perpetual licence to market to operators of LBOs, and to permit operators of LBOs to access, the [MBE] service (as provided by the
Matchbet
Software) worldwide via AlphaMatch (or any other front end software developed by or on behalf of Alphameric for that purpose).
7.3 The licence referred to above shall be an exclusive worldwide licence under which, subject to paragraphs 7.4, 7.5 and 7.6 below,Matchbet
may not itself (or permit any third party to):
(a) sell, or permit any person or entity which is an operator of LBOs to enable LBO based access or use of, the [MBE] or the LBO service which the [MBE] provides;
(b) sell, or permit any operator of LBOs to enable LBO access or use of, any other betting exchange which uses theMatchbet
Software, or the LBO service which any such betting exchange provides.
7.4 Notwithstanding paragraph 7.3 above,Matchbet
shall be entitled to licence the
Matchbet
Software to internet or credit bookmakers:
(a) for access via the Internet;
(b) for access via any other channel other than LBOs;
for the purpose of permitting access to and use of the [MBE]. The terms of this Exclusive Licence Agreement are more fully set out in the Development Agreement.
…
7.7Matchbet
shall provide Alphameric with all reasonable assistance in connection with the marketing of the [MBE] service under clause 7.3 above.
7.8 The licence terms applicable to theMatchbet
Software and the [MBE] shall be set out in detail in the Development Agreement.
7.9Matchbet
shall be obliged to provide and make available the [MBE] as a service to customers of Alphameric on terms to be agreed between the parties. It is intended that such terms will be set out in the Development Agreement.
8. REVENUE & PROFIT SHARE
8.1 The Development Agreement shall contain provisions under which:
(a) Alphameric shall be entitled to receive 50% of the gross revenue received byMatchbet
arising from the use of the [MBE] by any operator of LBOs (to include but not be limited to spread income, commission margin, and trade roundings); and
(b) Alphameric shall be entitled to receive 10% of the gross revenue received byMatchbet
arising from the use of the [MBE] not falling within paragraph 8.1(a) above.
…
9. EXCLUSIVITY
9.1 This paragraph 9 is legally binding on Alphameric andMatchbet.
…
9.9 The parties shall each use their reasonable endeavours to negotiate in good faith with a view to agreeing the terms of the Loan Note Instrument, the Development Agreement, and any other related documentation required to put into effect the matters contemplated by this Heads of Agreement, not later than the end of the Exclusivity Period.
10. INTERPRETATION
10.1 In this Heads of Agreement:
(a) "LBO" means licensed betting offices in the UK, and any betting or bookmaking business in other jurisdiction in which betting is conducted between a business and its customers through physical premises;
…
11. GOVERNING LAW …
11.1 This heads of terms shall be governed by, and construed in accordance with, English law …"
Matchbet
by way of a convertible loan, to be drawn down in instalments linked to the achievement by
Matchbet
of milestones yet to be specified. Alphameric was not prepared to take an immediate equity stake in
Matchbet,
although that is what
Matchbet
would ideally have preferred. Furthermore, the initial loan instalment of £50,000 (which was in fact not paid until 4 January 2006) was only made available by Alphameric in return for the immediate grant by
Matchbet
to Alphameric of a perpetual, exclusive and worldwide contractual licence to market the MBE (when it had been developed) to operators of LBOs. The terms of the licence in paragraph 7 did not impose any obligation on Alphameric to market the MBE to LBOs, even though the exclusive nature of the licence (subject to a limited exception contained in paragraph 7.5) meant that
Matchbet
would itself be precluded from undertaking such marketing itself. By contrast, paragraph 7.4 expressly provided that
Matchbet
would be entitled to licence the
Matchbet
Software to internet or credit bookmakers, for the purposes of permitting access to and use of the MBE.
Matchbet
had committed itself irrevocably to the grant of the licence contained in clause 7, the question whether Alphameric would ever come under an obligation to market and roll out the MBE to LBOs, although contemplated by the parties, was deliberately left open.
Matchbet
remained at liberty to develop and market its online betting exchange business. So, for example, the discussions between
Matchbet
and Boylesports, which had begun in September 2005, continued into 2006 before petering out in the light of unresolved concerns raised by Mr O'Mahony. Alphameric had no objection to
Matchbet's
efforts to develop its online business because Alphameric had already decided to confine its investment to the LBO side of
Matchbet's
business, subject to receipt by Alphameric of 10% of gross revenue received by
Matchbet
from online use of the MBE: see paragraph 8.1(b) of the Heads of Terms.
Matchbet
continued in the early months of 2006. There were also further discussions between
Matchbet
and Investec, but again it turned out that Investec was unwilling to provide funding at such an early stage in the development of the MBE. Investec spelt out its position in an email sent by Mr Cottrell to Dr Seifert on 8 March 2006:
"A firm letter of support is not something I am able to deliver at this stage. I re-iterate continued interest from us, and that is, I hope, evident from the amount of time we have spent on this project and the conversations we have had, but I know that the position of our investment committee is and will remain that we will be interested in fundingMatchbet
at a "revenue roll out" stage rather than in the "technology roll out" stage. By revenue, I mean trading or exchange revenue rather than fees that may be earned through founder members pre-trading. We are not in a position to adequately assess the technological risks in getting to "revenue roll out" and hence we would like to see that being funded by founder members of the exchange and other interested parties, like Alphameric, who can participate.
I hope this clarifies the position and please remain in contact."
Matchbet.
On 15 March Mr Morcombe emailed Dr Seifert expressing pleasure at his appointment and saying he looked forward to attending the next board meeting.
Matchbet
could not afford to pay for a commercial lawyer, but Dr Seifert obtained some help from a trainee solicitor, Madelene Holdsworth, who had previously worked for him part time when she was a student. At a later stage,
Matchbet
also instructed a solicitor, Mr Izaz Ali. The SDLA was signed on behalf of
Matchbet
by Dr Seifert.
The SDLA
Matchbet
and Alphameric.
"31 Entire Agreement
31.1 This Agreement (together with all other documents to be entered into pursuant to it) sets out the entire agreement and understanding between the parties, and supersedes all proposals and prior agreements, arrangements and understandings between the parties, relating to its subject matter."
It is thus clear that the provisions of the SDLA superseded those of the Heads of Terms, including those which had contractual force. The parties could hardly have made it more clear that their contractual relationship was thenceforth to be governed by the terms of the SDLA alone.
"Matchbet
has agreed to develop certain computer programs for the purpose of providing a betting exchange service, to enable Alphameric to develop the necessary interfaces to enable Alphameric's products to operate in conjunction with the betting exchange service, and to appoint Alphameric as its exclusive distributor of access to the betting exchange service from retail bookmaking outlets and to provide the other services described in this Agreement upon the terms and conditions contained in this Agreement."
"(b) Alphameric System means any equipment and/or software which Alphameric may, in its discretion, provide to End Users for the purpose of accessing the Programs and the Service;
(c) Betting Exchange means an exchange service of the type described in the Product Description;
…
(f) Completion Date means the date specified in the Implementation Plan by whichMatchbet
is to provide the Deliverables Ready for Use, or such extended date as may be set pursuant to any provision of this Agreement;
…
(h) Deliverables means the Programs, the Service and any other deliverables which this Agreement states are to be delivered byMatchbet
to Alphameric;
(i) End-User means a person who is a party to an End-User Agreement withMatchbet
in respect of the Service and who was introduced (or deemed to be introduced) by Alphameric pursuant to, and during the term of, this Agreement;
(j) End-User Agreement means the standard terms and conditions ofMatchbet
setting out the terms and conditions on which an End-User is permitted to access and use the Service, to be provided by
Matchbet
prior to the commencement of marketing of the Service;
…
(t) Implementation Plan means the timetable for the completion of the Stages of preparation and delivery of the Deliverables as specified in Schedule 2;
(u) LBO means:
(i) any licensed betting office in the UK; and
(ii) any betting or bookmaking business in any other jurisdiction in which betting is conducted between a business and its customers through physical premises;
…
(w) Loan Notes means the 7.5% Convertible Loan Notes in the capital ofMatchbet
issued pursuant to the Loan Note Instrument;
(x) Loan Note Instrument means the Loan Note Instrument dated 9 May 2006 constituting the Loan Notes;
(y) Loan Payment means the payment of £250,000 to be made by Alphameric toMatchbet
by way of a loan as consideration for the performance by
Matchbet
of the Services, as specified in Schedule 3;
…
(cc) Product Description means the general description of the functions, facilities and technical architecture of, the Programs and the Service, set out in Schedule 4;
(dd) Programs means the computer programs (including the relevant application protocol interfaces) to be written byMatchbet
pursuant to clause 4 and/or any other computer program created by
Matchbet
which provides betting exchange functionality;
(ee) Ready for Use means fully tested and accepted in accordance with clause 8;
(ff) Service means the betting exchange service which is provided by the Programs and which is to be supplied byMatchbet
to End Users under this Agreement and/or any other Betting Exchange service which is provided by
Matchbet
to any person (whether using the Programs or otherwise);
…
(hh) Stage means a stage of the Implementation Plan;
…"
Matchbet
agreed to (a) write the Programs and develop the Service; (b) provide the Deliverables ready for use by the Completion date; (c) provide User Manuals and training; and (d) provide the Service to End Users under End User Agreements entered into between
Matchbet
and each End User, in each case upon the terms and conditions set out in the Agreement. Clause 4.1 obliged
Matchbet
to "write a series of applications programs which shall provide the Service". The Service had to comply with the Functional Specification created as part of Stage 1, and to satisfy specified performance criteria.
Matchbet
of its obligations under the SDLA, Alphameric would pay the £250,000 Loan Payment to
Matchbet
in the manner, and at the times, specified in Schedule 3. It was further agreed that
Matchbet
would immediately issue to Alphameric a Loan Note in respect of the first instalment of £50,000 (which had already been paid pursuant to the Heads of Terms), and that further Loan Notes would be issued as and when each further instalment of the loan was paid.
Matchbet
undertook to "complete each Stage by the date specified in the Implementation Plan", and to "provide the Deliverables Ready for Use on or before the Completion Date". Clause 6.3 said that if
Matchbet
failed (inter alia) to complete any Stage by the dates specified, and failed to remedy such failure within 30 days after receipt of a request in writing from Alphameric to do so,
Matchbet
should be treated as being in material breach of the SDLA.
"IfMatchbet
is delayed or impeded or obliged to spend additional time in the performance of any of its obligations under this Agreement because of any failure by Alphameric to comply with its obligations under this Agreement (including the supply by Alphameric of any incorrect or inadequate data, information or instructions) then, notwithstanding anything else contained in this Agreement, any time specified for the performance by
Matchbet
of any of its obligations (including, where relevant, the Completion Date and/or any relevant date specified for the completion of a Stage) shall be extended accordingly, and
Matchbet
shall be entitled to charge Alphameric in accordance with the Standard Rates in respect of any additional time spent by
Matchbet
in the performance of its obligations under this Agreement to the extent that it is made necessary solely and directly as a result of a failure by Alphameric to comply with its obligations under this Agreement."
"14.1 Upon acceptance of the Deliverables at the final Stage in accordance with clause 8 above, Alphameric shall be licensed, on an exclusive and perpetual basis:
(a) to licence LBO Operators throughout the world to access and use the Programs and the Service for use in, and access from, the LBO businesses operated by such LBO Operators; and
(b) to be the marketing agent ofMatchbet
throughout the world for the purpose of securing End-User Agreements with prospective licensees who are LBO Operators for the purposes referred to in (a) above.
14.2 Alphameric may only market the Service for use by LBO Operators for use in, and access from, the LBO businesses operated by such LBO Operators …
14.3 Alphameric shall secure End-User Agreements in accordance with the licence and support fees specified byMatchbet
from time to time and in accordance with the terms of this Agreement.
14.4 Except as expressly set out in clauses 14.5 and 14.6,Matchbet
shall not during the continuance of this Agreement in any part of the world:
(a) appoint or permit any other person to sell or market the Service and/or the Programs to LBO Operators; or
(b) itself sell or market the Service and/or the Programs to any LBO Operator; or
(c) permit or enable access to, or use of, the Service and/or the Programs by, or for the benefit of, any LBO Operator, other than LBO Operators who are End Users.
14.5 Notwithstanding the provisions of clause 14.4 or any other provision of this Agreement,Matchbet
shall be entitled to permit access to and/or use of the Service by any internet or credit bookmaking business where such access is made via the internet or via any channel other than an LBO …
14.6 Notwithstanding the provisions of clause 14.4, if at any time after the completion of the final Stage under this Agreement any prospective licensee:
(a) to whomMatchbet
already provides the Service via any method specified in clause 14.5 above; and
(b) who is also an LBO Operator;
also wishes to gain access to the Service for any LBO business operated by that prospective licensee,Matchbet
shall notify Alphameric in writing of its existing customer's requirement and Alphameric shall be permitted to market the Service to that prospective licensee for use in its LBO business. If Alphameric is unable, within 3 months after the date on which it receives
Matchbet's
notice under this clause, to procure that the prospective licensee enters into an End-User Agreement for the supply of the Service to the LBO business of that prospective licensee,
Matchbet
shall itself be permitted to procure that the prospective licensee enters into an end-user agreement for the supply of the Service to that prospective licensee's LBO business. For the avoidance of doubt, when the prospective licensee signs an End-User Agreement, that prospective licensee shall be treated as an End-User for the purposes of this Agreement, notwithstanding that Alphameric may have been unsuccessful in marketing to the licensee in question, and Alphameric shall be entitled to 50% of the Gross Revenue from the supply of the Service to that prospective licensee in accordance with clause 17 below.
14.7 Notwithstanding the provisions of clause 14.4, if at any time after the completion of the final Stage under this AgreementMatchbet
becomes aware of any LBO Operator who is a prospective customer of the Service and notifies Alphameric in writing of the existence of that prospective customer then if Alphameric declines (or fails within 3 months after the date on which it receives
Matchbet's
notice under this clause) to procure that the prospective customer enters into an End-User Agreement for the supply of the Service to the LBO business of that prospective licensee,
Matchbet
shall itself be permitted to procure that the prospective customer enters into an End-User Agreement for the supply of the Service to that prospective customer's LBO business (if necessary, via an alternative marketing agent to LBO Operators other than Alphameric). For the avoidance of doubt, when the prospective customer signs an End-User Agreement, that prospective licensee shall be treated as an End-User for the purposes of this Agreement and Alphameric shall be entitled to 50% of the Gross Revenue from the supply of the Service to that prospective licensee in accordance with clause 17 below.
14.8Matchbet
shall provide Alphameric with such technical assistance as is reasonably requested by Alphameric in connection with the marketing and promotion of the Service, and shall endeavour to answer as soon as reasonably possible all reasonable technical queries raised by Alphameric concerning the use or application of the Service and which may arise in connection with Alphameric's efforts in relation to the marketing of the Service. For the avoidance of doubt,
Matchbet
shall not be expected to incur unreasonable or disproportionate costs in relation to the provision of such assistance.
14.9Matchbet
shall promptly provide Alphameric with the newest commercially available versions of the Programs and/or the Service.
14.10 If, during the term of this Agreement, Alphameric itself, or any Alphameric Group Company, enters into any arrangement with a third party whereby Alphameric is to market or promote any Betting Exchange which competes with the Service thenMatchbet
shall be entitled, at its option by notice in writing to Alphameric, to make the licence granted to Alphameric in clause 14.1 non-exclusive."
"17.1 During the term of this AgreementMatchbet
agrees to pay to Alphameric:
(a) 50% of the Gross Revenue received byMatchbet
arising out of or in connection with the supply of the Service to, or use of the Service by, any LBO Operator that is party to an end-user agreement with
Matchbet;
and
(b) 10% of all other Gross Revenue (not falling within 17.1(a) above) received byMatchbet
arising out of or in connection with the supply of the Service;
in each case including, but not limited to, spread income, commission margin and trade roundings."
"23.1 Alphameric shall:
(a) at all times act in good faith and conduct its business in a manner which will reflect favourably upon the Service and upon the good name and reputation ofMatchbet;
![]()
(b) supply toMatchbet
such reports, returns and other information relating to orders and projected orders for the Service and regarding prospective End-Users and such other assistance as
Matchbet
may from time to time reasonably require;
(c) useMatchbet's
trademarks and trade names relating to the Service only in the registered or agreed style in connection with the marketing of the Service …
(d) deliver copies of the Functional Specification (and any product description relating to the Service) only to prospective licensees it reasonably believes to be bona fide; and
(e) permitMatchbet
and its authorised agents at all reasonable times on reasonable notice to enter Alphameric's premises for the purpose of ascertaining that Alphameric is complying with its obligations under this Agreement."
Matchbet
was not entitled to exercise its rights of termination under the Agreement "if any Loan Note is still outstanding or any amount of the Loan Payment is still owed by
Matchbet
to Alphameric". Since no part of the loan was ever repaid, it follows that
Matchbet
never became entitled to exercise any of the termination rights expressly conferred on it by the SDLA.
"… notwithstanding anything else contained in this Agreement, in no event shall either party be liable to the other for special, indirect or consequential loss or damage or loss or damage arising from the other party's failure to comply with its obligations to that party."
Matchbet",
"Responsibility of: Alphameric" and "Responsibility: Joint". The final column specifies the date for completion of the stage, by reference to a number of weeks from the date of the SDLA: six weeks for Stage 1, 10 weeks for Stage 2, 20 weeks for Stage 3, 28 weeks for Stage 4 and (again) 28 weeks for Stage 5. The expiry of 28 weeks also defines the Completion Date when
Matchbet
was to provide all Deliverables Ready for Use.
Matchbet
was assigned specific responsibilities at each stage, the column for responsibilities of Alphameric was left blank for all five stages. The joint responsibility column has the following entries:
"Stage 1: The parties have set up a joint planning group for the purposes of planning, and monitoring progress of, the project under this Agreement;
Stage 2: The parties have agreed on a joint programme for the integration of the Programs/Service with the Alphameric System, as well as fees (and any other commercial terms) for any technical input to be provided to Alphameric for such assistance;
Stage 3: [None]
Stage 4: Integration of the Programs/Service with the Alphameric System.
The integrated system [i.e. the Alphameric System operating in conjunction with the Programs and the Service] has successfully completed integration tests to be carried out by the parties to agreed test scripts (referred to in Stage 1 above), and in accordance with clause 8 of this Agreement.
Stage 5: (a) the Programs and the Service, as integrated with the Alphameric System, has successfully completed final acceptance tests to be carried out between the parties to agreed test scripts (referred to in Stage 1), and in accordance with clause 8 of this Agreement (such tests, for the avoidance of doubt, to include performance testing in a proven live environment) and, through such tests, have demonstrated compliance with the Functional Specification and the Performance Criteria.
(b) the parties have agreed test scripts/test harness to be used for the acceptance testing of the items referred to in the first column of this Stage 5; and
(c) commercial terms for the development byMatchbet
of the additional functionality for the Programs/Service referred to in the first column of this Stage 5 have been agreed between the parties."
Matchbet
at the completion of each stage. It recorded that £50,000 had already been paid on signature of the Heads of Terms, and provided for further payments as follows: nil on the completion of Stage 1; £70,000 on completion of Stage 2; £75,000 on completion of Stage 3; £25,000 on completion of Stage 4; and £25,000 on completion of Stage 5. Provision was again made for the immediate issue by
Matchbet
to Alphameric of a Loan Note upon payment of each future instalment.
"Alphameric shall not withhold or delay payment for non-completion of a Stage if:
(a) the only items outstanding under that Stage are Subjective Items; and
(b) the reason that such Subjective Items have not been completed is that Alphameric has unreasonably withheld or delayed its approval, co-operation or agreement on such items, notwithstanding the fact thatMatchbet
has done everything which is reasonably within its power or control to achieve completion of the Subjective Items in question."
Are the Heads of Terms admissible in construing the SDLA?
Matchbet
disagree. They submit that the Heads of Terms form part of the factual matrix of the SDLA. They rely, in particular, on paragraph 9 which created a legally binding obligation on the parties to negotiate in good faith with a view to agreeing the terms of the SDLA so as to put into effect the matters contemplated by the Heads of Terms. They submit that it is not just permissible, but positively necessary, for the court to investigate and take account of the matters contemplated by the Heads of Terms in construing the SDLA. The practical application of this principle is said to be that the court should "lean in favour of construing the SDLA on the basis that, where and to the extent that the language chosen permits it, all matters expressly contemplated by the [Heads of Terms] as being provided for in the SDLA are either expressly provided for or are otherwise implicit in it". This applies above all to paragraphs 4.3 and 5.2, the provisions of which were clearly intended to be reflected in the SDLA.
Matchbet.
To the extent that the provisions of the Heads of Terms had contractual force, that is to say where the parties expressly agreed that they should be binding on them, the contract remained binding until it was superseded by the SDLA. When that happened, however, the position for the future was governed exclusively by the terms of the SDLA, and the previous agreement between the parties ceased to be relevant by virtue of clause 31.1. The whole point of an entire agreement clause, in these or similar terms, is to ensure that the parties' rights and obligations are to be ascertained by reference to the single agreement which contains the clause. The agreement must, of course, still be construed in its matrix of admissible fact; but to include in that matrix any prior agreement between the parties relating to the same subject matter would run counter to the very purpose of the entire agreement clause. To that extent, therefore, the clause operates as a contractual estoppel. The legal efficacy of such agreements has been endorsed by the Court of Appeal in the Springwell case, and I can see no reason why clause 31.1 should not be given effect accordingly. Put simply, the provisions of the Heads of Terms have not been truly superseded if it remains permissible to have recourse to them as a guide to the construction of the SDLA.
Matchbet
that this obligation was a relevant part of the background to the SDLA, and that it should incline the court to interpret the provisions of the SDLA in a manner that achieved conformity with the Heads of Terms. But in my view the entire agreement clause makes all the difference. The parties thereby agreed to make a fresh start, unencumbered by previous agreements, including their previous agreement contained in paragraph 9.9.
Matchbet
founds its claim exclusively on the SDLA. It does not argue that any of the contractually binding provisions of the Heads of Terms somehow retained their contractual force after the SDLA was entered into. Nor does it argue that the SDLA should be rectified, or that it does not represent the entire agreement between the parties, or that its provisions were in any way overridden or varied, for example through an estoppel by convention or a variation of its terms by subsequent conduct.
The obligations of Alphameric under the SDLA
Matchbet
was obliged to write the necessary computer program, develop the service, and provide the service to end users under standard terms and conditions which
Matchbet
was to specify before marketing of the service began: see clause 2.1 read with the relevant definitions. These obligations were backed up by the extensive warranties given by
Matchbet
in clause 10.1. The end users would be parties to an end-user agreement with
Matchbet
who had been introduced by Alphameric pursuant to, and during the term of, the SDLA: see the definition of End-User. In consideration of the performance by
Matchbet
of its obligations, Alphameric was bound (by clause 5.1) to pay the loan of £250,000 to
Matchbet
in the instalments and at the times specified in Schedule 3, read with the Implementation Plan in Schedule 2.
Matchbet
undertook (by clause 6.1) to complete each stage by the date specified in the Implementation Plan. There was no corresponding express obligation on Alphameric in relation to the joint responsibilities in the Implementation Plan, but clause 6.4 provided
Matchbet
with a remedy (in the form of extensions of time, and/or the right to charge Alphameric for additional time spent) in the case of any failure by Alphameric to comply with its obligations under the agreement.
Matchbet's
marketing agent worldwide for the purpose of securing end-user agreements with such LBO operators: see clause 14.1. By virtue of clause 14.3, Alphameric was obliged to secure end-user agreements in accordance with the licence and support fees specified by
Matchbet
from time to time and in accordance with the terms of the SDLA. Clause 14.4 then precluded
Matchbet
from itself selling or marketing the service and/or the programs to LBO operators, or appointing or permitting any other person to do so, subject to the exceptions contained in clauses 14.5 and 14.6. Clause 14.5 contained an express saving for
Matchbet's
internet or credit bookmaking business accessed via the internet or otherwise than through an LBO. Clause 14.6 dealt with the situation where a person to whom
Matchbet
already provided the service in a manner permitted by clause 14.5 also wished to gain access to the service for an LBO business. In short,
Matchbet
was obliged to offer Alphameric the opportunity to market the service to such a person for use in his LBO business, but if Alphameric was unable to secure an end-user agreement within three months
Matchbet
was entitled to take up the opportunity itself, but only on the footing that Alphameric would still be entitled to 50% of the gross revenue if an end-user agreement materialised.
Matchbet
to market the service to a prospective LBO customer of whom it had become aware, if
Matchbet
notified Alphameric of the customer's existence and Alphameric then declined or failed within a three month period to procure an end-user agreement with that customer. As under clause 14.6, however, Alphameric would in those circumstances still be entitled to receive 50% of the gross revenue from supply of the service to the customer.
Matchbet
to provide Alphameric with technical assistance "in connection with the marketing and promotion of the Service", and to answer Alphameric's technical queries concerning the use or application of the service which might arise "in connection with Alphameric's efforts in relation to the marketing of the Service". Finally, it is worth noting clause 14.10 which provided that if Alphameric, or any Alphameric group company, made an arrangement with a third party to market or promote any betting exchange which competed with the MBE,
Matchbet
would then be entitled by service of written notice to make Alphameric's licence under clause 14.1 non-exclusive.
Matchbet
agreed to pay Alphameric "royalty payments" consisting of 50% of gross revenue received by
Matchbet
from supply of the service to LBO operators with end-user agreements with
Matchbet,
and 10% of all other gross revenue "received by
Matchbet
arising out of or in connection with the supply of the Service". Thus
Matchbet
would be obliged to pay Alphameric 10% of its revenue from supply of the service online, even though online marketing fell outside the scope of Alphameric's licence. This no doubt reflected the weak bargaining position in which
Matchbet
found itself. Having been unable to obtain funding from Investec, or from other institutional or private investors,
Matchbet
needed the loan of £250,000 from Alphameric in order to complete development of the MBE, and without such funding it would be in no position to supply the service to any customers, whether online or in LBOs.
Matchbet
does not allege that Alphameric is in breach of any of these obligations.
Matchbet
submits that such an obligation is implicit in clause 14.3, which requires Alphameric to secure end-user agreements. However, the clause has to be read as a whole and in its context. So read, it is clear that the focus of clause 14.3 is on the content of end-user agreements, and the obligation is to ensure that any such agreements which Alphameric procures comply with the fee structure specified by
Matchbet
from time to time and with the terms of the SDLA. In other words, it is not a free-standing obligation to secure end-user agreements, but is rather a provision designed to prevent Alphameric from entering into bespoke end-user agreements in non-standard terms.
Matchbet
for use in its LBO business is strangely worded, if Alphameric was anyway under an obligation to market the service. Secondly, the same point may be made about the reference in clause 14.7 to Alphameric "declining" to procure that the prospective customer enters into an end-user agreement. The language suggests that Alphameric has a choice in the matter, not that it is in breach of an obligation. Thirdly, the reference in clause 14.8 to "Alphameric's efforts in relation to the marketing of the Service" again suggests activity which is elective rather than compulsory. Fourthly, clause 14.10 provides for a situation where Alphameric (or a group company) has agreed to market or promote a betting exchange which competes with
Matchbet's.
This is readily understandable if Alphameric was never under an obligation to market the MBE. If, however, it was under such an obligation, I have difficulty seeing how the parties could have contemplated Alphameric entering into such an arrangement with a third party consistently with Alphameric's duty of good faith in clause 23.1.
Matchbet's
case on the construction of the SDLA is pleaded. Paragraphs 10 and 11 of the particulars of claim read as follows:
"10. Further, there were express or implied terms of the SDLA that [Alphameric] would:
(1) Co-operate with [Matchbet]
in relation to the performance and fulfilment of the SDLA and in particular would co-operate with [
Matchbet]
in relation to the performance and fulfilment of:
(a) the joint responsibilities referred to in schedule 2 of the SDLA within the timescale referred to within that schedule; and
(b) the commercial purpose and objectives of the SDLA, namely the integration of [Matchbet's]
program and service with [Alphameric's] system ("the Integrated System") and the marketing and commercial exploitation of the same ("the Commercial Purpose");
(2) Not prevent, impede, hinder or otherwise frustrate the performance or fulfilment of the SDLA and in particular would not prevent, impede, hinder or otherwise frustrate the performance and fulfilment of:
(a) the joint responsibilities referred to in schedule 2 of the SDLA within the timescale referred to within that schedule; and
(b) the Commercial Purpose.
(3) In its capacity as marketing agent of [Matchbet]
throughout the world for the purpose of securing End User Agreements in respect of the Integrated System with prospective licensees, act in good faith towards, and in the best interests of, [
Matchbet]
in accordance with the Commercial Purpose.
Further or alternatively, the express terms of the SDLA are to be construed on the above basis.
11. In the above circumstances, under the terms of the SDLA … [Alphameric] was, amongst other things, under express and/or implied obligations:
(1) To bring about and perform, together with [Matchbet],
the joint responsibilities referred to in schedule 2 to the SDLA within the timescale referred to in that schedule and/or to co-operate with [
Matchbet]
in respect of the same and not to prevent, impede, hinder or otherwise frustrate the performance or fulfilment of the same.
(2) Following the performance of the responsibilities referred to in schedule 2 to the SDLA, to act as the marketing agent of [Matchbet]
throughout the world for the purpose of securing End User Agreements in respect of the Integrated System with prospective licensees and to do so in good faith and in the best interests of [
Matchbet]
in accordance with the Commercial Purpose."
"Except as expressly set out in this Agreement all warranties, conditions, terms, undertakings and obligations which would otherwise be implied by statute, common law, custom, trade usage, course of dealing or otherwise, are excluded to the fullest extent permitted by law."
Further and in any event, says Alphameric, the terms pleaded in paragraphs 10 and 11 would not be implied at common law "as they are too uncertain to be enforceable and/or are neither necessary nor so obvious as to go without saying".
Matchbet's
pleaded version of the "commercial purpose" of the SDLA. In paragraph 18 of the defence, Alphameric says that:
"The commercial purpose of the SDLA was that Alphameric would fund the development of theMatchbet
Programs and Service by means of a loan of £250,000, in return for which
Matchbet
would deliver the Programs and Service to Alphameric, and Alphameric would enjoy the exclusive worldwide right to grant access to End Users."
Construction of the SDLA: discussion and conclusions
Matchbet's
pleaded case alleges the existence of express terms or obligations binding on Alphameric, it may in my judgment be rapidly disposed of. No express terms or obligations of the nature pleaded are to be found anywhere in the SDLA. Nor is there any express statement of the commercial purpose of the SDLA in the form set out in paragraph 10(1)(b) of the particulars of claim. In relation to the marketing of the MBE, clause 14.3 may at first sight appear to impose an obligation on Alphameric to secure end-user agreements, but as I have explained I do not consider that to be the right interpretation of the clause read in its context. The obligation in my judgment relates only to the content and terms of such end-user agreements as Alphameric may obtain in exercise of the licence granted to it under clause 14.1: see paragraph 142 above.
Matchbet
submitted that the existence of an obligation to secure end-user agreements under clause 14.3 is reinforced by the provisions of clauses 14.6, 14.7 and 14.8, and by the definition of End User in clause 1.1(i). I am unable to accept these submissions. I can find nothing in the language or content of clauses 14.6, 14.7 or 14.8 which points clearly towards the existence of such an obligation, as opposed to a shared intention and expectation that Alphameric would seek to exploit the licence which it had been granted for the future commercial benefit of both parties. Nor can any assistance be gained from the definition of End-User, which again merely assumes that an End-User Agreement with
Matchbet
has been concluded pursuant to an introduction made by Alphameric.
Matchbet
remained free to market and exploit the product in all other areas, including the online market place for which the MBE had originally been designed. Furthermore, clause 14.7 enabled
Matchbet
to intervene if it became aware of a business opportunity with an LBO operator which Alphameric might for any reason be unable or unwilling to follow up. In these circumstances, it cannot be said that the commercial logic of the SDLA required Alphameric to be under a binding contractual obligation to market the product to LBOs. No doubt
Matchbet
would have preferred there to be such an obligation, but
Matchbet
was in a weak bargaining position. It was in desperate need of funding to develop the MBE into a marketable product, and Alphameric was the only available source of funds. Alphameric was undertaking a substantial commercial risk by agreeing to lend up to £250,000 to a start-up company, without any third party guarantees or security for the loan. It therefore occasions no surprise to find that the SDLA imposed no obligation on Alphameric either to market the product or to obtain end-user agreements.
Matchbet
already had the protection of a number of express provisions in the SDLA. First, under clause 23.1(a) Alphameric was obliged at all times to act in good faith and to conduct its business in a manner which would reflect favourably upon the Service and upon the good name and reputation of
Matchbet.
Secondly, under clause 28 (the "further assurance" clause) Alphameric was obliged to do "all such further … things as may be necessary to carry the provisions of [the SDLA] into full force and effect". Thirdly, schedule 3 made express provision for what was to happen if Alphameric withheld or delayed payment for non-completion of a stage in circumstances where the only items outstanding under that stage were "Subjective Items", and where Alphameric had "unreasonably withheld or delayed its approval, co-operation or agreement on such items". It should be noted in this context that "Subjective Items" were by definition ones which fell within the joint responsibility column in the schedule 2 table.
Matchbet
adequate protection in relation to the future fulfilment of stages 2 to 5, and it is not necessary to imply any further obligations on Alphameric in order to make the implementation plan workable. Quite apart from the normal need to satisfy the test of necessity for implication of a term, the parties went out of their way in clause 10.3 of the SDLA to exclude the implication of any terms "to the fullest extent permitted by law". I accept that a clause of that nature may have to give way where its application would deprive one party's stipulations of all contractual force, or would turn them into mere statements of intent: see, for example, the observations of Lord Wilberforce in Suisse Atlantique Société d'Armement Maritime SA v N. V. Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 481-2, and Astrazeneca UK Limited v Albemarle International Corporation [2011] EWHC 1574 (Comm) at [313] per Flaux J. But in my judgment the present case is not of such a character. The most that can be said, in my view, is that Alphameric had again driven a hard bargain, and left itself with the maximum degree of flexibility compatible with doing the minimum needed to facilitate completion of the five stages for drawdown of the loan.
Matchbet
can somehow extract from the provisions of schedule 2 an obligation on Alphameric which goes beyond the limited purposes of the loan timetable, any question of breach of that obligation by Alphameric is academic. It is not in dispute that the loan was drawn down in full, or that the five stages were completed, albeit rather later than originally contemplated. No part of
Matchbet's
current claim relates to the loan timetable, nor is there any allegation that Alphameric has acted in breach of clauses 23 or 28 of the SDLA. What
Matchbet
instead seeks to do is to rely on the obligations which it says are implicit in schedule 2 as part of the wider contractual framework which is said to justify implication of the terms pleaded in paragraphs 10 and 11 of the particulars of claim, and in particular that Alphameric failed in some ill-defined manner to bring about integration of
Matchbet's
program and service with its own EPOS and ALBOS systems. In my view this approach places excessive emphasis on schedule 2, and it has wrongly led
Matchbet
to identify the commercial purpose of the SDLA in terms which required, rather than enabled, Alphameric to perform the process of integration.
Matchbet's
agreement to develop the programs and the service, and to Alphameric's appointment as exclusive distributor of access to the service from retail bookmaking outlets (i.e. LBOs). Consistently with this facilitative approach to the process of integration, the definition of "Alphameric System" in clause 1.1(b) gives Alphameric an apparently unfettered discretion as to the equipment and/or software which it may provide to end users for the purpose of accessing the programs and the service. In my view this discretionary language meant what it said, and Alphameric was at liberty to provide such equipment and/or software to end users as it thought fit. There was no obligation on Alphameric to ensure that access would be provided through its existing EPOS and ALBOS systems, even though in practice that was what the parties probably contemplated. Here, as elsewhere, the SDLA was drafted by Alphameric's lawyers to give Alphameric as much latitude as possible.
Matchbet's
claim is for breach of the pleaded terms, with no alternative claims based on rectification, estoppel or variation of the SDLA, it follows that the claims must fail in their entirety, liability not having been established. I could therefore end my judgment at this point, and simply say that the claim must be dismissed. The parties were, however, united in asking me to decide as many issues as I felt I properly could; and I cannot ignore the possibility that a higher court may later decide that I have erred in my construction of the SDLA. Accordingly, I am satisfied that I should at least continue my judgment so as to deal with the history of events down to the termination of the SDLA, and that I should consider the issues of breach which would arise if
Matchbet's
construction of the SDLA were, at least broadly, correct. Bearing in mind the conclusion which I have already reached, I will confine my narrative to the main events which appear to me to be relevant.
Events after the SDLA
"I need to plan sales strategy, [Alphameric] integration and agree the [marketing] plan with Ian [Winton]. I expect to meet weekly until I am comfortable that my investment will realise the sales expectation. It is also essential that we are clear on time to market.
Ben sorry to be blunt, there has been considerable misunderstanding on getting this to market, I intend to take control of this project, failure is not an option, I am sure you will sympathise with that."
A combined agenda and discussion paper was also prepared for the meeting, with input from both Mr Siers and Dr Seifert.
Matchbet
to inform Alphameric of technical progress, to agree on the future operation of the planning group and the meaning of the joint program for integration under the SDLA timetable, and to discuss the sales and marketing plan. It was hoped to complete Stages 1 and 2 within the near future, following which "Alphameric will commence integration with the
Matchbet
API, assisted as required by
Matchbet's
technical team". It was agreed that the permanent members of the joint planning group would be Mr Siers, Dr Seifert and Mr Winton, with others joining them as required. The minute in relation to integration reads as follows:
"6. Joint planning for integration of Programs/Service with Alphameric: The meeting discussed the operational meaning of the clause in the agreement (Stage 2 joint responsibility deliverable). The meeting took note of the fact that the agreement envisages the integration to be done via theMatchbet
API, and hence that the concrete planning must be under the sole control of Alphameric's technical team. However, it was agreed that
Matchbet
would hold itself available for any consultancy and joint meetings that may be required, in order to do its utmost to facilitate and accelerate this task.
Matchbet
will have access to a substantial technical team to provide such assistance. It was agreed that this understanding should represent the "joint deliverable" under Stage 2 of the agreement, and that, subject to the satisfactory nature of
Matchbet's
technical deliverables, Stages 1 and 2 would be deemed to have been completed."
Matchbet
had not yet finalised any end client agreements, and was still considering various models "which will be discussed and defined in due course".
Matchbet
board meeting. The minutes record that Mr Morcombe reviewed the principal terms of the SDLA, "and reiterated Alphameric's view of the importance of the relationship and his commitment to the success of the joint venture and to committing the necessary technical resources to the integration project". In relation to marketing to LBOs, it was noted that the SDLA provided for Alphameric to take the lead, and that the joint planning committee had agreed to the production of a marketing and strategy plan in parallel with technical planning.
Matchbet
API to Alphameric, for consideration by Alphameric's technical team. A meeting was arranged to discuss the technical issues, which took place on 13 July. It was agreed at the meeting that "the functional specification needs to be further developed and clarified". It was further agreed that
Matchbet
would address Alphameric's concerns:
"… by providing two complementary documents, one providing an architectural description of theMatchbet
platform, and another which would precisely describe the workflow and service to bookmakers offered by the exchange. This would result in a clear description of how (from the
Matchbet
viewpoint) the platform would be used by LBOs in conjunction with Alphameric's systems."
"I have grave fears as to the reality of this proposition. The meeting last week clearly showed that they don't have a system or a viable plan to get one and are nowhere near meeting their contractual obligations. Bluntly they don't have a clue how to move this on; they can't even work out how to express a betting opportunity in a data base!
Turning their undoubtedly smart algorithms into a viable betting exchange is a task which looks beyond them given the statements they made last week. We will only achieve our business goals by taking control of this situation. I'd like us all to meet early this week to agree a strategy before anything else is committed to these guys."
Matchbet
to Alphameric. On 19 August 2006 Mr Poirier joined the project as head of Alphameric's technical team, which Dr Seifert for one regarded as a positive development. At the planning group meeting on 25 August, matters discussed included the forthcoming Birmingham trade show and a projected pilot demonstration of the system at a single betting shop in Dorking which Alphameric used to demonstrate products. At a meeting of the full Alphameric board held on 5 September 2006, it was recorded that the second phase of the
Matchbet
software had been delivered and was being evaluated by Mr Poirier. The expectation was that a working product would be available by the end of September which could be demonstrated to potential customers.
Matchbet
sent a revised specification of the API to Alphameric, and on 28 September Alphameric agreed that Stage 2 of the timetable had been met and payment of the next £75,000 instalment of the loan had been triggered. The payment was actually made on 5 October. On 6 October Dr Seifert emailed Mr Poirier and Mr Siers to thank them for their help in completing the signing off on Stage 2. In relation to integration, he said this:
"We also need to discuss how we approach the joint responsibilities under the agreement, in particular the joint integration planning. I realise that we have in fact varied the terms of the agreement in the sense that you clearly preferred to develop the joint programme for integration once we have had both the API and a working platform, and I am sure we share the desire to be practical and flexible, but we should discuss this process sooner rather than later. We need to know your mind on this, as it has implications for business and financial planning forMatchbet.
There is no joint responsibility in Stage 3, but Alphameric has agreed to have completed integration by Stage 4, with a target date of mid November. This is a big challenge, and we need to discuss."
Matchbet
system featured prominently on Alphameric's stand, and was seen by (among others) the director of IT for Ladbrokes' retail business, Mr Chris Lindsey. Mr Lindsey was favourably impressed, and discussed the
Matchbet
system at some length with Dr Seifert. Mr Lindsey also told Mr Siers on a later occasion that, after many years of attending the Birmingham show, which was the biggest industry event in the calendar, "the
Matchbet
offering was the most exciting new development he had ever seen". In cross-examination Mr Lindsey did not dispute that he had said this, although he thought he must have been feeling effusive at the time. He agreed, nonetheless, that it was "quite exciting", and that "it could offer something quite different and new to the betting environment" (transcript, day 7, pages 15 to 16). Mr Lindsey did not, however, gain a detailed understanding of how the product was intended to work, and from his point of view the next step would be to refer the matter to his commercial colleagues on the Ladbrokes' board following a presentation by Alphameric and
Matchbet.
Matchbet
system out to their shops. Mr Lindsey agreed in cross-examination that this surmise tallied with his actual thinking at the time. Other matters discussed at the meeting were the practicalities of the projected live pilot in Dorking, and a review of the implementation timetable under the SDLA. It was agreed that both parties were now behind schedule, and that the target date of integration by 21 November 2006 could not be met. This reflected "resource issues" on the part of Alphameric, the resolution of which lay outside the planning group's remit. It was further noted that meetings with William Hill and Ladbrokes were expected to be scheduled in the near future, and that
Matchbet
would be available for both of them.
"Thanks, finally getting there.
This will be a massive success, if the exchange works."
In cross-examination Mr Morcombe (to whom Mr Siers' email was copied) agreed with this assessment.
Matchbet
entered into a Non-Disclosure Agreement with Ladbrokes prior to a presentation to the full Ladbrokes' retail board which was scheduled for January 2007.
"We have since had an extremely successful official launch at the Birmingham Betting Show, hosted by our business partners, Alphameric Plc. Alphameric have entered into a comprehensive business relationship withMatchbet
which will enable
Matchbet
to provide access to its exchange via Alphameric's EPOS and Albos Systems …
We are operating exclusively as b2b exchange for the benefit of bookmakers, and a growing number of these are signing on to the exchange, both as market makers and as takers of the exciting betting propositions we offer."
It was put to Dr Seifert in cross-examination that the statement in the second paragraph which I have quoted was untrue, and Dr Seifert was constrained to admit that it was indeed incorrect because no contracts had yet materialised. I would add that he must have known the statement to be untrue. To be blunt, it was a lie, based on wishful thinking about what Dr Seifert hoped would materialise (transcript, day 3 pages 60 – 61).
Matchbet
had duly performed its obligations under Stage 3, or been content to waive full performance. It will be remembered that there were no joint responsibilities to be performed under the implementation plan in respect of Stage 3.
"This is becoming embarrassing; we can't deliverMatchbet
and DP [David Poirier] is also struggling on D-EPoS. If he can't deliver for you then action must be taken. You will have seen the latest financial figures which are very poor. Most of our problem relates to a lack of delivery.
Please read the attachment fromMatchbet
and make DP aware that his lack of delivery is causing personal concern and the company financial concern.
No more time to waste on this.
I also had feedback from a very supportive customer who is clearly stating that if we can get D-EPoS delivered then he will buy but he can't wait any longer as the competition is ready to offer an alternative.
Please get back to me with your solution to this serious issue."
In an email sent on the same day to Mr Addario, Mr Soulsby commented:
"Ed, this adds urgency on us finding some PM [Project Management] resource. Can we discuss?"
Matchbet
which needed to be rectified as a matter of urgency. A major part of the problem, at least from Mr Soulsby's perspective, was a lack of adequate human resources; although I think Mr Morcombe was justified in saying in cross-examination that this "is not always the answer. Sometimes the answer is more focus less resource" (transcript, day 10, page 121).
Matchbet
wrote to Mr Heather at Alphameric suggesting a possible variation of the terms of the SDLA, following discussions between Mr Morcombe, Mr Winton and Dr Seifert. The letter suggested that both sides were seeking to perform the spirit of the SDLA; that
Matchbet
had now fulfilled all its obligations up to and including Stage 5, subject only to approval of a final roll out plan by Alphameric; but that Alphameric had not complied with its integration responsibilities, and was not in a position to provide firm dates for doing so. Ms Holdsworth said she understood "that this defect of performance is not wilful but simply results from resource constraints that you are currently facing, and that Alan [Morcombe] has expressed his desire to see variation of terms that help both sides to progress as rapidly as possible towards the mutual objectives". She recommended in the circumstances that the parties should now agree a joint programme for integration, and that
Matchbet
should invoice Alphameric on a time and material basis for its work on providing the live platform at Dorking to Alphameric. Mr Heather acknowledged receipt of this proposal on 16 February, and said he would discuss it with Mr Morcombe. In the event, however, this proposal, like all others for a formal variation of the SDLA, was taken no further.
Matchbet
commercial access to its liquidity and API. On 12 March 2007 Betfair sent some proposed heads of terms to
Matchbet.
Matchbet
and the customer for each shop; to prepare and supply marketing materials and customer support; training costs would be extra; and there would be expenditure on dismantling equipment at the end of the trial. Mr Poirier concluded:
"So, though there are benefits to expanding the trial, it's not a trivial exercise and does require a commitment from Alphameric. What are your thoughts?"
Matchbet
shareholders sent on 6 March 2007 (although mis-dated 6 March 2006) Dr Seifert engaged in some customary hyperbole, saying that Alphameric had invited
Matchbet
to discuss "the precise rollout plan to 100 shops", and inviting further investment from the shareholders of up to £400,000.
Matchbet
on behalf of GASM Developpement offering to act as
Matchbet's
commercial representative in France in return for 20% of the net revenue of the French operations. A few days later Dr Seifert forwarded this letter to Mr Morcombe, Mr Siers and Mr Heather, asking for Alphameric's reaction to the proposal. Dr Seifert said he had known Mr Somekh for a number of years, and knew that he was extremely well connected in the French business and political establishment. He said he had personally seen some of the Française des Jeux presence in the land-based market in France, and it was "clearly a gigantic organisation with monopoly position". He concluded:
"My own view is that we should vigorously pursue this opportunity, in parallel with the UK rollout which we have agreed to move forward over the next three months, as discussed in Godalming. I propose we discuss this at the nextMatchbet
Board meeting."
Matchbet
with Investec in early March 2007. Mr Morcombe informed Investec of the progress that had been made, and Investec said it would be prepared to review
Matchbet's
business funding requirements. Mr Morcombe informed Dr Seifert of this by email on 8 March, adding:
"What this means is if you are happy to put in some effort on a presentation they would be prepared to discuss a number of potential funding schemes that could help drive the business forward much quicker than we are currently able."
No doubt Mr Morcombe had in mind that, if further funding from Investec were forthcoming, finance would be available for the full integration and roll out of the MBE which, in accordance with its usual practice, Alphameric was not prepared to fund itself.
Matchbet
would have to produce a business plan based on project management and clear time lines, budgets and objectives. Mr Morcome and Mr Siers discussed the way forward at a meeting with Dr Seifert on 13 April, and on 15 April Dr Seifert wrote to them setting out his understanding of what had been agreed. Dr Seifert thought that the investment could be available from 1 May, subject to the necessary information being provided. In relation to the business plan, he said this:
"We agreed thatMatchbet
would produce a draft 3-month "mini business plan" which would clearly set out the Alphameric/
Matchbet
objectives, based on the specific
Matchbet
system that would be available and live within three months from 1 May, including product coverage, Alphameric integration with EPOS, ALBOS, customer terminals, feeds, hardware, hosting solution, and performance, as well as project manager and budgets."
In response, Mr Morcombe said he was not sure that the finance would be available from 1 May ("that might be a little optimistic"), and that the urgent thing was to produce the business plan: if Investec liked it, they would then make a decision to invest or not.
Matchbet
put together a first draft of the business plan. The task was clearly perceived as one of great urgency, and the role of co-ordinating production of the document, as well as obtaining much of the necessary information, was delegated by Dr Seifert to the young and inexperienced Ms Bryceson. It was, however, agreed that the draft plan would be submitted to Alphameric for their input, especially in relation to the integration process which would be under Alphameric's control. On 20 April Mr Morcombe emailed Dr Seifert, saying he was confident that Investec were receptive and the key thing was to present a good proposal. He said he looked forward to receipt of the draft, "and I will ensure that we add some value to help Investec make a positive decision".
"To maximise the return on the business plan,Matchbet
will be working with Alphameric to get the
Matchbet
exchange system coupled with an Alphameric EPOS integration package operational. Once completed, the integrated Alphameric/
Matchbet
platform will be offered as a generic option to those bookmakers using Alphameric terminals (circa 15,000+ terminals), installed in major Alphameric client licensed betting office ("LBO") across the UK and beyond."
And later, under the heading "Alphameric Integration":
"Initial planning work has started on the integration of theMatchbet
exchange product into Alphameric's EPOS and ALBOS systems. This includes the Alphameric CST "Customer Service Terminal" system. It is intended that a phased approach will see a complete suite of retail products being developed starting with a stand alone CST in Quarter 3 – 2007, followed by a full Epos and display solution towards the last quarter 07 or first quarter 08. A combined development is underway with Alphameric, assisted by
Matchbet."
Matchbet's
pleaded case on loss) were, astonishing though it may seem, left to Ms Bryceson to prepare. She set about her task by updating some earlier projections which Mr Ireland had prepared in 2006 for other investment opportunities, and she obtained further assistance from Tim Huddart, an external financial adviser who helped
Matchbet
from time to time. Mr Huddart's assistance was of a generic nature, and Ms Bryceson still lacked any detailed roll out assumptions for take up of the integrated
Matchbet
product by LBOs. This gap was eventually filled by Mr Siers, in response to a telephone enquiry by Ms Bryceson. He dictated the figures to her, which she took down on a scrap of paper which she then threw away after she had inputted the figures into the draft financial projections. Mr Siers had no positive recollection of this episode, but he did not doubt that it had happened, and nor do I.
"This is something we'll need to watch."
Matchbet,
the minutes record as follows:
"The Board discussed the current progress made with theMatchbet
system. [Mr Morcombe] advised that it has a short term funding requirement of circa £500k which would see it through until the end of August for a 200+ pilot and would cover development costs, 2/3 employees and the establishment of a data centre. At the end of August the product would be fully integrated with Alphameric hardware and software. This would require management attention and there is a shortage of Project Directors. In September it would require a further £2 - 4 m but the potential returns could be significant.
It was agreed that a further strategy presentation would be made to the Board at the next meeting on the 24 May which would include timelines."
Matchbet,
attended by Mr Morcombe, Mr Siers and Dr Seifert. It was noted that Investec had not yet put forward a specific investment proposal, and that "they may be quite tough". There was therefore an urgent need to identify potential alternative sources of funding, including Betdaq and Betfair. Other marketing opportunities were discussed, including further contact with Ladbrokes and Mr Somekh. In relation to integration, Mr Morcombe and Mr Siers said that this would happen in two phases. The first phase would run from May to August 2007, and would be based on customer terminals which would allow direct entry of customer orders. They said that this would be expensive for Alphameric if they funded the start up costs (approximately £400,000 for 200 shops). The second phase, which would run from August 2007 until 2008, would involve full integration with Alphameric's EPOS and ALBOS systems. There is no record in the draft minutes of this meeting of any dissent by Dr Seifert to the proposed two phase approach to integration, and I infer that he accepted it on behalf of
Matchbet.
Matchbet
to his colleagues on the Alphameric board, in advance of the board meeting scheduled for 24 May. The update reads as follows:
"TheMatchbet
product is poised for a major step forward which could ultimately end in a 200 site trial commencing in September 2007.
The product has stood up well to a limited trial at our betting shop in Dorking and now needs a mixture of finance, focus, intellect and seriously competent Project Management. Earlier this month a meeting was held with Investec Bank to ascertain their interest in providing more finance (£500k - £1M is needed to deliver a production product) and they are currently considering the proposal. If they come forward with the cash it will almost certainly have some strings attached that will involve Alphameric fronting the next phase of development and driving the product forward; hence my previous comment about Project Management.
The attached business plan outlines the next steps and also the bigger picture.
My view is that this is a seriously good opportunity but one that Alphameric cannot deliver piecemeal; if it is to succeed it requires focused and dedicated resources.
The timeframe from start to finish is short consisting of just three months."
"To date,Matchbet
and Alphameric have conducted limited marketing on an informal basis, and identified significant interest from bookmakers across a broad spectrum, ranging from some of the biggest LBO (including one of the big three) and online bookmakers (including both of the exchange market leaders) to specialist firms, including City style financial betting operators and single shop firms on the High Street. A number of formal expressions of interest have been received, one firm has conducted and paid
Matchbet
for its contribution to a live pilot, and one substantial bookmaker has bought an option over
Matchbet
participation. It is on the basis of this clear evidence of market demand for the
Matchbet
proposition, and in particular its appeal to the LBO market place, that Alphameric and
Matchbet
are now embarking on the major technical rollout and marketing plan described in this document."
Matchbet
project.
"I think Investec are coming at it from the following angle:
1. They are keen on theMatchbet
proposition but of course they want to get as much of the action as possible; I guess you have to defend your valuation to the extent that you don't lose their interest and willingness to invest.
2. They do not think the business will go anywhere without full buy-in and commitment from Alphameric. Alphameric is the gate keeper to your marketplace – the Licensed Bookmaker Offices. They think their investment will provide the funding to enable Alphameric to commit to the delivery plan and timescales. I think they are right.
3. I think they see a lack of day-to-day management skills withinMatchbet.
If necessary Alphameric could take management ownership of the next phase of delivery (June, July, August & September) but I would have to bring in someone to own the challenge. I have someone in mind if you are interested in this option.
4. Valuation – I think £6.0M is the right number and Investec may well live with this figure. Alphameric can't invest any more cash at this stage due to other commitments such as AMRAC and our own development requirements. I think therefore that Investec is your best option. They will also be in a good position to float or sell the business for you in the future.
5. You might think about creating a new JV vehicle that protects your shareholders and incentivises Investec and Alphameric. We could all have a shareholding in it, reflecting our cash input and perhaps other attributes that contribute to the success ofMatchbet.
What this would do is focus much more clearly the interests of
Matchbet,
Investec and Alphameric …"
Matchbet.
He commented:
"While it is true that there is a limited amount of development that can be performed with the current resource pool, there is no visibility as to what the resources are actually doing, and when resources will be available to perform these tasks. Similarly, there is no forum or unified mechanism for changing business priorities to be discussed and accepted."
Mr Poirier's proposed solution to the problem was for Alphameric to institute a "permanent Products function", headed by a Director of Products and encompassing a number of responsibilities currently held by different areas of management.
Matchbet
project. On 16 June Steve Mansfield assured Mr Morcombe that he thought
Matchbet
had good potential, and said he would personally get behind it. On 19 June Mr Addario gave Mr Mansfield the latest timing estimates for Phase 1 of the integration, estimating that about 120 man days would be needed for its delivery. A technical specification for the Phase 1 CSTs had also been produced, making it clear that the system was intended to be a "throw-away" for quick deployment, and would involve no integration with the rest of Alphameric's EPOS system.
Matchbet
board that he had succeeded in obtaining a convertible loan of £200,000 from a shareholder which would enable
Matchbet
to progress Phase 1 of the rollout plan. In his email informing them of this development, Dr Seifert said that
Matchbet
was moving forward "in close co-operation with Alphameric", although "a bit more slowly" than Mr Morcombe and he would have liked, and said he "would be surprised if we did not sign the investment agreement, to finance the joint rollout with Alphameric, within the next few weeks". This email seems to me to evidence a clear acceptance by Dr Seifert that integration was now to proceed in two phases, with the second phase funded by external investment, which at that stage it was still hoped Investec would provide.
Matchbet
could solicit support from a bookmaker. Around this time, Mr Morcombe also informed Dr Seifert that Steve Mansfield would assume the role of project sponsor going forward, as it needed more focus that he was currently able to commit.
Matchbet
product description (version 0.3) which covered the two phases of integration. This was then discussed at a meeting between Alphameric and
Matchbet
held in Godalming on the following day. It was agreed, among other matters, that Phase 1 should start in early September 2007, and that the planned start date for Phase 2 would be the first quarter of 2008, i.e. by March 2008. It was further agreed that the stand alone CST should be included on the Alphameric stand at the Birmingham Betting Show in October. In relation to Investec's wish to see a bookmaker take up the service before making a decision, it was suggested by Nigel Ely of Alphameric that Mark Jarvis (with about 70 shops) would be an ideal candidate to be the first user of the service. It was agreed that Mr Mansfield would urgently arrange a meeting with Mark Jarvis in Leicester at which a presentation would be given.
Matchbet
with a draft memorandum of understanding for further consideration. Dr Seifert ended his email with the words "I see the FdJ opportunity now taking shape".
Matchbet
was by now in the familiar position of running out of money. On 5 September Dr Seifert asked Mr Morcombe whether Alphameric might be willing to provide some interim funding, adding "Without that, we are really struggling and may need to call an emergency board meeting soon". A few days later, Mr Mansfield reported that Coral had agreed to a presentation and discussion, and the necessary arrangements for this were soon put in hand.
Matchbet
…". Despite this homily, however, both Mr Morcombe and Mr Mansfield found themselves unable at the last minute to attend a meeting with Mark Jarvis which had been arranged for 26 September. The reaction of Mark Jarvis was to cancel the meeting, which caused Dr Seifert justifiable annoyance given the potential significance of the meeting on the fund-raising front.
Matchbet's
financial situation had become critical, and Dr Seifert put various proposals to Alphameric. One proposal, which Alphameric had already rejected on a previous occasion, was that
Matchbet
should invoice Alphameric for assistance which
Matchbet
had provided in relation to integration. Another proposal was that Alphameric should provide some further short term funding. This elicited a somewhat less unfavourable response from Mr Morcombe, who said that if
Matchbet
could satisfy Alphameric's finance department on their profit and loss account and balance sheet, and if the Birmingham Show went well, a financing proposal would be put to the Alphameric board for consideration.
"Dear Alan,
On behalf of theMatchbet
team, many thanks to you and all your colleagues, and in particular Steve, Phil and David, for, once again, hosting us on your stand in Birmingham and being so persuasive in the various discussions with the potential clients.
I believe that the Show has been invaluable in moving forward our joint offering, and I think we have exciting times ahead for Alphameric/Matchbet."
Matchbet
Exchange, together with two CSTs through which people could place bets. The betting mechanism was coin-operated, and because of a technical glitch it allowed people to put money in to place a bet, but would not pay out if they won. Dr Seifert says that when Mr Morcombe saw that this did not work, he angrily criticised Mr Poirier and was "visibly livid". Counsel for Alphameric invited me to discount this evidence as a typical exaggeration by Dr Seifert, on the grounds that Mr Morcombe was clearly not the kind of person who would lose his temper and criticise an employee in public. Nothing turns on the point, but I am inclined to think that on this occasion Mr Morcombe may momentarily have lost his habitual cool. Nevertheless, I am satisfied that the malfunction was of a trivial nature, and that it did not detract from the general success of the Phase 1 demonstration at the Birmingham Show. Moreover, this favourable view was shared by Alphameric. Despite his view that Alphameric had been stalling over the summer, Mr Poirier wrote to his team on 19 October thanking them for their hard work "which resulted in a successful demonstration of the product at the Betting Show this week". He added:
"There was considerable interest in the system, and I expect that we will shortly be planning to take the product on to the next stage."
It was shortly after this that Mr Poirier was offered employment with Finsoft and handed in his notice with effect from January 2008.
Matchbet
with a proposal that
Matchbet
should invoice Alphameric for fees totalling £169,100 plus VAT. She argued that, in view of the failure to reach agreement on a variation of the SDLA,
Matchbet
was "entitled to invoice Alphameric for services rendered, on a contractual, quantum meruit and estoppel basis". She said that
Matchbet
would be prepared to accept £85,000 plus VAT in settlement of their entitlement to fees in relation to past services rendered.
"On another matter I am surprised that you have tabled the concept of raising an invoice on Alphameric for "services" rendered. I can only assume that this is driven by your financing difficulties and not reality. I know the agreement we have covers the possibility of Alphameric buying services fromMatchbet
but it also states that Alphameric must agree to the extent and the price of any services provided. This is something that Alphameric has not done and as far as I am concerned has no intentions of doing.
I think that any attempt to go down this route will cause real damage to our relationship and this would be a shame especially as Alphameric has contributed so much cash and resource to helping you launch your business.
I'm hopeful that the tabling of this issue has been a mistake and look forward to you clarifying the matter."
"Meanwhile, you will have heard from your team that the Corals meeting went very well, and that Jamie Hart has agreed in principle to act in theMatchbet
exchange, give us their order flow electronically, and himself become a personal customer. Once [he] has had some experience with
Matchbet,
he will make his report to the IT director who will then decide on potentially rolling out the CST to one of their flagship "City style" shops on Broadgate in London."
Matchbet
side, a director, Tony Klim, found that the meeting confirmed two major concerns which he had previously raised with Dr Seifert: first, that punters might not use the system, either because it was too sophisticated or was not sufficiently attractive a proposition; and secondly, that the business case for the LBOs was not strong enough. He said these concerns were shared by "the guys from Corals", who "also stated that they were not that interested in the riskless aspect as they were in the business of taking risk and they made more money by doing so". Dr Seifert did his best to respond to these points in an email to Mr Klim of 7 November. He agreed that
Matchbet
had not been sufficiently alert to the issue of over-sophistication, and he also agreed that the business case for LBOs had "probably been too woolly".
Matchbet.
He explained his reasons in an email of that date to Dr Seifert:
"This is because I am unable to provide the appropriate time and attention to the specific role and the company doesn't, by nature, operate on a conventional basis. We have a recent problem with the accounts but on a bigger scale, Board meeting [s] are not regular and the company has no fixed corporate governance policies.
Regardless, I am keen to continue in my support role for the business and to do whatever I can to further the joint initiative we have started."
The "recent problem with the accounts" to which Mr Morcombe alluded was a typical failure by
Matchbet
to file its statutory accounts within the stipulated time limit, which had led to their being finalised and signed as a matter of great urgency.
Matchbet
board, which would ensure continued representation of Alphameric's interests at board level. Dr Seifert added:
"On another matter, we are of course keen to meet with Steve Mansfield to help plan the marketing strategy of the CST to the LBOs."
Matchbet
and I am satisfied that his offer of continuing support was genuine. For example, an internal Alphameric email chain on 14 November shows Mr Morcombe persuading Mr Mansfield of the merits of further contact with Française des Jeux:
"The French opportunity could be massive, it should have some focused attention and another day spent onMatchbet
might be worth it. FdesJeux are loaded and if they wanted to spend £500k on a pilot it wouldn't even make their monthly management accounts. Worth a meeting to see if we can extract some spend from them."
Matchbet's
early shareholders, Piers Turner, raised a number of concerns about
Matchbet
with Dr Seifert. Dr Seifert's reply is revealing, and merits quotation at some length:
"1. Discrepancy between forecasts and reality: you are right, there is huge discrepancy. How is this to be explained (but see below)?
When you and the other early shareholders came on board, the plan was for us to raise an initial 100K or so and simultaneously raise 1.5 million. We had taken on Tobin Ireland, a plausible City character who thought that raising this amount was an easy thing to do. Unfortunately he completely failed to raise any money at all, although he became an investor on a limited scale, and resigned when it became clear that he could not help.
We managed to land a big deal commercially by linking up with Alphameric, which remains our most immediate commercial prospect. They have invested 250K and suggested that they would wish to invest a further 1 million and, later, to get Investec to do so. Despite the fact that they have been and remain a valuable ally, promoting us at two successive betting shows, they have been hugely behind schedule in terms of completing the integration withMatchbet
and their systems, so that it was only a few weeks ago that there was any viable product linking us directly into the betting shops available, and even that product is not fully integrated and hence not yet a complete product. It does provide a viable product. Nevertheless, the crisis in their relations with bookmakers has completely halted discussions with Ladbrokes and Hills and has a potentially slowing effect on the discussions with Corals. We are here talking about the biggest crisis in the UK betting and racing industry in many years, and it is just bad luck that our key partner is an integral part of that. That is why the potential end to this crisis would be manna from heaven!!!!
In summary: Our projections provided to you and others explicitly assumed thatMatchbet
would have funds of 1.5 million to be able to provide an industrially capable Internet betting site. What we have had to do instead is building a temporary site, hosted by ourselves, and overcome the huge difficulties of maintaining such a site with resources which, despite the support from private investors, are basically shoestring. So, mea culpa for our dismal failure to get institutional investment, but nevertheless we are still on course to get there despite an impressive list of mishaps that might well have destroyed the company ...
2. Developing an online business. You are right, that is basically the main objective. It was somewhat neglected because the route to the LBOs was such an extraordinary resource which onlyMatchbet
has acquired so it seemed a logical way to start in the tactical sense. The problem was this: When Ian Winton came to the company, it was his view that we could only establish ourselves through bookmakers, since a direct Internet strategy, in competition with Betfair and Betdaq, would require a massive marketing spend (15 million/year is what Betfair spend apparently). Hence we proposed the service to a number of bookmakers, but the problem we found there was dual: First, whilst there is certainly a business case to bookmakers, there are also quite a lot of hurdles to overcome since much of what we do potentially implies that the bookmaker's investments and staff are made redundant. So the deals are not straightforward. The main problem is that, until we have managed to roll out a much more general platform (which we just managed to do for the Birmingham Show in mid-November), our offering (football matches only) was not general enough …
In view of this, we have now decided to revisit the decision of developing our online business only via bookmakers. There are two current initiatives:
The first is to build an online business by working closely with partners with whom there are totally uncomplicated synergies, e.g. organisers of sports events: They do marketing for us and we add to the thrill of attending or watching matches …
The second is the initiative developed by Tony Klim: It is a direct approach to high rolling and professional gamblers some of whom we have got among our shareholders. Tony is going to run workshops to see how to structure deals along these lines.
…
In summary: We have to overcome a lot of obstacles, not to mention the absolutely breathtaking bureaucratic obstacles with the Gaming Board, and the due diligence of Royal Bank in setting up accounts and establishing payment mechanisms so that the three years have been rather full. I am sure we could have handled lots of issues better but the important thing is that, slowly but I think surely, we are climbing the mountain."
Matchbet's
dismal failure to attract institutional investment. Secondly, it shows him attempting to blame the failure to attract investment from the "big three" on the dispute relating to Turf TV, which had indeed led to bitterly contested litigation between Alphameric and (among others) Ladbrokes and William Hill, although not Coral. Thirdly, Dr Seifert's statement that Alphameric had suggested they would wish to invest a further £1 million was in my view a typical exaggeration. In cross-examination he unconvincingly said that the suggestion had been made in the early days of the relationship, in 2006. I am unable to accept that explanation. Fourthly, the email shows that Dr Seifert was well aware of significant problems that would have to be overcome if the MBE was to be successfully marketed to LBOs. He accepted in cross-examination that no reference had been made to any of those difficulties in the interim business plan submitted to Investec. Finally, it is notable that Dr Seifert still saw development of the online business as "basically the main objective".
Matchbet
a confidential briefing paper in advance of the meeting with Française des Jeux scheduled for 11 December. The paper included a list of questions which it would be necessary to address at the meeting, for example about the current status of "full EPOS/ALBOS integration", the existence of updated projections for the marketing to UK LBOs, and the proposed commercial terms for deploying the system. On 29 November Mr Mansfield emailed Mr Morcombe, saying that in his view these questions needed urgent answers between Alphameric and
Matchbet
(or actually between the two of them personally in the first instance) "as it would be in appropriate for a debate to happen on the day". He added:
"I have raised these questions internally and we will give an update but I think you and I need to discussMatchbet
in wider terms relating to its funding, [Alphameric's] obligation (if any) to continue R & D investment and the sales opportunity that exists.
At the moment I do not have anyMatchbet
spend or income in the 2008 draft, not because we won't do it but because we need the discussion. This is separate to whether Plc should fund
Matchbet.
We produced a demonstrable product on a non-viable CST for the show (as agreed as the only way to meet the timescale) so work would have to be done there.
To my mind the most likely use ofMatchbet
would be through the internet or through integrated EPOS and the ability to take
Matchbet
odds through the till …"
"Matchbet
is an opportunity that is real and large. It needs a champion and someone who understands the possibilities. Until you find a suitable individual I fear it will just drift from one failed challenge to another.
If you can identify someone in the business to own the product I will spend some time with him/her discussing my views."
Matchbet
project, and that progress to date had been disappointing as no orders had been secured. He said that his comments were intended to give Mr Mansfield "a serious push". He also said, and I accept, that Mr Mansfield's reference to "a non viable CST" referred only to commercial viability, and was not intended to suggest that the CST did not work technically.
Matchbet
product which integrated with Alphameric's EPOS and ALBOS systems, but no development would be assigned until the project was approved by Alphameric.
Matchbet
was working with Alphameric "to commercialise the platform for retail betting use and has already generated significant pre-sales interest from a number of leading bookmakers in the industry".
"This is pursuant to a conversation with Jamie [Maskey] who suggested there may be interest in GTECH distribution of theMatchbet
exchange.
I would also like to discuss integration with Finsoft's products for the use of bookmakers in the UK."
The proposed meeting was then cancelled on 2 December, following the death of Dr Seifert's father over the weekend, but was later re-fixed for 14 December at Finsoft's Hatton Garden offices.
Matchbet
investor, David Cripps, had put up an additional £25,000 in November, and had offered a further £20,000 per month for six months if Alphameric would do the same. Dr Seifert expressed the hope that Alphameric would be willing to do this, and said that in the absence of their investment "the cash position of
Matchbet
will become difficult and possibly fatal before the end of this month". Alphameric was not prepared to entertain this proposal, for reasons which Mr McLaren explained internally to Mr Morcombe on the same day.
"I blind copied you in on the email sent to Alan, as I was somewhat concerned by the implication in our conversation on Monday that Alphameric may wish to delay the investment under discussion to some time in 2008, which would be far too late for our purposes.
…
The point is that we simply cannot pursue a strategy which, however wonderful in principle, does not ensure survival. You will not be surprised to hear that quite a few potential partners are courting us with a number of tempting prospects which would solve our cash flow problems, prospects which I have not put to the Board, as they may potentially conflict with our mutual [joint venture] which I consider absolutely a priority, but clearly I would be both an idiot and in violation of my fiduciary duties if I turned down any opportunities if these were to be the sole method of survival. While I am having exploratory discussions along these lines, to be able to propose alternatives, I have no wish at all to do so unless I am forced into this position.
…
I do not wish to say all of this to Alan at this stage, since I am not wishing to appear to put pressure on him, but since we have a personal confidential relationship, I think you should be clearly aware that the investment Alan has indicated he wishes to put to your 17 December Board meeting, if deferred, would seriously compromise our practical ability to get as far as an FdJ meeting in January as jv partners."
Matchbet,
he almost certainly had Finsoft in mind. He denied, however, that he was threatening to take any steps inconsistent with Alphameric's contractual rights under the SDLA unless Alphameric made a further investment. All he meant, he said, was that "unless Alphameric were to actually implement the integration which would produce the AlphaMatch system, which could then be sold to the bookmakers, we would have to go to someone else who would create such a system. We were being blocked commercially" (transcript, day 3, page 147). Dr Seifert said his default assumption was still that Alphameric would be integrating, and they would have the opportunity to roll out the AlphaMatch system. I found this evidence unconvincing. The whole thrust of the email was about investment, not integration; and in my view Mr MacLean QC was right when he put it to Dr Seifert that it was designed to convey a message through Mr Siers to Mr Morcombe that
Matchbet
had other potential irons in the fire if Alphameric refused to put up some more money. Mr Siers' response to the email was merely to say that he understood, would research the situation and speak to Dr Seifert in due course. Dr Seifert replied on 13 December "Thank you Phil, I will today talk to Guy in the light of your emails".
Matchbet
board, and asked for it to be processed forthwith. He emphasised, however, that his commitment to
Matchbet
was still in place, and he said he would work hard on the operational and delivery side. He also said he was discussing
Matchbet's
funding request with Mr McLaren and would revert shortly on it.
"1. We established that there may be an opportunity forMatchbet,
integrated with Finsoft's systems to be put forward to Finsoft's parent company GTECH as a consumer facing exchange.
On this point, I should say thatMatchbet
is in discussions with another company, currently providing a lottery and gaming business, on a monopoly basis, in a Continental country. The company in question is facing an end to their national monopoly position in view of EU directives. The discussions concern the supply of
Matchbet
technology in that country but also the creation of a betting exchange business. A crucial meeting will take place on 11 January.
2. We established that a number of current Finsoft clients, including Boyle, could be potential users ofMatchbet
… This creates an opportunity for us jointly provided you were able to either integrate to
Matchbet's
API or we were able to do so. In that latter case, in the current circumstances, we would need either your client or Finsoft to fund our development work.
We agreed that an early discussion should take place to clarify what each of us would commercial gain from an association, depending on who put what resources into both marketing and technical integration.
In this regard,Matchbet
has established models but is willing to consider any commercially interesting proposal.
…
We are keen to diversify our partnerships and need to make swift decisions in relation to business opportunities, and therefore would welcome your early thoughts on the above.
Please consider that these comments and any subsequent responses from you and discussions in this direction are covered by the confidentiality agreement between us since the nature of these is potentially for our business, and probably for yours, very sensitive indeed."
Matchbet
in the short term. There had been no time to discuss the matter at the Alphameric board meeting earlier in the day, due to other urgent issues. Mr Morcombe said he would raise the issue again at the next board meeting, but he was not hopeful that any further funding would be forthcoming. On 18 December Dr Seifert reverted to Mr Morcombe with a suggestion that Alphameric might at least be prepared to match funding by David Cripps to the tune of £20,000 for January only. He continued:
"In the absence of any financial commitment at all, David is pushing us to focus on alternative strategies of business development. I continue to be fully committed to what we both realise can be a huge business, but I am of course dependent on those who are prepared to pay the bills until we find revenue. Without David's continued support the company would be in immediate difficulties, although OVM is willing to come in with substantial funds in January (based on a sale of assets)."
Unsurprisingly, Dr Seifert said nothing about his meeting with Finsoft which had taken place four days previously.
Matchbet
concept. Mr McLaren also replied, saying that he would not support any further investment without proper due diligence being carried out "and a belief that there is a real market for this product". He said there were no resources then available within the group to carry out such due diligence, nor had he ever seen a credible business plan. He concluded:
"It's not like we have a choice at present; cash is very tight and profit non-existent. I think we have to walk away and let them find funding from elsewhere."
Matchbet
system. On 21 December Dr Seifert gave Mr Hogg some further information and assured him that
Matchbet
were talking to Finsoft about integration in relation to another Finsoft client bookmaker, and that Mr Popovic had expressed an interest in meeting other potential clients. He added:
"Given that Alphameric and Finsoft are direct competitors, we need to maintain Chinese walls between Alphameric and Finsoft discussions, as I am sure you will appreciate."
"…Matchbet
expects integration with Finsoft's systems to occur in the near future, and for a number of Finsoft clients to take up the
Matchbet
service. This would seem a good time to resume our discussions, as these were issues of concern to you when we last spoke."
"Obviously, assuming that Alphameric continue to be committed to our jv and can integrate, then this would be an ideal start for commercial deployment of our integrated systems. We have always found it difficult to deal with bookmakers who have got your systems but also Finsoft (like BetterBet) so this is a huge opportunity potentially.
As to the 6-month plan, I apologise that, in view of the above, it is being a bit delayed.
However, the 6-month plan to a large extent is independent of the above project, it involves necessary steps as readying the system for fully commercial deployment, including completion of an automated management, monitoring and control system which we need for large scale deployment, completion of the horse racing product … dealing with multiple external feeds and the like.
These things needs to be and are being done, we are just trying to wrap our internal plans into a format that you would be able to use for your Board.
Alan, we both realise that there is huge scepticism among our respective Boards and shareholders in view of the crisis of last year and the lack of visible progress in our jv. I am grateful for your continued personal support, and am fully convinced that, given the investments we have both made, we should try to complete the task."
There was no reference in this email to the discussions that Dr Seifert was engaged in with Finsoft.
Matchbet
now that he was not so stressed about other things (a reference to the successful resolution of the Turf TV dispute). Around the same time, Dr Seifert also prepared and sent to Mr Morcombe a background paper in relation to the potential investment.
"I believe that, without an MoU, under the circumstances we should exclude ("nous devrions exclure") Alphameric, and perhaps invite GTECH, a partner with global reach who might interest FdJ still more, since they could open the way to a distribution network in 50 countries throughout the world."
The translation of this email in the bundle renders the words "nous devrions exclure Alphameric" as "we should not count on Alphameric", but that is an obvious mistake and Dr Seifert agreed in cross-examination that "exclude" is the correct translation of "exclure". Mr MacLean put it to Dr Seifert that in his discussions with Mr Somekh on 15 January he was talking about excluding Alphameric, to which Dr Seifert replied "Yes, potentially".
Matchbet
who had once been Dr Seifert's neighbour. It seems that Mr Miller had come forward with an offer of some kind of business relationship, and Dr Seifert wished to explore opportunities with him. In his email to Mr Miller, he said:
"However, we have had very interesting discussions with GTECH, the gaming company, who are very interested in investing inMatchbet
and in helping creating businesses.
They would be keen to get involved in any concreteMatchbet
related business opportunity and, if and when we have something specific to propose, we could meet with them;
they could be an alternative partner to Alphameric for electronic point of sale and customer service betting terminals (they have thousands of games machines and run a number of national lotteries across the world), and a partner with very deep pockets."
Matchbet.
It appears from this that the discussions had focused on a possible initial investment in
Matchbet
in the context of the creation of a chain of new fully automated betting shops financed by Close Brothers, together with distribution of
Matchbet-based
online services through GTECH's worldwide distribution systems.
Matchbet
had been encouraged by Alphameric to offer the CST as an existing and available product. This seems to have been a typical example of wishful thinking by Dr Seifert, as the CST displayed in Birmingham had on any view been only a prototype which was not yet ready for commercial exploitation.
Matchbet)
Dr Seifert and the marketing director, Mr Winton. It was made clear at the meeting that, while the State monopoly remained in place, it would be impossible for Française des Jeux either to launch the MBE in France or to invest in
Matchbet.
Any commercial relationship would therefore have to await relaxation of the French gambling regime, and Française des Jeux was unwilling to be drawn on when this might take place. Française des Jeux did, however, express interest in the
Matchbet
model, and wished to see a demonstration of the CST in England where (according to Dr Seifert's minutes of the meeting) they "could explore the
Matchbet
customer experience".
Matchbet
was asked to provide dates for such a visit, for the purpose of seeing "a working CST in a shop".
"Inadvertently the impression was created that the Alphameric Dorking shop already had the CST running, and there will be some need to explain that this is not so, and offer an alternate venue where it can be seen."
He added that from
Matchbet's
point of view it was now urgent to prepare the meeting in close collaboration with Alphameric.
Matchbet's
online exchange provided that integration with Finsoft had been carried out. He repeated that
Matchbet
was in principle interested in carrying out integration based on Finsoft's API. At the meeting on 1 February, which was attended (among others) by Mr Poirier in his new role as a Finsoft employee, possible areas of collaboration were explored. Dr Seifert was clearly concerned about the exclusive licence granted to Alphameric under the SDLA, and in an email to William Scott of GTECH sent after the meeting he agreed to provide "clarification as to whether or not there would be any contractual constraints on launching services based on Finsoft's EPOS and/or screen systems to an LBO business". He promised to do this by early in the following week. He added that
Matchbet
was under no constraints in relation to its online business.
Matchbet's
development and plans. He said
Matchbet
needed to move forward, and hoped to do this with Alphameric, taking account of the changed circumstances.
"To date, there is no integratedMatchbet/Alphameric
product available to the potential joint clients. Integration of
Matchbet
and EPOS/ALBOS, while agreed, is not complete and no delivery date has been communicated to
Matchbet.
A CST has been built but not yet been made available as a product to
Matchbet
or its potential partners.
Matchbet's
Board is aware of continuing interest on Alphameric's part to develop the AlphaMatch business service, but has not been informed of Alphameric's technical or commercial plans in any detail.
In these circumstances, while continuing to look to Alphameric to carry out integration as soon as possible, and remaining ready to assist in this process, as agreed, [Matchbet]
has had to concentrate on its independent efforts to develop its LBO (as well as Internet) business.
We have succeeded in charting a realistic course with our partners, in a manner which at the same time will enhance the ability of Alphameric andMatchbet
to provide joint services, along the lines of the agreed business plan submitted to Investec in 2006, as soon as a joint product is available."
Matchbet's
"strategic plan" in relation to LBO business was then outlined, with a first phase consisting of the creation of (initially five to ten) new UK based LBOs, and a second phase involving Française des Jeux "to expand the business both in the UK and on the Continent". The final section of the paper shows that Dr Seifert clearly had the contractual position under the SDLA well in mind. He said that, in order to develop their business relationship in the current situation, Alphameric and
Matchbet
would need to agree a variation of the terms of their current agreement "in order to enable
Matchbet
to proceed with this plan without contractual difficulties". He then listed a number of issues that
Matchbet
would like to discuss, including the provision by Alphameric of a revised schedule in relation to integration, and variation of the "exclusivity provisions" in the SDLA "which are not appropriate and would impede the plan as outlined above".
Matchbet
on a first draft. When circulating his first draft for comment, Dr Seifert said its purpose was "to gently serve notice on Alan that we are not prepared to allow him to walk away from their obligations". He continued:
"It is perfectly clear that their intention is to wait for a client to sign on before they do the integration. I want them to either realise this is not possible and exposes them to serious risk, and hence get on with it, or acknowledge that they are not complying and will not comply, in which case we can terminate and sue them for damages."
Two things are clear from this. First,
Matchbet
was now giving active consideration to terminating the SDLA and suing Alphameric for damages. Secondly, it was "perfectly clear" to Dr Seifert that Alphameric intended to wait for a client to sign on before it proceeded with Phase 2 of the integration.
"You have agreed to ensure that Française des Jeux will be able to view the CST on the occasion of their visit to England, and we shall liaise about where this should be."
Mr Morcombe's comment was: "early notice with some time to prepare would be appreciated". In a further comment, Mr Morcombe explained that the CST was not a long term product and Alphameric "would be happy to show it as a mule but for production would look for a different solution. FdJ would need to think about funding this work".
Matchbet
and Alphameric on the one hand, and
Matchbet
and Finsoft on the other. On 3 March, Dr Seifert chased Mr Morcombe on fixing a date and location for demonstration of the CST to Française des Jeux. On 4 March, Mr Mansfield informed Mr Morcombe of his belief (evidently derived from Mr Addario) that two months' development would be needed to get the CST to a pilotable state, and either external or new resources would be needed for that purpose "as there is no slack in the team". Mr Mansfield also said he was told it would not be possible to demonstrate the latest version in Dorking "without development". With this discouraging information, Mr Morcombe appears to have left Dr Seifert's chasing email unanswered.
Matchbet
and Finsoft was yet in place, but the aim was "to enter into a commercial relationship with Finsoft, so as to create a marketplace for Finsoft bookmaking clients". Further discussions between
Matchbet
and Finsoft took place at a meeting in mid-March, and on 17 March Dr Seifert referred, in an email to Mr Maskey, to "our shifting alliances from Alphameric to Finsoft". Indeed, it appears from this email and subsequent correspondence that Dr Seifert was also contemplating abandonment of the proposed new alliance with Finsoft in favour of a joint venture with Mr Maskey and a Mr Antony Hopkins. The impression I gain is that Dr Seifert was by now willing to jump at any opportunity which presented itself, and that he had no scruples in following up several conflicting proposals simultaneously.
Matchbet,
and would like to meet you to discuss Alphameric's deployment plans of the Alpha/Match platform in the UK"; secondly, Mr Somekh had introduced
Matchbet
to a substantial gaming company in France who were preparing the launch of a new betting business, initially from Malta. Dr Seifert explained in cross-examination that the potential investment in
Matchbet
was to be made by a Luxembourg based fund called Vencorp fronted by a business partner of Mr Somekh, Mr Kuatli. Dr Seifert said that he had already met Mr Kuatli two or three times in Paris, and the amount which Vencorp proposed to invest was in the order of £1.5 million.
"In view of the potential investment, it would be of interest to have a reply from Finsoft re their willingness to do the integration, in view of online bookmakers, and if we succeed in disentangling ourselves from exclusivity provisions in due course that may open up opportunities with CSTs, etc."
Dr Seifert agreed in cross-examination that he was at this stage planning to disentangle himself from the exclusivity provisions in the SDLA, as "that seemed to be the only way forward".
Matchbet
platform and CST". Mr Addario did not reply until 11.53 am on the next day, by when the meeting (which was scheduled to start at 10.30) would already have been well under way. He said:
"We have not made any significant progress regardingMatchbet's
Phase II development. The product still is in the same state as the prototype we displayed during the Bookmaking show last Sept.
I am attaching an e-mail that covers what we have at the moment and the product description which includes Phase II requirements."
The meeting on 18 April 2008 and the purported termination of the SDLA
Matchbet
and Alphameric, (b) the technical/commercial status of the Alphameric/
Matchbet
platform and CST, and (c) GSA's potential investment in
Matchbet/due
diligence.
Matchbet.")
It continued with a summary of Mr Somekh's understanding of the position, coupled with some questions to which Mr Morcombe was politely asked to provide an answer within the next eight days. There was no hint of any criticism of Alphameric.
"I am waiting for a timetable that will provide me with the date that a demonstration would be ready. The demonstration will be as per the last Betting Shop Show."
In relation to the CST, Mr Somekh had recorded his understanding that this was "still a prototype and not yet a real product", and that the cost of turning it into a product had not yet been estimated. In response to this, Mr Morcombe gave some figures, which differed slightly from those supplied to him by Mr Addario, both for the supply of suitable CSTs and for development of the EPOS functionality.
Matchbet
by Vencorp was still very much on the agenda. On 21 April, Dr Seifert emailed Mr Somekh saying "I think that it's important to keep some time to develop our talks with Vencorp", and suggesting a meeting in the near future. Mr Somekh replied in positive terms, saying a meeting would be arranged as soon as possible and giving details of various other connected meetings which he had either arranged or was in the process of arranging (including the proposed meeting with Française des Jeux).
"293. Guy Somekh was very angry that Mr Morcombe would not carry out integration. He had used his personal credibility to convince the French Finance Ministry (which controls FdJ) that there was a viable land based service offering that could be a huge asset in preparing for an innovative offering in the French café tabac and he was livid to find out that there was in fact no offering. He told me that he was going to write to Mr Morcombe. Therefore, I did not do so."
"48. I explained to Mr Morcombe that it was absolutely necessary for AlphaMatch to be ready, deployed commercially and fully tested in real trading before it could be accepted by FdJ. I explained that FDJ was a huge state owned company that required a commercial and reliable solution including EPoS that was not at pilot stage.
49. At this point, Mr Morcombe told me that Alphameric was only willing to undergo integration with their EPoS system provided that the relevant cost was paid to Alphameric by a customer. There was no integration; Alphameric was not doing any integration and nor did they intend to.
50. After much trouble, time and energy, we had been told the real truth: it appeared clearly that Alphameric had been less than honest to all, including the public market, having usedMatchbet's
technological and commercial advantages in part to raise funds on the public market."
Mr Somekh then referred to a rights issue prospectus which had been issued by "Alphameric" (it was in fact issued by Alphameric's parent company, Alphameric Plc) in November 2007, which had contained the following statement:
"In the year ended 30 November 2006, Alphameric made a £250,000 investment intoMatchbet,
a web-based betting exchange platform that allows bookmakers to fully automate their payment and price display processes, in order to further its development.
Matchbet
is now fully integrated with Alphameric's EPoS payment and ALBOS price broadcast systems."
Mr Somekh also referred to Mr Addario's email to Mr Morcombe on 16 April, where he said that no significant progress had been made with Phase 2 and the product was still in the same state as it had been at the Birmingham Show. Mr Somekh said he had sought advice on how to complain about Alphameric's prospectus, and had been told that he could complain to the Financial Service Authority. He had, however, decided to delay any complaint because of the pending litigation between
Matchbet
and Alphameric (i.e. the present proceedings).
"54. With the full knowledge and support of Alphameric's management, I was encouraged to use my relationship with the French Ministry of Finance who control FDJ to market the presumed but in fact non-existent EPoS integrated Alphameric/Matchbet
system.
55. It is impossible at the present time to measure the loss in terms of credibility that I have suffered as a result, not to mention the regret I feel at having been used as an unwitting party to what I regard as very sharp practice.
56. I can think of no more serious breach of trust. Having been personally involved in dealings with Alphameric, and having disseminated, in a highly significant commercial context Alphameric's public information which I had accepted in good faith, I inadvertently became associated with Alphameric's misrepresentations, which I deeply regret and am deeply embarrassed by.
57. My duty required that I informed those in France that I had inadvertently misled them. I deeply resent that the callous actions of Alphameric's Executive Directors that caused me this deeply humiliating and damaging situation. I have no doubt thatMatchbet's
reputation in France will also have suffered."
"Ben, thank you for the note, like Alan I am not sure I understand where Guy is coming from."
He thought there might have been a misunderstanding of the slides which he had originally prepared for the postponed presentation in December. Mr Morcombe's response, the previous evening, had been:
"All very interesting Ben but I am not sure what it all means, perhaps it is lost in the translation."
Matchbet's
accounts department was no longer willing to defer issue of the invoice previously presented "in relation to the assistance we provided in 2007 to Alphameric's integration".
Matchbet
about the amount of the invoice. On 30 April Ms Bryceson informed Dr Seifert that she had discussed the invoice with John Watson and another colleague, who both thought there was no way they could obtain the third amount claimed and that Alphameric would find it ludicrous.
Matchbet
to believe that a fully commercial CST was currently available:
"Our work on the integration continues, as you well know, and on that basis it would surprise me if you had been trying to sell a completed product in France."
He also said:
"I trust that you are not using the relationship with Guy as a way of trying to circumvent our contractual arrangements. I shall be grateful, therefore, if you will confirm that your activities in France relate to online access only and do not cut across the provisions of the Agreement in this respect."
Matchbet
was repayable on 9 May 2008, together with two years' interest. He offered to hold off requiring repayment for the time being, provided that their proposed meeting to discuss and agree an action plan for the future took place, and the action plan was agreed, before the end of May. He also asked when Dr Seifert and Mr Somekh would be able to attend the Dorking shop for the demonstration which had been requested. He said Alphameric would be ready for the demonstration any time after 12 May, and concluded:
"If we can get a date in the diary for that demonstration I believe that we can continue to make progress with the integration work and to pursue the opportunities which are available to us in the market at this stage.
I look forward to hearing from you in the very near future."
"Dear Alan
With great regret I must inform you thatMatchbet
have decided to terminate the [SDLA] for the reasons set out in our termination notice which will shortly reach you. Personally this is a matter of huge regret for me.
I have no doubt that neither you nor I would have wished for this outcome at the start of our agreement, which puts an end to a collaboration which both of us know would have produced great fortunes for both of us, but there are obviously forces at work beyond your or my personal control, and individuals with no understanding of what we were trying to achieve. As often happens, these individuals block progress and cause great damage.
Despite our agreement being at an end, Guy Somekh and I are willing to meet with you at an early date, and we will propose dates for a meeting at a mutually convenient time and location."
"Hi Rodney
Sadly, when faced with explicit written and oral refusal by Alphameric to comply with its obligations, and after extensive discussions with our shareholders, two barristers and one large firm of solicitors, we have had no choice but to terminate. We are hoping that a settlement for damages can be achieved, otherwise not justMatchbet
but several of its shareholders will have to take legal action.
This has been a condition for a new investor who is willing to support us in litigation but who is unwilling to invest in us when we have an agreement in place which is treated as a free option by the other side, and brings us nothing, while tying us in knots.
The whole thing is a most sorry saga.
Very sorry that, despite months of efforts, and your own kind offer of help, we could not rescue a hopeless situation."
Matchbet
in litigation, but was unwilling to invest in
Matchbet
while the SDLA remained in place, therefore remains uncertain. The obvious candidate, however, is Vencorp, or some other entity connected with Mr Somekh, and on the balance of probabilities I would if necessary so conclude. In fact, I do not think the identity of the investor is of any great importance. The more material fact is that termination of the SDLA had been made a condition of support by a potential investor and litigation funder. It is also clear from this email, as is anyway obvious from the letter of termination itself, that
Matchbet
had taken legal advice before acting.
"The Board ofMatchbet
has carefully considered the status of the [SDLA]. We have regretfully reached the conclusion that Alphameric are in repudiatory breach of the Agreement. In the light of the circumstances as set out in this letter, we have no commercial alternative to accepting your repudiatory breach, thus treating the Agreement as being at an end …
The very core and meaning of the Agreement concerns the integration ofMatchbet's
exchange system with Alphameric's technical systems, thereby providing access to licensed betting offices across the UK. This is set out in detail in Schedule 2 to the Agreement, where it is specified that Alphameric is obliged to integrate
Matchbet's
exchange platform with your EPOS and ALBOS systems, within the 28 weeks of signing of the Agreement, hence no later than February 2007. You were also obliged, under Stage 2 of the Schedule, to collaborate with
Matchbet
to effect this integration, by formulating with us an integration plan which would set out the work we would have to do to assist you in integrating. You have been in breach of this clause for the past two years by refusing to agree this.
Matchbet
has done everything within our power to persuade you to comply with these terms, and has been as patient as could reasonably be expected of any loyal commercial partner …
We were further misled into believing that you were trying to comply with the Agreement, despite the obvious delay, when you issued an explicit statement which formed an important part of your rights issue documents provided to the stock exchange [the relevant passage from the prospectus of 7 November 2007 was then quoted].
…
In mitigation of our damages, we spent considerable time and energy in assisting your marketing effort in relation to the customer service terminal in Birmingham, again relying on your own repeated assurances that this was a step towards full integration with your EPOS and ALBOS systems, and therefore part of your effort to comply with your duties under the Agreement, which you said was ongoing, with a revised launch date of March 2008.
[Reference was then made to various statements of support for the project by Mr Poirier, Mr Siers and Mr Morcombe, and the 2007 business case presented to Investec]
Against the context of these facts, it came as a shock and surprise to us when we finally learned during our meeting that you and I had with Guy Somekh, our French marketing partner and potential investor on 16 April 2008, that in fact not only had integration not been undertaken, but that in fact you had no intention of undertaking it. This was in complete contradiction of numerous assertions made to us and to third parties over the previous months, as well as documents provided to us …
Matchbet
had invited Guy, who was doing due diligence on the status of integration for the purpose of preparing a 1 million pound investment in
Matchbet,
in order for him to have direct confirmation from you that you were on course with integration …
[The letter then dealt with the CST, asserting that it "came as a shock" to be told recently that it was not a product but a prototype]
Our accounts department is preparing invoices in relation to the work that you have requested …
[The letter then sought to quantifyMatchbet's
losses, by reference to the financial projections presented to Investec]
However, despite the immense damage your breach has caused us, and the urgent pressure we are under from existing and prospective investors, who have invested in reliance onMatchbet's
assertion and your own assertion to the Stock Exchange, and at the Birmingham Show, that we were able to operate in 9,000 betting shops, we remain open to an alternative to litigation, provided that a settlement can be reached on a reasonable basis, including:
- Immediate financial compensation in relation to the damages accrued to date
- Extension of your loan for a further two years
- A further loan in order to repay third party loans from individuals relying on your performing your duties under the Agreement …
- Settlement within 14 days of our invoices in relation to work provided for upon request to you during the term of this Agreement …
- Agreement on method of compensation for damages we shall incur in the future …
In the interest of mitigation, we also remain open to entering into a commercial agreement with you provided that such an agreement carry no form of constraint on our ability to do business nor any profit share other than from joint business, and that it shall only take effect in the event that you have demonstrated to us that integration has indeed been performed."
Matchbet's
termination of the SDLA was misconceived and, in itself, a repudiatory breach of the SDLA. He accused
Matchbet
of having "incorrectly reported or misconstrued the facts to create a picture that justifies your wrongful termination of the Agreement". In relation to integration, he said this:
"The facts are that the parties had agreed (Schedule 2 Stage 2) to formulate a "joint programme for the integration of the Programs/Service with the Alphameric System", and that this joint programme was to include "commercial terms". It so happens that the parties have not, for either technical or commercial reasons, actually agreed the joint programme which includes the integration strategy. The responsibility to agree a plan was a "joint responsibility" and not an obligation on ASL which could result in ASL being in breach. It is unfortunate that the project has proceeded without an agreed programme, but the lack of a programme does not constitute a breach, let alone a repudiatory breach justifying immediate termination.
In fact, ASL has throughout the period of the Agreement sought to provide a platform through which theMatchbet
betting service can be deployed. ASL now has an operational product (currently being used in our betting shop, BET, in Dorking) … The integration work for ALBOS and CSTs is still part of the strategy, although we have made the point to you that our initial concern was to get a product ready to demonstrate the service and to secure an order before committing further resource and money to the project.
We do have a product that shows capability and indeed were scheduled to be demonstrating the model this week to you and Guy Somekh before we received a call from your office cancelling the appointment and serving notice of termination of the Agreement. Because the parties have never agreed the integration programme, the scope of the integration work, the products to be integrated, and the timetable against which we would be measured are matters which remain to be resolved."
Matchbet's
letter of termination that
Matchbet
entered into negotiations with Finsoft, and that before negotiations with Finsoft had reached an advanced stage, Finsoft was taken over by GTECH who "were not interested in developing their offering in the LBO market". In fact, as the documentation and evidence elicited in cross-examination make clear, Dr Seifert had been involved in active negotiations with Finsoft since late November 2007, when the takeover by GTECH had already taken place. The same misleading impression of the chronology relating to Finsoft was also given by Mr Maskey in his statement, while Mr Poirier did not even disclose that the job to which he had moved in early 2008 was with Finsoft. I infer that this was regarded by all three witnesses as a sensitive matter which they would have preferred the court to know nothing about.
Matchbet
were beginning to prepare for the possibility of marketing and exploiting the MBE through a partner other than Alphameric, given the disappointing progress which had been made since the date of the SDLA. The answer, I think, probably lies in the fact that Dr Seifert was well aware of the exclusive nature of the licence granted to Alphameric under the SDLA, and of the inability of
Matchbet
to bring about a contractual termination of the SDLA while the £250,000 loan remained outstanding. Any negotiations with a competitor of Alphameric to market the MBE to LBOs would therefore have to be dependent on a prior termination of the SDLA at
Matchbet's
behest, following acceptance of a repudiatory breach by Alphameric.
Matchbet
to extract itself in this way from the SDLA. In relation to integration, I am satisfied that by July 2007 at the latest the parties had agreed on the two phase approach proposed by Alphameric, with the second phase not scheduled to begin until early 2008. In relation to marketing, a number of initiatives had been followed up, including presentations to Ladbrokes and Coral, and a working prototype had been successfully demonstrated at the Birmingham Betting Show in October 2007. Furthermore, all of the instalments of the loan had been paid in full, so the implementation plan in the SDLA had on the face of it either been complied with or varied by agreement, while
Matchbet
still had the active support of influential figures within Alphameric, including (until his departure to Finsoft) Mr Poirier, Mr Siers and Mr Morcombe himself.
Matchbet
meeting held on 18 December records that Dr Seifert had "asked Ian Hogg out of courtesy to Alphameric not to mention Finsoft integration". I am therefore unable to accept Dr Seifert's evidence that Alphameric was aware of his discussions with Finsoft.
Matchbet
had "repeatedly sought renegotiation of the terms of the agreement to reflect the various issues", but Mr Morcombe had been unwilling to do so:
"So, on the one hand there is, in the opinion of our lawyers, serious breach, on the other hand no desire on our part to do anything other than proceed with completing the task that both sides are committed to."
Matchbet
may have received at this stage from its lawyers – in respect of which privilege has not been waived – I do not accept that any breaches of contract by Alphameric could have justified termination of the contract by
Matchbet
in January 2008. Nor, in my view, had the position materially changed by the time of the meeting on 16 April 2008 which is the foundation of the pleaded case of repudiatory breach. The statements attributed to Mr Morcombe at that meeting in the particulars of claim are that no integration of
Matchbet's
programs and service 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 doing so were to be funded by a customer or potential customer. There is no doubt that Mr Morcombe made the last of those statements, because he confirmed as much in his written and oral evidence, and the statement accorded with Alphameric's normal policy. Nor can Dr Seifert have been surprised by it, in view of the email which he had sent to Mr Winton on 11 February 2008: see paragraph 253 above. I do not, however, accept that Mr Morcombe made either of the first two statements attributed to him. It would be surprising if he had, given the agreement which the parties had reached on the two phase approach to integration and the efforts which Alphameric had made to present a functioning CST prototype at the Birmingham show in October 2007. Furthermore, Mr Morcombe said in his oral evidence that he personally regarded the Birmingham prototype as meeting any obligation of integration under the SDLA. This may or may not have been correct as a matter of construction of the SDLA, but it shows the sheer improbability of Mr Morcombe having conceded that no integration at all had taken place. It is also revealing that there is no reference to any such statement in the initial, and friendly, post-meeting email sent by Mr Somekh on 18 April.
Matchbet
was a cynical and opportunist exercise, planned by Dr Seifert in collaboration with Mr Somekh. Its immediate object was to extract
Matchbet
from the fetters of the SDLA on the day before the first instalment of the loan became due for repayment in accordance with the terms of the Loan Note Instrument. I am satisfied that the indignant tone of the termination letter of 8 May 2008 was largely, if not entirely, manufactured, and that the underlying purpose of the exercise, apart from avoiding immediate repayment of the loan, was to free
Matchbet
to pursue other investment or marketing opportunities, probably in the first instance with Vencorp, and at the very least to compel Alphameric to agree new terms which would extend the loan for a further two years and would contain no exclusive licence in Alphameric's favour.
Was Alphameric in breach of the SDLA?
Matchbet
in respect of the service, and who in the normal way would have been introduced by Alphameric. It follows from this, in my view, that the obligation cannot sensibly be viewed in the abstract, but only in relation to the provision of the
Matchbet
service to identified end users. In principle, there were several different ways in which this might have been done, and the requirements of individual customers, with existing equipment of different types and levels of sophistication, would not necessarily be the same. Integration was therefore something which Alphameric would have to achieve in consultation with particular customers on a case by case basis, as and when they were introduced. It was not something which Alphameric could be expected to achieve by itself, although there was no doubt much that Alphameric could do by way of preparation to ensure that its existing systems (or any others which it chose to use) were as ready as possible for adaptation to the needs of individual customers.
Matchbet
exchange would be a part of the suite of computer programmes which every Alphameric customer had, using the computer connections and data feeds in the same way as every other part of the Alphameric systems", Mr Sutton disagreed:
"29. That statement implies a common network using a uniform Alphameric programme and data feed, which is not the case: Alphameric neither "hosts" the majority of systems nor does it have any control over what programming the LBOs do or do not use.
30. Even if, therefore, one could hypothetically integrate "Matchbet"
with Alphameric's EPOS and ALBOS in order to offer the exchange as part of the suite of computer programmes available to an Alphameric customer, that customer would have to specifically request or permit, install, and invariably pay for implementation and roll out. It was not automatic, and it was not even within Alphameric's control in these cases. With Ladbrokes, any integration would require entirely separate development work to get the system working."
Matchbet
service would have had to expend several weeks of considerable effort before roll out of the upgrade and testing, which would always be a cost for the customer. As to the two or three thousand smaller Alphameric customers who relied on a central control system operated by a third party, either SIS or Alphameric's own "bureau" service, Mr Sutton was clear in his view that SIS would never have supported
Matchbet
in its service as long as it was associated with Alphameric, while in 2006 "the majority of the LBOs dependent on the Alphameric bureau service simply did not have the infrastructure to handle "
Matchbet"".
Matchbet's
pleaded case is that the only viable or realistic way in which Alphameric could have marketed and rolled out the product to end users was through its existing EPOS and/or ALBOS technology. Counsel for
Matchbet
also submitted that, in the absence of any express or implied term to the contrary, Alphameric was under an obligation to integrate at its own cost, and it was not open to Alphameric to qualify or dilute that obligation by suggesting that it was subject to the receipt of third party funding. I do not accept either of those submissions. I see no reason to doubt that the discretion afforded to Alphameric in the definition of the Alphameric System was genuine; while the necessary link between provision of the service and the individual circumstances of end users means, in my view, that Alphameric was free to follow its usual funding policy when marketing the product.
Matchbet
to find suitable customers who were willing to commit themselves, and (b) the pressure on resources to which Alphameric found itself subject. The first phase of the revised approach was in my judgment successfully achieved at the Birmingham Show in October 2007. The basic functionality of the
Matchbet
exchange was demonstrated, at the country's leading betting industry trade fair, and a number of potential customers expressed interest. If any of those customers had been prepared to follow the matter up, and to fund integration of the product in collaboration with Alphameric, progress could have been made with Phase 2. In the event, however, this did not happen, and in May 2008 the second phase of integration still remained an aspiration.
Matchbet
project for much of 2007, and particularly when the Turf TV dispute was at its height and the energies of senior management had to be devoted to it. But there is no pleaded case of breach of the two stage approach to integration; and, even if there were, I do not think it could possibly be characterised as a repudiatory breach. By the early months of 2008, the Turf TV dispute had been substantially resolved, and the evidence shows that Alphameric was still looking for ways to take the
Matchbet
project forward, albeit at the least possible cost to itself. The most that could be said, in my view, is that Alphameric's conduct had arguably delayed active work on Phase 2 by a few months. Subject to proof of causation and loss, it is therefore possible that a properly pleaded breach of an obligation under Phase 2 might have given
Matchbet
a remedy in damages for delay in implementation of the project. But it could not have justified
Matchbet
in treating the breach as repudiatory and terminating the contract. In my judgment
Matchbet
was well aware of this, and the collusive attempt to engineer a termination in May 2008 was the outcome.
Matchbet
by way of an unsecured loan, it seems obvious that it had every incentive to ensure that the project was a commercial success; and this could only be done, so far as LBOs were concerned, by selling it to them. It is therefore hardly surprising to find that Alphameric did indeed make efforts to find customers, although always on the basis (which I have found to be justified) that the cost of integration with Alphameric's systems would have to be borne either by the customer or by some external funder. Thus, Alphameric took steps to display a prototype at the Birmingham Betting Show in October 2006, they then launched a trial at their shop in Dorking in March 2007, and the Phase 1 CST prototype was successfully shown at Birmingham in October 2007. Counsel for Alphameric submit, and I agree, that display of a working model at Birmingham, the leading trade fair in the country, was the most effective way of generating interest in the
Matchbet
Exchange from the largest number of potential clients. The allegation of breach of an obligation to market, let alone fundamental breach of it, therefore gets off to an unpromising start. Furthermore, it is clear from clause 14.1 of the SDLA that any such obligation must have been to act as
Matchbet's
marketing agent for the purpose of securing end-user agreements with prospective licensees who were LBO operators. Since
Matchbet
never provided Alphameric with draft end-user agreements, it must follow in my view that any marketing obligation on the part of Alphameric was limited to obtaining initial expressions of interest and following them up.
Matchbet
can hardly complain about failure to obtain end-user agreements when it was their own obligation to provide such agreements, but they had failed to do so.
Matchbet,
but despite an initial appearance of enthusiasm subsequent efforts by both Dr Seifert and Nigel Ely of Alphameric to persuade him to use the account were fruitless. Dr Seifert accepted in cross-examination that Mr Hart had no intention of using the account (transcript, day 4, page 151), and I infer that this was indeed so.
"The outcome of the meeting with William Hill and others was the same. Everybody was interested in the project and interested in the concept. Most of the bookmakers who – forgive me, but most bookmakers are reluctant to spend money, and they wanted – most of the bookmakers wanted something, a demonstrable piece of kit that they could actually see what happened.
Bookmakers unfortunately deal in bookmaking; they're not very good at dealing in technology, so that you have to really take them to the water and make them drink before you actually get them, you know, fed."
A "demonstrable piece of kit" was provided by Alphameric, in the form of the stand alone CST, at the Birmingham Show in October 2007, when representatives of William Hill would have had every opportunity to examine it.
Matchbet
target, but said "he would certainly have been challenged to expose the product, solicit interest, and see how we could develop it in those major accounts". Mr Ely was not called as a witness by either side, but the documentary record shows him actively chasing Coral after the meeting in November 2007. There is no written evidence that he was similarly diligent in pursuing Ladbrokes to make a decision on
Matchbet,
but without the benefit of his oral evidence I am not prepared to infer that he was inactive, or still less that he had been instructed to reduce his efforts. Quite apart from the possibility that he may have chased Ladbrokes orally, I cannot be confident that the documentary record is complete, because (as Mr Warne of Nabarro explained in a witness statement dated 16 November 2012 in the context of an application for specific disclosure) a number of files of potentially relevant documents were erased on an ad hoc basis during the period of nearly three years from the termination of the SDLA in May 2008 to the issue of proceedings on 2 February 2011.
Matchbet
and Alphameric considered this to be an opportunity with massive potential. Despite the pressures of the Turf TV dispute, Mr Siers prepared a power point presentation which he intended to deliver personally at the cancelled meeting with Française des Jeux on 11 December 2007, and Dr Seifert made use of this material at the meeting which eventually took place in Mr Siers' absence on 24 January 2008. It was not Alphameric's fault that Dr Seifert on this occasion gave them the misleading impression that the Phase 1 CST was already functioning and operational in LBOs. Furthermore, Alphameric was in the course of making arrangements for a demonstration of the CST to Française des Jeux when
Matchbet
served the letter of termination on 8 May 2008.
Matchbet
service, I would accept that there were probably some occasions when Alphameric's efforts fell short of this standard. One occasion was when both Mr Morcombe and Mr Mansfield pulled out of the meeting with Mark Jarvis which had been scheduled for September 2007, leading Mark Jarvis to cancel the meeting. There is no evidence that Alphameric made any efforts to reschedule the meeting, and it seems that the initiative was allowed to lapse. Another occasion may have been in the early months of 2008, when Alphameric was dilatory and unenthusiastic in making arrangements for a demonstration to Française des Jeux, at least until Mr Morcombe took an active interest in it. But even assuming that some relatively minor breaches of this nature could be established, by no stretch of the imagination were they repudiatory in character. In general, I am satisfied that Alphameric made serious and concerted efforts to market the
Matchbet
service, subject to the constraints imposed by its normal policy in relation to funding, and subject to the modified approach to integration which (as I have found) had been agreed with
Matchbet.
Matchbet
service to which it may have been subject under the SDLA, and that if and to the extent that Alphameric was in breach of any such obligations, the breaches were of a comparatively minor nature and gave rise to no more than a potential cause of action for damages. None of the alleged breaches of contract came anywhere near being repudiatory in character, and it was to meet this obvious deficiency in the legal analysis that
Matchbet,
through Dr Seifert, made the unwise decision to attempt to bring about a termination of the SDLA in concert with Mr Somekh.
Matchbet
succeeded in that objective, but not in the way it intended. There were no repudiatory breaches of contract by Alphameric which gave
Matchbet
the right to accept them and terminate the contract. On the other hand, the termination letter of 8 May 2008 was itself clearly repudiatory in character and gave Alphameric the right to treat the SDLA as terminated. Alphameric's pleaded case is that Alphameric accepted the repudiatory breach by a letter dated 16 June 2008 (which was in other respects without prejudice), or alternatively by service of the defence. The letter of 16 June 2008 is not in the bundle, and neither side made any submissions in relation to it. However, counsel for
Matchbet
did not dispute that, if the letter of 8 May 2008 was repudiatory in character, the repudiation was subsequently accepted by Alphameric. It is therefore unnecessary for me to determine precisely how and when the acceptance took place.
Causation, quantum and the expert evidence
Matchbet's
case on causation and quantum no more convincing than its case on liability. In relation to causation, I am not satisfied, as matters now stand, that
Matchbet
has discharged the burden of showing that any bookmaker would have entered into an end user agreement in respect of the
Matchbet
exchange if Alphameric had performed its alleged obligations. Until shortly before the start of the trial,
Matchbet's
case on the rolling out of the integrated MBE was based on the figures which Mr Siers provided to Ms Bryceson over the telephone for the purposes of the business plan presented to Investec. Those figures, it seems to me, were largely aspirational, and were based on the assumption that the initial purchasers of the system would have been the "big three" operators of LBOs. But I see no reason to suppose that any of the big three would have been willing to take the initiative in this way, and in any event this approach was abandoned by
Matchbet
at trial in favour of the model propounded by its industry expert, Mr Leon. He took the view that the first LBOs to take up the service would have been the smaller independent operators, followed by Ladbrokes and Coral only in year three (i.e. between July 2009 and July 2010, Mr Leon having apparently taken July 2007 as his starting point). But, as I shall explain, I found Mr Leon's expert evidence profoundly unsatisfactory, and I am unable to place any reliance on his roll-out projections. Without any solid underpinning in the expert evidence, and having regard to the unchallenged evidence of Mr Sutton, I am left wholly unconvinced that performance by Alphameric of its supposed obligations would have made any material difference to the fortunes of the
Matchbet
exchange in the market place.
Matchbet
exchange to LBOs, nor was he a main board director of Ladbrokes. The team of about 16 people who reported to him were mainly qualified surveyors, and the activities with which he was concerned were principally of a "bricks and mortar" nature. His only previous experience of giving evidence in court, many years previously, had been in the Crown Court or Magistrates' Courts, when he gave evidence as a witness of fact on behalf of his employer in licensing cases about local demand for betting shops.
Matchbet's
case. I regret to say that he had no proper understanding of the duties and responsibilities of an expert witness, although he professed to have read and understood the guidance contained in CPR PD 35. Indeed, his evidence exemplified several of the vices which the Woolf reforms and Part 35 of the CPR were designed to eliminate.
Matchbet
system would never have been commercially attractive to LBOs. Furthermore, his assessment appears to be borne out by experience. Although
Matchbet
has now been liberated from the SDLA for over five years, there is no evidence that it has yet achieved any significant degree of commercial success with LBOs, or for that matter online.
"… in my judgment, where it is demonstrated that there exists a relationship between the proposed expert and the party calling him which a reasonable observer might think was capable of affecting the views of the expert so as to make them unduly favourable to that party, his evidence should not be admitted however unbiased the conclusions of the expert might probably be. The question is one of fact, namely, the extent and nature of the relationship between the proposed witness and the party."
In reaching this conclusion, the judge differed from the preliminary views which had been expressed by Neuberger J (as he then was) at a pre-trial review when he had refused to rule Mr Flesch's evidence inadmissible and had stood over the application to exclude it to trial. In taking this course, Neuberger J had expressed the view that the existence of a close personal and professional relationship between Mr Flesch and Mr Goldberg did not mean as a matter of law, or even as a matter of fact, that Mr Flesch was incapable of fulfilling the functions of an expert witness.
"it is necessary that expert evidence presented to the court should be, and should be seen to be, the independent product of the expert, uninfluenced as to form or content by the exigencies of litigation. To the extent that it is not, the evidence is likely to be not only incorrect but self-defeating."
"70. This passage seems to us to be applying to an expert witness the same test of apparent bias that would be applicable to the tribunal. We do not believe that this approach is correct. It would inevitably exclude an employee from giving expert evidence on behalf of an employer. Expert evidence comes in many forms and in relation to many different types of issue. It is always desirable that an expert should have no actual or apparent interest in the outcome of the proceedings in which he gives evidence, but such disinterest is not automatically a precondition to the admissibility of his evidence. Where an expert has an interest of one kind or another in the outcome of the case, this fact should be made known to the court as soon as possible. The question of whether the proposed expert should be permitted to give evidence should then be determined in the course of case management. In considering that question the judge will have to weigh the alternative choices open if the expert's evidence is excluded, having regard to the overriding objective of the Civil Procedure Rules."
Matchbet.
Mr Beaumont was giving expert evidence for the first time, but in my view he was well aware of the nature of his duties and his responsibility to the court, and his evidence was not vitiated by any lack of independence, whether actual or perceived. In this respect, his evidence provided a welcome contrast to that of Mr Leon.
Matchbet
and Mr Simon Oaten on behalf of Alphameric.
Matchbet's
witness statements. As a result of enquiries by Alphameric, it emerged that these facts had been communicated to Mr Swinson at a lunch in 2011 attended by
Matchbet's
solicitors and Dr Seifert, but no attendance note had been taken. I agree with counsel's comment that this "is perhaps a matter of more embarrassment to
Matchbet's
solicitors than to Mr Swinson".
Matchbet
exchange which had not previously been suggested by
Matchbet
itself, but was then adopted by it. The most striking feature of this model was that it allowed, for the first time, for a "margin" to be paid to LBOs which agreed to take the
Matchbet
service. The absence of any such margin in the models previously propounded by
Matchbet
was indeed a striking omission, because it invited the court to proceed on the commercially unrealistic assumption that LBOs would have been prepared to take up and operate the new service without any financial incentive to do so. Nevertheless, there is force in Alphameric's point that Mr Swinson stepped somewhat outside the boundaries of the role of an independent forensic accountant in doing this, because his role was not to devise arguments of fact on behalf of the party for whom he was retained.
Matchbet]
as a result of the non-performance of the SDLA, including loss of anticipated profit". In the light of Mr Oaten's report,
Matchbet
understandably felt that it might be disadvantaged and that Alphameric had, in effect, sought to adduce the evidence of two experts combined in the same person, an accountancy expert and an expert on the gaming industry. These concerns were raised before Master Bowles at a hearing on 7 February 2013, barely a month before the start of the trial. The Master acceded to
Matchbet's
request for permission to call expert evidence in relation to the gambling industry, limited to one expert on each side, and directions were given for the service of such reports with an accelerated timetable. Thus it was only very late in the day that Mr Leon and Mr Beaumont were instructed.
Matchbet
was dealt with, as a matter of case management, by Master Bowles' order of 7 February 2013 which allowed
Matchbet
to call an expert in the gambling industry of their own choice.
Matchbet
were unrealistic, particularly in the absence of any apparent financial incentives for the bookmakers. He concluded that the business model had been inadequately researched in the market and was fundamentally flawed. In his supplemental report, dated 28 February 2013, prepared in the light of the reports of (among others) Mr Swinson and Mr Leon, Mr Oaten confirmed that his conclusion remained unchanged. He proceeded to make various cogent criticisms of Mr Leon's evidence, and explained why in his view a commission-based business model would probably be unworkable in practice. In general terms, I accept his evidence and agree with his conclusions.
Matchbet's
invoice/quantum meruit claim
Matchbet
submitted two invoices to Alphameric on 28 May in respect of technical assistance allegedly provided by
Matchbet
to Alphameric between October 2006 and September 2007. One invoice was for £210,400 plus VAT and the other was for £66,500 plus VAT, making a total of £325,357.50 (including VAT). The larger invoice was for work allegedly done in extending the
Matchbet
service "to agreed new bet types" as requested by Alphameric in preparation for full integration, and used at Alphameric's display at the 2007 Birmingham Betting Show. The second was in respect of various technical matters relating to Stage 2 of the implementation plan. The sums were apparently calculated in accordance with the standard rates set out in Schedule 9 to the SDLA. They are said to be due either under clause 14.8 (as services requested) or clause 6.4 (as additional time spent by
Matchbet
in the performance of its obligations as a result of a failure by Alphameric to comply with its own obligations under the SDLA).
Matchbet
to charge Alphameric for the technical assistance which
Matchbet
was obliged to provide in response to reasonable requests by Alphameric. The clause merely provides that
Matchbet
"shall not be expected to incur unreasonable or disproportionate cost in relation to the provision of such assistance". Quite apart from that, there is no evidence of any requests having been made by Alphameric for assistance on the matters referred to in the invoices. As to clause 6.4, it can only apply where Alphameric has failed to comply with its obligations under the SDLA, and even then
Matchbet's
right to charge Alphameric for additional time is limited to extra work made necessary "solely and directly as a result of a failure by Alphameric to comply with its obligations". In view of my conclusions on liability,
Matchbet
is unable to satisfy the threshold requirements for raising an invoice under clause 6.4.
Matchbet
was consistently rebuffed whenever it attempted to discuss the question of invoicing with Alphameric during the currency of the SDLA, and it never formulated the basis for such a claim save in the most general of terms. The invoices upon which
Matchbet
now sues came into existence only after the termination of the SDLA which
Matchbet
had unjustifiably sought to engineer. In those circumstances, it is no surprise to find that the invoices are as devoid of merit as the purported termination itself.
Alphameric's counterclaim
Conclusion
Matchbet's claim will be dismissed in its entirety and Alphameric is entitled to judgment on its counterclaim.