Case No: HC03C00306
Neutral Citation Number: [2005] EWHC 2449 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 10/11/2005

Before:

MR JUSTICE DAVID RICHARDS
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Between:

	Bradmount Investments Limited	Claimant	
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	(1) Williams De Broe Plc
(2) PM Onboard Limited
(3) Geoffrey Mountain	Defendants	

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Robert Sterling (instructed by Berg Legal) for the Claimant
Mark Barnes QC (instructed by Addleshaw Goddard and Hammonds) for the Defendants

Hearing dates: 11, 12, 16, 17, 18, 19, 20, 23, 24 May 2005, 28, 29 and 30 June 2005 
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Judgment

Mr Justice David Richards: 

1.	This is an action for damages brought by Bradmount Investments Limited (Bradmount) against Williams de Broe (WdB) for breach of contract and against PM Onboard Limited (PMO) and Geoffrey Mountain in tort for inducing the alleged breach of contract. There is also a claim against Mr Mountain for £50,000 payable under an alleged contract between Bradmount and Mr Mountain.
2.	The claims arise in connection with the flotation of PMO on the Alternative Investment Market (AIM) of the London Stock Exchange in 2001-2002.
The parties
3.	The business of PMO is the design, manufacture and sale of weighing systems for use in road haulage, freight transport and waste management businesses.  In particular, it designs and manufactures onboard computerised systems for weighing loads. Its market is both the United Kingdom and continental Europe. The business was founded by Mr Mountain. In 2001, PMO was owned by Osprey Holdings (UK) Limited (Osprey) which itself was owned as to 75 per cent by Mr Mountain and his wife and as to the balance by members of Mr Mountain’s family. PMO and Mr Mountain owned or part-owned a number of other companies with related businesses. One of them, PME France Sarl, was jointly owned by Mr Mountain and Olivier Ferret; its business was managed by M. Ferret.
4.	Bradmount is owned by Adrian Bradshaw and Peter Mountford who are also its only directors. In his evidence, Mr Bradshaw described it as “an investment company … which specialises in preparing financial structures for public flotations and placings”.
5.	WdB is a stockbroker which provides, among other things, corporate finance services. In particular, as its evidence puts it, it “assists growing small and medium sized companies to raise funds, often in the form of equity fundraising through a listing or issue of shares on either the Official List of the London Stock Exchange or the Alternative Investment Market”. It has offices in London and Leeds, as well as other locations. It appears from the evidence that these offices were separate profit centres and operated, to a significant extent, independently of each other. They did not normally refer deals to each other.
The Alternative Investment Market
6.	AIM is operated by the London Stock Exchange as a market designed particularly for shares in small, young and growing companies that wish to raise capital or to have a secondary market for their shares but do not qualify for, or do not wish to obtain, a full listing on the Official List. The initial and continuing obligations imposed on companies with shares quoted on AIM are less onerous than those for a full listing. Companies must, however, publish a prospectus to gain admission and are required to publish material information as a continuing obligation.
7.	A pre-condition to admission to AIM is the appointment of a “nominated adviser” which must be a member firm of the London Stock Exchange authorised under the Financial Services and Markets Act 2000. To qualify for appointment, a firm must be on the register of approved advisers kept by the Stock Exchange. Its duties are to provide advice to the company on the flotation process and on the responsibilities of the company and its directors in relation to flotation. Nominated advisers have their own regulatory obligations, including the avoidance of any conflict of interest, and failure to comply can lead to revocation of their registration. A company must also appoint a nominated broker which is required to trade in the company’s shares or to use its best endeavours to match transactions. In relation to the flotation, its functions will include generating interest in the flotation and acting as agent in the sale of shares. The same firm will often combine the roles of nominated adviser and nominated broker.
8.	WdB is on the register of approved advisers. Acting through its Leeds office, it was the nominated adviser and nominated broker for the flotation of PMO.
Chronology
9.	In early 2001 Mr Mountain was concerned about the future development of PMO’s business. He discussed it with Richard Bottomley, the senior partner of the Newcastle office of KPMG. KPMG were PMO’s auditors and Mr Bottomley had carried out audit work for PMO for about 7 years. Mr Bottomley believed that PMO had the potential for flotation on the stock exchange and arranged a meeting with Roland Tate, a director in KPMG’s corporate finance practice in Newcastle. Mr Tate was at that time involved in the flotation of a company called Atlantic Global. Mr Tate was with KPMG throughout the period covered by this case, but left KPMG in September 2002.
10.	Mr Tate considered that the company could be floated, but there needed first to be a restructuring of the group and other preparations. In Mr Tate’s experience, this was not unusual for owner-managed businesses like PMO. He advised that it would be appropriate to adopt an approach similar to Atlantic Global, involving a reverse of the business into a cash shell, i.e. a company with cash but no business, that was already listed. This had a number of practical advantages, although ultimately it was not the route that was adopted.
11.	Mr Tate was working on the Atlantic Global flotation with Mr Bradshaw and Bradmount. In March 2001 he approached Mr Bradshaw with the proposal for PMO. On 19 March 2001 Mr Bradshaw, on behalf of Bradmount, signed a two-page confidentiality letter in favour of KPMG as agents for the company and its shareholders. It referred to “a potential investment” in the company and, in summary, it required Bradmount to keep confidential the information supplied to it about the company.
12.	By an engagement letter dated 26 March 2001 KPMG were appointed as financial advisor to PMO, at a fixed fee of £140,000 and a variable incentive fee of at least 5 per cent on any flotation value over £6 million. Over the following weeks, KPMG were also appointed as tax advisors to Osprey and Mr Mountain.
13.	Work proceeded on various aspects of the proposed flotation over the following weeks, including the preparation of a business plan which was provided in draft and final form by Mr Tate to Mr Bradshaw. A corporate restructuring was proposed which would include bringing all related businesses into single ownership, including the purchase of M. Ferret’s interest in PME France SARL.
14.	From about mid-July Mr Bradshaw and Bradmount became more involved in the proposal. On 25 July 2001 they prepared the first of a number of proposals for the flotation. These suggested an offer for PMO by a shell company which would be listed on AIM simultaneously with the acquisition of PMO. The existing shareholders would receive shares in the new company and £1 million, which would be raised by a placing of shares in the new company with outside investors. The placing would also raise £1.5 million for investment in the business. The existing shareholders would hold over 60 per cent of the shares. There was provision for deferred consideration linked to profits in the two years following flotation and for a share option scheme for directors and senior executives. It was proposed that Bradmount or its directors would subscribe at least £180,000 for shares at the placing price and would receive warrants to subscribe for shares equal to 10 per cent of the post-flotation share capital and options over 2 per cent of the share capital at any time. Bradmount would receive a transaction fee of £25,000 and would also appoint a director at an annual fee of £17,500. The detail of these proposals were subsequently changed a number of times.
15.	Mr Bradshaw and Mr Mountain met at Bradmount’s offices on 1 August 2001. Two matters in particular were discussed. First, four companies of which Mr Mountain was a director had gone into receivership in October 2000. This would require disclosure in the prospectus and Mr Bradshaw regarded it as a significant potential problem. Secondly, while Mr Mountain wished to realise some of his investment as part of the flotation, Mr Bradshaw was not enthusiastic about it.
16.	Mr Bradshaw revised his proposal on 8 August and again on 13 August 2001. Mr Bradshaw, Mr Mountain and Mr Tate met on 15 August 2001 to discuss the terms of the proposal, the appointment of brokers and other issues.
17.	It was agreed that Mr Bradshaw would approach two brokers well known for their involvement in transactions of this type, WdB and Seymour Pierce. He wrote in identical terms to each firm on 16 August 2001, as follows:
“I have a flotation I would like to discuss with you and I would be grateful if you could sign and return a copy of this letter to me to signify that you will not act for the company introduced to you nor seek an offer for its share capital without the written consent of a director of Bradmount, which will protect our position. Upon receipt of this letter I will forward the business plan to you together with the terms of the terms of the transaction on which we have reached agreement with the target company. Impact day is mid November.”
Both firms signed and returned the letter.
18.	The contract constituted by the letter of 16 August 2001 signed by WdB (the August agreement) is the contract which Bradmount claims was breached by WdB when later in the year it started to act for PMO. PMO and Mr Mountain are alleged to have induced such breach of contract by WdB. As well as relying on its express terms, Bradmount also alleges that there was an implied term to the effect that WdB would not seek to oust Bradmount from the transaction.
19.	Bradmount’s dealings at this stage were with Joseph Nally in the London office of WdB. There is a direct conflict between the evidence of Mr Bradshaw and Mr Nally as to Mr Nally’s reaction to the proposal. Mr Bradshaw’s evidence is that Mr Nally said that it was of interest to WdB but suggested that it should be dealt with through the Leeds office, while Mr Nally’s evidence is that he told Mr Bradshaw that WdB was not interested and never suggested that the Leeds office should be involved. I will deal later with this issue.
20.	Following the meeting between Mr Bradshaw, Mr Mountain and Mr Tate on 15 August 2001, Bradmount’s solicitors prepared a draft Heads of Agreement. The purpose of the Heads was to set out the proposals for the flotation as agreed in principle and to provide a framework for further negotiations. Over the next three weeks negotiations were conducted between Bradmount and Mr Mountain and their solicitors, Theodore Goddard and Hammonds, and some 7 drafts were prepared. By 10 September the Heads had been agreed in principle between them. They were signed by Mr Bradshaw on behalf of Bradmount. On 11 September 2001, Mr Mountain went to France to discuss the Heads of Agreement with M. Ferret. He took the latest draft with him and there is an issue as to whether Mr Mountain signed this draft. M. Ferret was not prepared to sign without first seeing a French translation and giving further consideration to the terms. A translation was later supplied to him. M. Ferret signed a draft of the Heads on 18 October 2001. It appears likely from the documentary evidence that on 17 October the signature page from a draft dated 22 August was faxed to him for signature. He signed it and returned it by fax on 18 October.
21.	Between mid-October and mid-December 2001 there were further negotiations and numerous further drafts of the Heads of Agreement. Agreement on revised terms was twice reached by Bradmount and Mr Mountain, in late October and on about 10 December. There were therefore three versions of the Heads of Agreement which were agreed in principle: on 10 September, in late October and on 10 December 2001. Mr Bradshaw signed all of them and it is common ground that Mr Mountain signed the October version. It is Bradmount’s case, which Mr Mountain denies, that Mr Mountain also signed the other two versions. Bradmount’s claim for £50,000 against Mr Mountain is made pursuant to the Heads of Agreement. In his opening, Mr Sterling on behalf of Bradmount made clear that its claim is made pursuant only to the final version of the Heads of Agreement, agreed on about 10 December 2001. It is common ground that if this version was not signed by Mr Mountain, the claim for £50,000 must fail.
22.	The terms set out in the earlier Heads of Agreement are important to later events. I will therefore summarise the principal terms of the October version here, and note as they arise any relevant changes in the later drafts. The parties are Mr Mountain, his wife and M. Ferret as sellers, Shellco PLC as purchaser and Bradmount. Shellco would become the holding company of PMO and be listed on AIM, but it did not yet exist. Recital (A) stated that the parties proposed to enter into further negotiations for the acquisition of PMO and related companies by Shellco. Recital (B) stated that in consideration of proceeding with such negotiations and incurring costs and expenses the parties had agreed to the terms set out in the Heads of Agreement and Recital (C) stated that the provisions of Part 1 were not intended to be legally binding, but the provisions of Part 2 were legally binding.
23.	Part 1 of the Heads set out the proposed terms of the acquisition of PMO by Shellco and the flotation. The consideration to be provided by Shellco would be an aggregate of up to £8.5 million, of which £6 million would be satisfied by the issue of new shares in Shellco at completion. The balance of the consideration, also in the form of shares, would be deferred over two years and calculated by reference to profit targets. Mr Mountain and the other sellers would not sell any of their shares in Shellco for one year after completion and would restrict sales in the following year. The directors and senior management would be granted options by Shellco to subscribe for up to 7 per cent of the enlarged share capital at the placing price. There would be a pre-completion dividend of £611,000, paid by PMO to its existing shareholders.
24.	The benefits to Bradmount or Mr Bradshaw and Mr Mountford were as follows:
“Adrian Bradshaw and Peter Mountford would subscribe in aggregate at least £180,000 for ordinary shares in the Purchaser at the placing price as part of the placing referred to above. Adrian Bradshaw and Peter Mountford would receive warrants to subscribe for 10 per cent of the Purchaser as enlarged by the acquisition of the Targets at a premium of 15 per cent to the placing price and would receive options under an unauthorised option scheme over 2 per cent of the Purchaser’s share capital in issue following Completion with the initial options exercisable at the placing price and further options at subsequent placing prices or at a formula relating to prevailing share prices at the time. Bradmount would also appoint a director to the board at an annual fee of £12,500 per annum, the first such director would be Adrian Bradshaw. Finally, Bradmount would receive a fee of £25,000 on completion for the provision of the services of Adrian Bradshaw.”
It is to be noted that the right to subscribe for shares and the warrants and options were to be granted to Mr Bradshaw and Mr Mountford personally, not to Bradmount. This had been a feature of all previous drafts of the Heads of Agreement sent to Mr Mountain, and was to remain a feature of all subsequent revisions of the Heads.
25.	Part of the overall proposals, though not set out in the Heads of Agreement, was that Shellco should raise £2 million by issuing and placing shares with outside investors.
26.	Part 2 of the Heads of Agreement contained the terms which were to be legally binding upon signature of the Heads. Clause 13.5 provided:
“Failure by any party to sign these Heads shall not relieve the other parties from their obligations under these Heads to the parties who have signed them. Such parties shall be bound by the terms of these Heads upon signature by them.  No provision of these Heads shall be enforceable by any party who has not signed them and unless expressly provided in these Heads, no provision of these Heads shall be enforceable pursuant to the Contracts (Rights of Third Parties) Act 1999 by any party who is not a party to them.”
Clauses 8, 9 and 10 contained provisions for further negotiations, confidentiality obligations and gave an exclusivity period for Bradmount.  Clause 12 made provision for the consequences of the withdrawal of a party from negotiations.  Bradmount’s claim as it relates to the Heads of Agreement is made under clause 12.2:
“If the Sellers withdraw from negotiations without good cause, the Sellers will pay Bradmount or the Purchaser a maximum of £50,000 plus VAT (if any) as a contribution towards expenses whether or not incurred by Bradmount or the Purchaser.”
27.	Meanwhile, in mid-September 2001, Mr Tate contacted the Leeds office of WdB with a view to the possibility of WdB acting on the transaction. He spoke to Joanne Lake, who was head of the corporate finance team in Leeds. The other members of the team, both of whom became involved in the transaction, were Edward Jones and Richard Lindley. Mr Tate gave some outline information to Miss Lake, including that Mr Nally had signed a confidentiality letter and received a copy of the business plan from Bradmount. A meeting was arranged for 1 October 2001 and in a follow-up letter dated 19 September 2001 to Miss Lake, Andrew Scaife of KPMG wrote 
“I have not enclosed a confidentiality letter as a colleague of yours, from your London office, Joe Nally, has already signed one with Bradmount Investments”.
Miss Lake tried to contact Mr Nally to discuss the proposal and obtain a copy of the “confidentiality letter” but Mr Nally was away on paternity leave. She did not see the letter until January 2002. Neither she nor Mr Tate appreciated that it was not a confidentiality letter but contained the restriction on WdB relied on in this action. In this connection, it may be contrasted with the letter dated 14 March 2001 from KPMG to Mr Bradshaw, which imposed conventional confidentiality obligations on Bradmount but contained no restrictions comparable to those in the August agreement. Mr Tate’s evidence was that he first became aware of the terms of the August agreement on about 23 November 2001.
28.	On 1 October 2001 Mr Bradshaw, Mr Tate, Miss Lake and Mr Jones met at KPMG’s offices in Leeds before going on to meet Mr Mountain at PMO’s offices. The principal purposes of these meetings was to brief WdB and to enable Mr Mountain to decide whether to engage WdB. Among other matters, there was a good deal of discussion of the circumstances of the receiverships of the companies in which Mr Mountain had been involved.
29.	In accordance with WdB’s standard practice, Miss Lake sent an “initial notification” on 2 October 2001 to Tim Worlledge, WdB’s head of corporate finance in London, to obtain internal approval to WdB’s participation in the transaction. The proposed remuneration is stated to be a fee of £135,000 (in square brackets), commission at 2 per cent on the new capital of £1.8 million and an option over £250,000 of equity at the same exercise price as Bradmount. The recommendation was to proceed “subject to everyone feeling comfortable with the receivership issue”. Mr Worlledge gave his approval orally in early October.
30.	On 5 October 2001 Mr Mountain called Miss Lake and said that, although he had been told not to call her, he thought that he could work well with WdB. Mr Mountain said that he wished, if possible, to raise £3 million of new money from outside investors. They discussed and agreed terms. Miss Lake said that WdB would like to act for PMO but there would need to be a satisfactory response from investors at the pre-marketing stage.
31.	This discussion was reflected in a draft engagement letter sent on 8 October 2001 by Miss Lake to Mr Mountain. KPMG received a copy and on 8 October 2001 e-mailed it to Mr Bradshaw and to Hammonds for their comments. Both provided comments. Discussions on the terms took placed between Mr Tate and Miss Lake, and Mr Tate reported on the results of the discussions to Mr Bradshaw. Mr Bradshaw agreed that the revised terms were reasonable and should be accepted. He recalls that Hammonds had no objections to them. He did not mention to anyone the August letter or the restriction on WdB acting without the written consent of Bradmount.
32.	On 10 October 2001 WdB sent its draft engagement letter to Mr Mountain and Mr Tate, revised in the light of the discussions. It referred to raising up to £3 million. There was no further re-negotiation of the terms, although WdB did not send out a signed version of the letter until 31 October 2001 and it was not counter-signed by Mr Mountain until 22 or 23 November 2001. The letter provides for WdB’s engagement by PMO as its nominated adviser and nominated broker. Its detailed responsibilities in relation to the flotation were stated in paragraph 1 as being to:
“a) project manage the Engagement including jointly instructing     with you or on your behalf, as deemed necessary, the other professional advisers including Reporting Accountants, Lawyers to the Company, Lawyers to the Issue, Independent Experts (re: the technology), PR consultants, Registrars and Printers and will be available to advise and guide the Company and its directors in connection with the Engagement;
b) organise a suitable marketing campaign to introduce the Company to targeted fund managers and accompany key directors during this process in order to raise up to £3 million gross of expenses. However, the final amount to be raised will be determined closer to impact day which is expected to be December 2001/January 2002;
c) report to you on the progress of the marketing and make arrangements to place new shares for the Company with venture capital trusts, institutional and/or other investors;
d) on behalf of, and at the expense of, the Company, submit admission application forms to the London Stock Exchange plc (“LSE”) and use all reasonable endeavours to obtain the admission of the Company’s shares to trading on AIM;
e) if necessary approve the prospectus as an investment advertisement; and
f) assist the Company with its application for its shares to be traded through CREST.”
WdB’s remuneration in respect of the flotation was a fee of £110,000, an option over 1 per cent of the enlarged share capital following flotation at a price later fixed as the placing price, and a marketing fee of 2 per cent of the gross amount of new capital raised.
33.	It is the evidence of Mr Mountain and Miss Lake, which I accept, that on 10 October 2001 Mr Mountain rang Miss Lake and told her that he wanted WdB to act as nominated adviser and nominated broker. Mr Jones of WdB believed that this call followed by WdB’s work on the flotation, rather than the later signing of the engagement letter by Mr Mountain, marked the appointment of WdB. WdB started work immediately, but they could not in my view be taken to be appointed as nominated adviser and broker until signature of the engagement letter. Miss Lake’s evidence was that neither side wished to be committed until feedback from the pre-marketing was received, in case it was “extremely negative” to the flotation. It was almost immediately after the pre-marketing exercise that the engagement letter was signed by Mr Mountain.
34.	The principal commercial function of brokers to a flotation is to ensure, so far as possible, that the shares on offer are sold. The company must represent an attractive investment opportunity and terms must be pitched at a level which will attract buyers. The brokers’ advice on these issues is critical.  In the case of PMO, there was the additional factor of the earlier receiverships which would require explanation. It is standard practice with flotations of this sort to undertake a pre-marketing exercise. This is done by the brokers and it enables them to gauge the market’s appetite for the flotation and to obtain views on the proposed terms. The exercise is targeted at those likely to be the major investors. It was envisaged by all concerned that WdB would as a matter of priority undertake a pre-marketing exercise. To that end they started work in mid-October on preparations for it, including a meeting on 19 October 2001 with Mr Mountain to be briefed in detail on PMO’s business, examination of the receivership issue, discussion of a variety of issues such as a proposed property acquisition and preparation of an information summary describing the business and the proposed flotation terms. Mr Bradshaw was sent by WdB a draft of the summary information to be distributed in the pre-marketing exercise and asked for his comments, which he provided.
35.	Pre-marketing began on 8 November 2001. WdB sent the final version of the information summary to selected potential investors who had expressed an interest in considering it. Investment in PMO shares in the flotation could attract favourable tax treatment and it was therefore of particular interest to venture capital trusts (VCTs). The summary information was sent to seven institutions, all or most of whom were VCTs. Members of the WdB team discussed it with most of these potential investors. Their reactions were noted and a summary was supplied to Mr Mountain and Mr Bradshaw on 21/22 November 2001. There were a significant number of adverse comments which were principally directed at the deferred consideration, the options and warrants to be granted to Mr Bradshaw and Mr Mountain and the valuation of the company. One VCT was “not keen” on the involvement of Bradmount which, they said, they did not trust. Most of the institutions nonetheless expressed some interest in the flotation. Miss Lake formed the view that the flotation was unlikely to be successful unless there were changes to its structure and a reduction in the package for Mr Bradshaw and Mr Mountain.
36.	There were a series of meetings and discussions on 22/23 November 2001, following the pre-marketing exercise. These give rise to some areas of dispute between the parties.
37.	In the morning of 22 November 2001 Mr Bradshaw and Miss Lake discussed the feedback from the institutions. Mr Bradshaw was anxious to retain the structure, as he explained in a letter to Mr Mountain written on the same day.
38.	Later the same day there was a conference call involving Mr Mountain, Mr Tate, Mr Scaife, Miss Lake, Mr Lindley and Mr Jones to discuss the pre-marketing feedback. There was agreement that the structure, and the warrants and options to be granted to Mr Bradshaw and Mr Mountford, needed re-consideration. Miss Lake’s contemporaneous note records Mr Tate as saying “We are convinced that have to revisit Bradmount deal”, “convinced 10 per cent warrants is too high” and “do you want Bradmount at all?” These comments are reflected also in contemporaneous notes made by Mr Jones. Mr Tate, who gave evidence for Bradmount, says that he has no specific recollection of these remarks, but does not deny making them; if he made them, they were, he says, consistent with the feedback as reported by WdB.  I am satisfied that he did make them. I also accept that Mr Tate was not suggesting that Bradmount should in fact be dropped, nor did Mr Mountain understand him as saying that. Mr Mountain said that he was not adverse to Mr Bradshaw being involved but it would have to be on a smaller scale.
39.	There followed a number of discussions on 22 and 23 November 2001 involving Mr Mountain, Mr Tate and Mr Bradshaw.  An important issue to which I shall later return is whether Mr Bradshaw told Mr Mountain that WdB’s appointment required Bradmount’s consent.
40.	In a conversation on 23 November 2001 between Mr Bradshaw, Mr Mountain and Mr Tate, agreement appeared to have been reached on revised terms for the participation of Mr Bradshaw and Mr Mountford. It later transpired, however, that there was confusion as to what had been agreed. Mr Bradshaw’s understanding was that the warrants to be issued to Mr Mountford and himself would entitle them to subscribe for 6 per cent, not 10 per cent, of the post-flotation share capital but that their 2 per cent options would remain unchanged. This was reflected in a new draft of the Heads of Agreement produced on 26 November 2001 by Theodore Goddard, on Mr Bradshaw’s instructions.
41.	Mr Mountain understood that the new 6 per cent options replaced the 10 per cent warrants and the 2 per cent options. On 23 November 2001, Mr Scaife e-mailed to WdB a “summary of the new deal which has been agreed by Geoff [Mountain], Adrian [Bradshaw] and ourselves”. This set out the key features of the transaction, including the initial consideration of £7 million, the deferred consideration, the management options and “Bradmount options: 6 per cent over total share capital on flotation at a premium of 10 pence (on assumed placing price of £1 per share)”. There is no mention of any separate 2 per cent options or warrants. The same summary, again with no mention of any 2 per cent options or warrants, was given in a telephone call by Mr Tate to Miss Lake on 23 November 2001 and noted down by her.
42.	Miss Lake and the rest of the team at WdB, quite reasonably, understood that the 6 per cent option was the totality of warrants and options to be granted to Mr Bradmount or its directors. They were disappointed that more had not been done to address the market’s concern over the complexity of the proposal, but a 6 per cent dilution was better than a 12 per cent dilution. 
43.	A meeting was arranged for Monday 26 November 2001 at KPMG’s Leeds offices.  It was attended by Mr Bradshaw, Miss Lake, Mr Jones, three representatives of KPMG and probably Mr Mountain. An agenda had been prepared by KPMG. Mr Bradshaw confirmed in evidence that he had seen and read it. The first item, which he confirmed that he saw, was:
“Background
Catch up re transaction and record developments following the appointment of Williams de Broe”.
This was not the subject of any discussion at the meeting. In his witness statement, Mr Bradshaw explains:
“At the time, I saw the reference … but I did not raise any question about it because we did not need to object to WdB’s participation because the terms had been renegotiated after the pre-marketing exercise and we, Mr Mountain and KPMG presumed that WdB felt that the revised terms would be acceptable to investors.”
It is common ground that there was no mention of the August letter at the meeting, nor any issue taken with WdB’s appointment.
44.	Miss Lake and Mr Jones remained concerned about the structure of the flotation and the warrants, and wished to have the best understanding of its rationale to help in presenting it to the market. In cross-examination, Miss Lake explained their concern as to the warrants. Mr Mountain and the management would suffer very little dilution as a result of the exercise of warrants by Bradmount or its directors, because they would be issued with further shares under the provisions for deferred consideration; their only risk was that the profit targets would not be met. The VCTs and other placees would suffer a significant dilution with their holdings declining from 28 per cent to 23 per cent of the issued shares. It was explaining the commercial rationale for this dilution which, in WdB’s view, presented a problem. Mr Bradshaw had previously mentioned that he had an analyst’s report which explained the basis for the similar structure used for the Atlantic Global flotation. Miss Lake asked for a copy of the report and details of his investor contacts who, he had said, would be keen to invest. Mr Jones followed up this request in e-mails on 30 November, 12 December and 17 December 2001 and in telephone messages which he left during that period. Mr Bradshaw did not respond until 19 December 2001 when he informed Mr Jones that there was no analyst’s report. He did not provide any investor contacts.
45.	The confusion over the terms agreed on 23 November 2001 became clear after Hammonds received Theodore Goddard’s new draft of the Heads of Agreement and queried the warrants and options with Mr Mountain. He instructed Hammonds that the draft was wrong and gave them his understanding of the agreed terms. In further negotiations, Mr Bradshaw was firm that there was to be no change to the 6 per cent warrants and 2 per cent options. In early December 2001, a deal was struck under which Mr Mountain conceded that point in exchange for a change on another aspect of the transaction.
46.	WdB was not informed of the new terms, except that on 20 December 2001 a copy of a further draft of the Heads of Agreement incorporating the new deal was sent to Mr Jones at his request. Mr Jones reviewed them briefly and noticed a number of errors, such as the expected impact day and the amount of new capital to be raised, which was stated as £1.8 million but had long since been increased to £3 million. He also saw that clause 5.5 provided for 6 per cent warrants and 2 per cent options. His evidence, which I accept, is that this did not accord with his understanding of the agreed terms. He did not take up any of these points at that stage. His evidence, which again I accept, was that he understood this to be only a draft, that like earlier drafts it was “littered with errors”, and that if there were real issues they could only be sorted out when Mr Bradshaw returned from holiday on 7 January 2002.
47.	During December 2001, WdB continued with preparations for the flotation. The key task in this period was financial and commercial due diligence. The primary work was undertaken by KPMG but WdB were involved in its planning and the terms of KPMG’s engagement, taking up one to two man weeks of working time. Work was also undertaken on the control document, which includes the timetable of activities up to flotation. Its preparation takes a substantial amount of time and the first draft (31 pages) was ready by 20 December 2001. Other work included consideration of the appointment of a finance director and of PR advisers and the preparation of directors’ questionnaires.
48.	The overall level of fees on the transaction was a matter of concern to Mr Mountain and WdB, the latter’s concern being with their impact on the market. A considerable amount of time was spent by WdB in December 2001 in a consideration of KPMG’s fees and discussions with them.
49.	On about 10 January 2002, Mr Pike of Hammonds mentioned to Mr Jones that Theodore Goddard were chasing him to exchange the Heads of Agreement. At Mr Jones’ request, Mr Pike sent him a copy of the draft Heads. Mr Jones and Miss Lake reviewed the document the next day and saw that it still provided for Bradmount’s directors to receive 2 per cent options as well as 6 per cent warrants. Their evidence is that they saw this as largely undoing the improvements resulting from their understanding of the agreement reached in November 2001, both because it involved a greater level of dilution and because the complexity was increased by having two types of instrument, both options and warrants. I accept this evidence.
50.	Miss Lake and Mr Jones spoke about this to Mr Pike and then to Mr Mountain and, at the latter’s suggestion, they called Mr Bradshaw. Mr Lindley was also a party to the call. The call started with a discussion regarding Theodore Goddard’s position as proposed solicitors to the flotation. Miss Lake then raised the issue of the structure and the warrants and options. Miss Lake’s account of the call in her witness statement, which is endorsed by Mr Lindley and Mr Jones and reflected in Mr Jones’ contemporaneous notes, is as follows:
“I asked why the structure was as it was in the latest draft of the heads of agreement. I was a bit taken aback by the response, which was “I will not discuss my terms”. I explained that we needed to put together a rationale for the structure to enable us to sell it to investors. He refused to discuss the matter and said “You tried before. You will not try again. You are the broker. You do what I say. I do not discuss my terms with the broker”. At that point Ed said that we were not trying to change the structure but needed an explanation to put to investors, and asked what Adrian wanted us to tell prospective investors. Adrian just said “tell them what you like, I won’t discuss it, period”. He also said “if you’re not happy, don’t act”.”
51.	WdB regarded Mr Bradshaw’s reaction very seriously. As nominated adviser and broker, they needed the cooperation of the directors. Mr Bradshaw was to be a director. If they did not feel that they would get full cooperation, it would make it impossible for WdB to retain their role. They also considered that the benefits to Bradmount and its directors were disproportionately large and that the complexity and dilution involved with their warrants and options could seriously jeopardise the flotation. They relayed these concerns to Mr Mountain in a telephone conversation on the same day.
52.	It is right to say that there was, in my judgment, a genuine misunderstanding at this point between Mr Bradshaw and WdB. Mr Bradshaw had re-negotiated the terms of the Heads with Mr Mountain in December 2001, and whether or not Mr Mountain signed the revised Heads, the terms had been agreed in principle. WdB did not know that. So, when Miss Lake and the others at WdB spoke to Mr Bradshaw, he thought they were trying to re-open the December negotiations, while they were concerned that the Heads did not reflect their understanding of the terms agreed on 23 November 2001.
53.	As a result of WdB’s concerns, Mr Mountain discussed the position with Mr Pike in the morning of 14 January 2002 and a meeting was arranged for 12 noon at Hammonds’ offices. As well as Mr Mountain and Mr Pike, the meeting was attended by Miss Lake, Mr Jones and Mr Lindley from WdB and by Noel Hutton of Hammonds. The discussion centred on the structure of the transaction and its likely effect on investors and on the continued involvement of Bradmount. Mr Pike advised that as the Heads of Agreement had not been signed, they were not binding on Mr Mountain and in any event he might well have good cause not to proceed. The upshot of the meeting was a decision by Mr Mountain, supported by those present at the meeting, to proceed without Bradmount.
54.	In his closing speech, Mr Sterling submitted that in raising their concerns with Mr Pike and Mr Mountain, the WdB team were acting in bad faith. He submitted that they were motivated by hostility to Mr Bradshaw and exaggerated their concerns, using them as a pretext to bring about the exclusion of Bradmount from the flotation. I reject these submissions. I am entirely satisfied that WdB’s concerns were genuine and that, rightly, they regarded it as their duty as nominated adviser to raise them. 
55.	Shortly after the meeting, Mr Mountain and Mr Bradshaw spoke by telephone. Mr Bradshaw was clearly angry with Mr Mountain’s decision. Later that day, Mr Bradshaw spoke by telephone to Miss Lake and Mr Jones. He told them that he had a confidentiality agreement signed by Mr Nally of WdB’s London office and that he could exclude WdB from the deal. The evidence of Miss Lake and Mr Jones is that they did not know what he was talking about. He said that if Bradmount was “off the deal”, then so was WdB. Mr Jones asked Mr Bradshaw to send a copy of the agreement, but he refused. He added that if WdB continued to act, they would hear from Theodore Goddard.
56.	Miss Lake took steps to obtain a copy of the agreement to which Mr Bradshaw had referred. She rang Mr Scaife, but KPMG did not have a copy. She contacted Mr Nally. He did not have a copy but he obtained one from Mr Bradshaw and faxed it to Miss Lake.
57.	On 16 January 2002, Theodore Goddard faxed a letter to WdB in Leeds, referring to the August agreement, informing them that consent would not be given to WdB acting for PMO and requiring confirmation that WdB would not act for PMO in relation to its admission to AIM or to any offer for its share capital.
58.	At a meeting already fixed for 17 January 2002, involving Mr Mountain, the WdB team, Mr Pike, the due diligence team from KPMG and representatives of Addleshaw Booth who had now been appointed to act as solicitors to the flotation, the situation with Bradmount was discussed as the first item. One possibility discussed was that PMO might drop WdB as nominated adviser and broker. It was left that Mr Mountain would consider the position.
59.	On 21 January 2002, Mr Bradshaw spoke to Mr Mountain and demanded that WdB must not act for PMO, threatening that a claim would be issued if they did. Mr Mountain asked him what he was trying to achieve and Mr Bradshaw replied that he wanted to be involved in the flotation. Mr Mountain told him that this could not be agreed, to which Mr Bradshaw replied that this would cost Mr Mountain a lot of money.
60.	Over the next week Mr Mountain considered whether to change brokers but decided against doing so. The flotation proceeded but with a significantly different structure. The provisions for deferred consideration were removed and there were of course no warrants and options in favour of Bradmount or its directors. The management and employee options (7 per cent) and WdB’s options (1 per cent) remained the same. The amount of new money to be raised was increased from £3 million to £4.5 million and the extra funds used to buy rather than lease a new property. The flotation was a success and the shares were admitted to AIM on 2 May 2002. 
61.	A number of threats of imminent litigation were made by or on behalf of Bradmount in the period January-March 2002. It issued the proceedings in January 2003.
Bradmount’s claims
62.	The claims made by Bradmount arising out of the events summarised above, and the defendants’ responses to them, are in summary as follows. First, Bradmount alleges that the revised Heads of Agreement agreed in December 2001 were signed by Bradmount and Mr Mountain, so that the provisions of Part 2 became binding on them. Mr Mountain withdrew from negotiations without good cause, so that pursuant to clause 12.2 he is liable to pay £50,000 plus VAT (if any) to Bradmount. Mr Mountain’s defence is, first, that he did not sign the December version of the Heads of Agreement so that no part of it became binding on him. If that is wrong, then, secondly, the Heads did not become binding because there was no exchange. In the further alternative, thirdly, Mr Mountain had good cause to withdraw from the negotiations.
63.	Bradmount’s remaining claims are based on the August agreement. The claim against WdB is, first, that in breach of the August agreement it acted for PMO without the written consent of a director of Bradmount. That of itself would not give Bradmount a claim for more that nominal damages but its case is that, if WdB had refused to act for PMO without Bradmount’s written consent, PMO would have agreed to Bradmount’s participation in the flotation on the terms set out in Part 1 of the Heads of Agreement as agreed in December 2001 or there was a real chance that PMO would have done so. Accordingly, by reason of WdB’s breach of contract, Bradmount suffered loss because it or its directors lost the opportunity to obtain the warrants, options and other benefits set out in the Heads of Agreement.
64.	WdB defend this claim on a number of grounds. First, the August agreement applies only if WdB’s involvement resulted from the introduction made by Bradmount and this is denied on the facts. It is said that the involvement of the Leeds office of WdB was unconnected with the introduction made to Mr Nally of the London office in August 2001. Secondly, Bradmount acquiesced in WdB acting for PMO with full knowledge, raising no objection until 14 January 2002, by which time WdB had contracted to provide services as nominated adviser and broker to PMO. Bradmount is accordingly estopped from relying on the August agreement as an objection to WdB acting for PMO either at all or before 14 January 2002. Thirdly, even if Bradmount was entitled to prevent WdB acting for PMO, PMO would not have agreed to the continued involvement of Bradmount. It would have engaged another broker and refused to agree to Bradmount’s involvement. There is no real chance that PMO would have done otherwise.
65.	The second claim against WdB arising from the August agreement is that it contained the implied term to which I have earlier referred and that in breach of the implied term WdB encouraged Mr Mountain to terminate the arrangements with Bradmount. WdB denies that any such term is to be implied into the August agreement.
66.	The claim against PMO and Mr Mountain in relation to the August agreement is that by engaging WdB to act on the flotation without the written consent of a director of Bradmount, they are liable in tort for inducing a breach of the August agreement. Bradmount accepts that it must establish that PMO knew of the restriction contained in the August agreement before the letter of engagement was signed by Mr Mountain on behalf of PMO on 22 or 23 November 2001. The relevant knowledge is that of Mr Mountain. Mr Mountain denies that he knew of the August agreement or its terms until mid-January 2002. Bradmount’s case is that Mr Mountain was told about the agreement by Mr Bradshaw and Mr Tate on 23 November 2001. The significance of the issue as to whether Mr Mountain signed the engagement letter on 22 November or 23 November is that, if the former, WdB was in any event engaged before Mr Mountain knew of the August agreement.
67.	Even if liability is established on any of the bases stated above, the defendants submit that Bradmount is unable to establish any loss, on two grounds. First, the rights to subscribe for shares and the rights to warrants and options contemplated by clause 5.4 of the Heads of Agreement were to be granted to Mr Bradshaw and Mr Mountford personally, not to Bradmount. Secondly, in any event, on the basis of the expert evidence, the flotation would not have succeeded on the basis proposed in the Heads of Agreement.
Witnesses
68.	Bradmount called two witnesses, Mr Bradshaw and Mr Tate. Two incidents in the relevant events of 2001 have a bearing on the credibility of Mr Bradshaw’s evidence. First, although he knew on 26 November 2001 that WdB had been appointed by PMO and although he received on 4 December 2001 a copy of the engagement letter signed by Mr Mountain, he wrote on 7 December 2001 to another firm of brokers, Peel Hunt & Co Limited, asking if they would be interested in acting on the flotation and stating:
“We have already had some pre-marketing and substantial interest from VCTs and we have been working with Williams de Broe. However, they have not yet been appointed and work has not yet commenced on any due diligence (KPMG) and both Geoff Mountain and ourselves are unhappy about their proposed fees and certain other aspects of their performance to date.”
This was, as Mr Bradshaw knew, untrue on two counts. First, WdB had been appointed and, secondly, Mr Mountain was not unhappy about their fees or their performance to date. When pressed on these untrue statements in cross-examination, Mr Bradshaw described the first as “a white lie”. In my view there was nothing white about it. Ironically, if successful, the approach to Peel Hunt would have involved an attempt by Bradmount to induce a breach by PMO of its contract with WdB. As it happens Peel Hunt expressed no interest.
69.	The second incident involved a brokers’ research note which was said to have been produced to explain the structure of the Atlantic Global transaction in connection with its flotation. According to the evidence of Miss Lake and Mr Jones, the note was mentioned to them by Mr Bradshaw on 1 October 2001 and he agreed to provide them with a copy. In cross-examination, Mr Bradshaw denied that he made the comment. In the light of the adverse comments on the proposed structure of the PMO flotation received during the pre-marketing exercise and WdB’s own difficulty in understanding and explaining its benefits to investors, Miss Lake and Mr Jones were anxious to receive the note on the Atlantic Global structure which they thought might help them. In an letter dated 22 November 2001 to Mr Mountain, Mr Bradshaw referred to the note:
“I have told Joanne that we wish to proceed with the existing structure. This is a fairly novel structure and we needed to explain this on the Atlantic Global transaction that there are actually seven institutions subscribed for shares [sic]. The structure was outlined in a research note from Atlantic’s brokers and was effectively self financing as is the PM deferred consideration.”
In his oral evidence, Mr Bradshaw confirmed that there was a broker’s note to explain the structure of Atlantic Global which was given to potential investors as part of the flotation marketing and that seven institutions had invested, in part on the basis of the note. He confirmed that it was a “pre-float note”, given out as part of the final marketing exercise.
70.	On 30 November 2001 Mr Jones e-mailed a request for the note to Mr Bradshaw. He received no response, so made further e-mail requests on 12 December and 17 December 2001. In a letter dated 19 December 2001, Mr Bradshaw wrote to Mr Jones in a letter headed Atlantic Global:
“Apologies for not providing you with the information you required. There was not a report produced at the time of flotation.”
Mr Bradshaw’s attempts in his oral evidence to reconcile his letter dated 22 November 2001 to Mr Mountain and his letter dated 19 December 2001 to Mr Jones were evasive and unsatisfactory. First he suggested that they were referring to different reports at different times, then he seemed to say that the letter dated 19 December 2001 was wrong, and finally that the note was about the company, and not really about the structure.
71.	What is clear is that the impression given by his letter of 22 November 2001, that there was a broker’s research note which explained the Atlantic Global structure, was untrue. For these and other reasons which appear when I deal with particular issues, I approach the evidence of Mr Bradshaw with some caution.
72.	I did not find Mr Tate an impressive witness. In particular, his evidence arising from a letter dated 30 April 2002 which he co-signed on behalf of KPMG casts serious doubts over the credibility of his evidence. I deal later in detail with that letter. 
73.	WdB called four witnesses, all employees of WdB: Miss Lake, Mr Jones, Mr Lindley and Mr Nally. Each of these witnesses gave clear evidence in a credible manner. They had a good recollection of the important events. In particular, Mr Jones had a remarkably good recall of most events. A court can sometimes be justified in being sceptical about a high degree of detailed recollection of events over three years earlier. However, I was satisfied that Mr Jones’ recollection was reliable. 
74.	Mr Mountain gave evidence and in addition, he and PMO called Mr Pike of Hammonds, and a number of other witnesses, principally from KPMG. Mr Mountain did not have the same degree of detailed recollection of many events shown by Miss Lake and Mr Jones. He got confused about different versions of the Heads and, at least when asked for his recollection without reference to contemporaneous documents, sometimes conflated events which occurred over short periods. There is nothing unusual about that. I have no doubt, however, that he was at all times doing his best to assist the court and he gave his evidence in a straightforward manner. I was also satisfied that when he did clearly remember particular events, his evidence was reliable.
75.	I found Mr Pike to be an entirely credible and reliable witness, as were the other witnesses called by Mr Mountain and PMO.
(1)	The claim against Mr Mountain under the Heads of Agreement
76.	This claim arises under the December version of the Heads of Agreement. The claim is for the payment of £50,000 pursuant to clause 12.2, being the amount payable by “the Sellers” (Mr and Mrs Mountain and M. Ferret) if they withdrew from negotiations with Bradmount “without good cause”.
77.	Bradmount accepts that this claim must fail unless it establishes that Mr Mountain signed the December version of the Heads of Agreement. Mr Mountain denies that he did so. If it is established that he did sign it, an issue arises as to whether on the true construction of Part 2 of the Heads of Agreement, it became binding on Mr Mountain and Bradmount by reason of their signatures without the need for exchange. It is accepted that there was no exchange. If Bradmount succeeds on that issue, Mr Mountain submits that he had “good cause” to withdraw from negotiations.
78.	The undisputed chronology as regards the December version of the Heads is as follows. On 11 December 2001, Mr Pike confirmed to Theodore Goddard that the Heads were now in agreed form and said that if they arranged for the Heads to be signed by Bradmount, he would do the same as regards his clients. On 12 December 2001 Theodore Goddard e-mailed to Mr Pike that Mr Bradshaw had signed the Heads on behalf of Bradmount and asked when Mr Mountain would do the same. On 14 December 2001 Mr Pike replied that:
“As you know we need to get M. Ferret’s signature. I have seen Geoff today who tells me he hopes to have it by Wednesday next week.”
Theodore Goddard forwarded this e-mail to Mr Bradshaw.  On 3 January 2002 Theodore Goddard e-mailed Mr Pike to ask  when he expected to receive signed Heads from his clients, and Mr Pike replied on the same day:
“We are waiting for Olivier Ferret to sign and Geoff Mountain told me today that he hopes to have a document signed by M. Ferret by Monday.”
Mr Mountain’s evidence was that he had intended to go to France to discuss the Heads with M. Ferret, but he did not do.
79.	Bradmount’s case that Mr Mountain signed the Heads is based, first, on Mr Bradshaw’s evidence that Mr Mountain told him so at some time between 10 December 2001 and 3 January 2002. His evidence is also that he thereafter passed this information on to WdB. Mr Bradshaw could not remember more precisely when Mr Mountain had told him, but he was away on holiday from about 18 December 2001 until he returned to his office on 7 January 2002 and in evidence he said that he was fairly certain that Mr Mountain did not tell him while he was on holiday. Secondly, Bradmount’s case relies on evidence suggesting that, when seeking M. Ferret’s signature to the September version of the Heads, Mr Mountain had signed the Heads first in order to persuade M. Ferret to sign. It was therefore likely that the same approach was used for the December version. Moreover, it is to be inferred from the terms of the e-mails quoted above that it was only M. Ferret who had not signed the Heads and that Mr Mountain had done so.
80.	Mr Mountain denies that he signed the December version and denies that he told Mr Bradshaw that he had signed them. Mr Pike’s evidence is that he was never told by Mr Mountain that he had signed the Heads. Miss Lake and Mr Jones deny being told by Mr Bradshaw that Mr Mountain had signed the Heads. Mr Jones’ unchallenged evidence was that he was told by Mr Mountain on 20 December 2001 that he had not signed the Heads.
81.	I am satisfied that Mr Mountain did not sign the December version of the Heads and did not tell Mr Bradshaw that he had done so. Mr Bradshaw says that he told WdB but accepts that he did not inform his own solicitor. This is surprising, particularly as Theodore Goddard were pressing Hammonds for Mr Mountain’s signature and were copying Mr Bradshaw in on the e-mails. 
82.	I accept the evidence of Miss Lake and Mr Jones that Mr Bradshaw did not tell them that Mr Mountain had signed. Quite apart from the reliability of their evidence generally, this information, if given, would almost certainly have been given to them by Mr Bradshaw by 17 or 18 December 2001. Yet, on 20 December 2001, Mr Mountain told Mr Jones that he had not signed the Heads. It is scarcely credible that Mr Jones would not have raised this inconsistency and taken steps to ascertain the true position. Similarly, it is not credible that Miss Lake and Mr Jones would not have raised it with Mr Mountain and Mr Pike in mid-January 2002. Mr Jones was told by Mr Pike in a telephone conversation on 11 January 2002 that Mr Mountain had not signed the Heads and this was repeated to Miss Lake and Mr Jones at the meeting on 14 January 2002.
83.	It is likely that Mr Mountain would have told Mr Pike, if he had signed the Heads of Agreement. On 11 January 2002 Mr Pike told Mr Jones that Mr Mountain had not signed the Heads. I accept Mr Pike’s evidence that he was not told by Mr Mountain that he had signed the Heads.  It follows that the inference which Bradmount seeks to draw from Mr Pike’s e-mails of 14 December 2001 and 3 January 2002, that Mr Mountain had signed and that only M. Ferret had not yet signed, must be rejected.
84.	On all this evidence, I reject Bradmount’s case that Mr Mountain signed the December version of the Heads of Agreement. I should nonetheless refer to Bradmount’s case that Mr Mountain signed the September version of the Heads before showing it to M. Ferret on 11 September 2001, as a way of persuading M. Ferret to sign, and that the same approach was adopted as regards the December version. M. Ferret was seen as likely to be cautious and it was certainly considered in September 2001 that, if Mr Mountain signed the Heads first, this might persuade M. Ferret to sign. This appears from an e-mail dated 10 September 2001 from Mr Scaife to Mr Pike and was confirmed by Mr Mountain in cross-examination. Nevertheless, Mr Mountain’s evidence is that he did not in fact sign the version of the Heads which he showed to M. Ferret in France and left with him on 11 September 2001. While he was in France, Hammonds faxed the signature sheet with Mr Bradshaw’s signature to Mr Mountain’s secretary and asked her to fax it to Mr Mountain, so that M. Ferret and Mr Mountain could both sign it. From M. Ferret’s attitude in the discussions and his request for a translation it was clear that he would not be signing the Heads that day or for some time. In those circumstances it would not be surprising if Mr Mountain had not signed the faxed signature page or any other copy at that time. Mr Mountain did not report back to Hammonds that he had signed. I conclude that Mr Mountain did not sign the September version before giving it to M. Ferret (or during his meeting with M. Ferret). 
85.	I therefore find that Mr Mountain did not sign the December version of the Heads. As was accepted on behalf of Bradmount, its claim against Mr Mountain for payment of £50,000 pursuant to clause 12.2 must therefore fail. It is not necessary to go on to consider the alternative defences raised on behalf of Mr Mountain.
(2)	The claim against WdB under the August agreement: express terms
86.	The terms of the August agreement are set out above. Bradmount’s case is that WdB was in breach of its express terms by acting for PMO without the written consent of a director of Bradmount. WdB submits that the agreement not to act “for the company introduced to you” applies only to restrain work that resulted from the introduction by Bradmount. It submits that the evidence establishes that the introduction to Mr Bradshaw at the London office came to nothing because Mr Nally soon rejected the proposal and that the  introduction to the Leeds office was independently made by KPMG.
87.	In support of its construction, WdB submits that, in view of the fact that the company was unidentified, the agreement must be read in this way, because it would otherwise prevent WdB from continuing with an existing retainer or from at any time in the future acting for the company on unrelated matters. I agree that these would be absurd consequences, but they do not in my view flow from the terms of the agreement. First, the agreement refers expressly to a flotation of the company with an anticipated impact day in November and to an offer for its share capital. The commercially sensible reading is that the restriction applies to those transactions, and not to entirely different transactions. Secondly, the agreement cannot sensibly be read as intended to interfere with an existing relationship. The words “you will not act” need not be read as “you will not continue to act” and, if necessary, a term would be implied that excluded the continuation of an existing retainer.
88.	I do not, however, consider that the agreement should be read as restricted to work that results from the introduction. This restriction is not expressly stated and it is not obvious that both parties must have intended it to be restricted in that way. The difficulty in showing whether or not work on a flotation of the company or an offer for its share capital “resulted from” the introduction would represent a good commercial reason for the more general restriction. 
89.	On this basis I consider that the August agreement applied to the work which WdB subsequently undertook for PMO. I will nonetheless consider the evidence as to whether it resulted from the introduction to Mr Nally on 16 August 2001, when he signed and returned the agreement and when Mr Bradshaw sent him details of the proposal. No contemporaneous documents produced by any party record Mr Nally’s reaction, but his evidence was that neither he nor Mr Worlledge thought it was of any interest and he rejected it. He did not open any file or retain either the agreement or the details of the proposal. Mr Bradshaw’s evidence was that Mr Nally suggested to him that the transaction should be dealt with through WdB’s Leeds office, as PMO was based there, and that he mentioned this to Mr Tate. This is corroborated by Mr Tate.
90.	The first contact with the Leeds office of WdB was made on 19 September 2001. The main activity between mid-August and mid-September was the negotiation of the Heads of Agreement, which ran through seven drafts in that time, and the negotiation of the engagement with Hammonds and with KPMG for due diligence work. On 19 September 2001 Mr Tate rang Miss Lake, and Miss Lake’s contemporaneous note of the call records as follows:
“Roland Tate (KPMG Newcastle) rang JCL to introduce us to a technology business that wants to float on AIM. The company has been trading for 10 years and has shown steady growth. It is based in Bradford.
Joe Nally has already signed a confidentiality letter and received a copy of the business plan from Adrian Bradshaw (Bradmount Investments). Bradmount has a cash shell which will acquire the existing business a la Atlantic EC.
A full business plan is available. KPMG will act as reporting accountants and would like us to act as Nomad and Broker. The company is currently not meeting any other brokers and they are keen to use local advisers.”
The evidence of Mr Bradshaw and Mr Tate is that Mr Tate had agreed to make this approach to the Leeds office of WdB when Mr Bradshaw reported that Mr Nally had suggested that the Leeds office should deal with it. Mr Mountain’s evidence is that in mid-September 2001 Mr Tate told him that the time had come to involve a broker. Mr Mountain’s preference was to use a local broker.
91.	I reject Mr Bradshaw’s evidence that Mr Nally expressed WdB’s interest in the proposition but suggested that it would be sensible to deal with the transaction through its Leeds office. Mr Nally was clear in his evidence that he and Mr Worlledge did not consider it to be of interest and that he did not make any suggestion concerning the Leeds office. By contrast Mr Bradshaw’s own account of his conversation with Mr Nally showed that he had only a poor recollection of it. Consistently with his evidence, Mr Nally did not retain the August agreement or the transaction details sent by Mr Bradshaw (in fact, in January 2002, he had to ask Mr Bradshaw for a copy of the agreement) nor did he send them to WdB’s Leeds office or have any other contact with the Leeds office. There was criticism of WdB at the time for not having these documents but, in my judgment, it is consistent with Mr Nally’s rejection of the proposal that he did not retain them. The point is made on behalf of Bradmount that if Mr Nally simply rejected the proposal, Mr Bradshaw would have immediately pursued it with Seymour Pierce, the other brokers to whom he sent information about PMO. There is no evidence of Seymour Pierce’s reaction to the proposal, whether they rejected it or expressed interest. But, in any case, the same point would suggest that some contact would have been made with WdB in Leeds. However, Mr Bradshaw made no contact with WdB in Leeds and it was not until 19 September 2001 that Mr Tate approached them. 
92.	Bradmount relies on certain circumstantial points in support of its case. First, it is suggested that it is improbable that Bradmount would have proceeded with WdB in Leeds if WdB in London had rejected the proposal. This ignores that it was not Bradmount but PMO which was to engage the brokers, that the approach to the Leeds office was made by Mr Tate on behalf of PMO not Bradmount, and that Mr Mountain, whose choice it was, preferred local brokers. There is also no evidence from Mr Bradshaw to support it. Secondly, it is said to be surprising that Mr Worlledge raised no adverse comment when Miss Lake sent internal notifications to him for his information and for his approval of the firm’s engagement. But, the London and Leeds offices were separate profit centres and Miss Lake’s evidence was that, given her support for the transaction, Mr Worlledge was prepared to approve it. It was also Miss Lake’s evidence, which I accept, that Mr Worlledge told her they had looked at it and had not taken it forward. Thirdly, on 24 August 2001 Bradmount placed 639,500 shares in an entirely separate company, Honeycombe Leisure plc, for over £388,000 through WdB London for commission of £1950. It was suggested that it is unlikely that Bradmount would have done this, if WdB had completely rejected the PMO flotation. I am unable to understand the logic of this suggestion, which is not in any case supported by any evidence from Mr Bradshaw.
93.	I reject also the evidence that Mr Bradshaw told Mr Tate that Mr Nally had suggested that the matter be dealt with through the Leeds office. I consider it much more likely that Mr Tate approached the Leeds office because he had decided that, following agreement on the terms of the Heads, it was time to appoint brokers and because Mr Mountain had a preference for a local firm. Moreover, the evidence of Mr Bottomley and Mr Scaife is that KPMG considered that, as the Leeds office had pitched for the Atlantic Global flotation but had not been selected, it would be a good idea if they could be used on the PMO transaction. 
94.	I therefore accept WdB’s case on the facts relevant to the introduction of the PMO transaction to the Leeds office. Nonetheless, as a matter of construction of the August letter, I hold that its terms applied to the Leeds office acting for PMO on the flotation.
95.	It is common ground that at no time did a director of Bradmount consent in writing to WdB acting for PMO on the flotation as required by the express terms of the August agreement. However, WdB submits that the evidence clearly establishes that Bradmount knew at all material times that WdB was acting for PMO, cooperated with WdB in their work for PMO and never raised any objection until 14 January 2002.
96.	A further point of construction of the August agreement arises in connection with this issue. It provides that WdB “will not act for the company” without written consent. Bradmount contends that, for the purposes of the agreement, WdB did not “act for”  PMO until PMO had signed and become bound by WdB’s letter of engagement. This occurred on 22 or 23 November 2001. It follows that WdB’s work for PMO from about 10 October 2001 to 22 or 23 November 2001 did not constitute acting for PMO within the meaning of the agreement. Accordingly, it argues, there could be no relevant acquiescence on the part of Bradmount in that period. In my judgment, the words “act for the company” carry their ordinary meaning, without the requirement for a prior contractually binding engagement. I do not see the basis for Bradmount’s submission that the commercial purpose of the agreement was to prevent WdB acting for PMO under a contract, nor do I accept that the ordinary meaning of “act for” introduces any real element of uncertainty. During November 2001, WdB sent out information memoranda to potential investors and held discussions with them, with a view to advising PMO on the prospects for the flotation. It seems to me clear that in carrying out that exercise, WdB was acting for PMO. Equally, the work preparatory to the pre-marketing exercise, though not yet involving contact with third parties, was part of the entire exercise in which WdB was acting for PMO.
97.	In my judgment, therefore, WdB was acting for PMO within the meaning of the agreement from about 10 October 2001. It is undeniable that Bradmount, through Mr Bradshaw, was well aware of the activities of WdB on behalf of PMO. Mr Bradshaw was present at the meeting on 1 October 2001 when the transaction was discussed for the first time in detail with WdB. In his witness statement, he states that WdB started work on the pre-marketing exercise on or around 10 October 2001. On 5 November 2001, he was sent the draft information prepared by WdB for use in the pre-marketing exercise for his comments, which he provided to WdB on 6 November. He knew, of course, that WdB was conducting the pre-marketing exercise and on 22 November 2001 was sent by WdB a summary of the feedback.
98.	Mr Bradshaw knew also that WdB would be engaged on the terms of the engagement letter. He was kept closely involved in the process of negotiation of those terms: see e-mails addressed or copied to him by KPMG on 8, 10 and 11 October 2001. He was asked for his comments, which he provided to Mr Tate. He approved the final terms and he knew that the terms had been agreed by WdB and PMO. 
99.	In his witness statement, Mr Bradshaw states that he was not told that WdB was “in the process of signing their written appointments”. I accept that he did not know in advance that it would be signed by Mr Mountain on 22 or 23 November 2001, but he knew the terms had been agreed and he accepted in cross-examination that he anticipated that the letter of engagement would be signed in due course. At no time did he raise any objection to WdB’s appointment. Although Mr Bradshaw’s evidence is that he told Mr Mountain on 23 November 2001 that he was entitled to exclude WdB, an important issue which I deal with later, Mr Bradshaw accepted in cross-examination that by the end of 23 November 2001 he would have expected Mr Mountain to sign the letter of engagement at that stage.
100.	Mr Bradshaw knew on 26 November 2001 that WdB had by then been appointed. He attended the meeting at KPMG’s office on that day. He accepts that he saw the agenda for it and saw the first item: “Catch up re the transaction and recent developments following the appointment of Williams de Broe.” On 30 November 2001 he received an e-mail from Mr Jones in which Mr Jones wrote “we are progressing with PMO”. On 4 December 2001 he received from WdB a copy of the signed engagement letter. He accepts that he raised no objection with anyone to the appointment of WdB.
101.	As regards WdB’s appointment, Mr Bradshaw states as follows in his witness statement (para 27):
“…I did not raise any question about it because we did not need to object to WdB’s participation because the terms [of the Heads of Agreement] had been negotiated after the pre-marketing exercise and we, Mr Mountain and KPMG presumed that WdB felt that the revised terms would be acceptable to investors.”
In paragraph 28, he states:
“After the apparently negative feedback, we agreed to negotiate our position. This was the first time we could have objected and, as I explain below, I did advise Mr Mountain that we had the ability to exclude WdB. In the event, acceptable terms were agreed under renegotiation. We reduced our warrants from 10 per cent to 6 per cent of the enlarged share capital on flotation and there was no need to exclude WdB. Clearly, the next time we could object was after we had been excluded from the transaction when our only recourse was to legal action.”
102.	Although Mr Bradshaw remarks that he had minimal contact with WdB after 23 November 2001 until 14 January 2002, he accepts that he knew that WdB prepared the control document (sent to Mr Bradshaw on 7 January 2002) and negotiated due diligence requirements with KPMG.
103.	Looking at it as a question of fact rather than legal analysis, this is about as clear a case of acquiescence as can be imagined. Bradmount knew of its legal right to refuse consent to WdB acting for PMO, but instead of exercising or threatening to exercise that right, it allowed WdB to carry out a substantial amount of work, both before and after PMO signed the letter of engagement. It allowed WdB to become and remain contractually bound to provide its services to PMO for the flotation and it allowed PMO to engage WdB rather than other brokers. WdB acted to their detriment, both because they undertook a substantial amount of work in anticipation of a contractual appointment (subject of course, to the risk that pre-marketing would produce a very negative reaction or that Mr Mountain would decide not to proceed) and because, by contracting with PMO, they exposed themselves to the risk of claims from PMO if they were later prevented by Bradmount from performing the contract.
104.	Acquiescence by A in the conduct of B which is in breach of B’s contractual duties to A will in appropriate circumstances preclude A from later relying on the conduct as a breach of contract and from claiming damages or other remedies in respect of it. This equitable doctrine is stated as follows in Halsbury’s Laws of England (4th ed. reissue 2003) at para 909:
“The term ‘acquiescence’ is, however, properly used where a person having a right, and seeing another person about to commit, or in the course of committing, an act infringing that right, stands by in such a manner as really to induce the person committing the act, and who might otherwise have abstained from it, to believe that he assents to its being committed; a person so standing by cannot afterwards be heard to complain of the act. In that sense the doctrine of acquiescence may be defined as quiescence under such circumstances that assent may be reasonably inferred from it, and is no more than an instance of the law of estoppel by words or conduct, the principle of estoppel by representation applying both at law and in equity, although its application to acquiescence is equitable.”
As stated in the above extract, acquiescence is an aspect of estoppel by representation: see also Johnson v Gore Wood & Co [2002] 2 AC 1 at 40 per Lord Goff of Chieveley.
105.	In my judgment all the elements necessary for the application of the doctrine of acquiescence are present in this case: conduct by WdB contrary to the terms of the August agreement, knowledge of such conduct by Bradmount, the absence of any objection from Bradmount and reliance by WdB to its detriment. As to reliance, there is the unusual feature in this case that those responsible for WdB’s conduct, the Leeds office, did not know of the August agreement. There was therefore no conscious reliance on Bradmount’s acquiescence, but reliance need not be conscious: it is enough that, but for Bradmount’s silence and acquiescence, WdB would have acted differently.
106.	Mr Sterling and Mr Barnes agreed that ultimately the test is whether it is now unconscionable for Bradmount to rely on WdB’s conduct prior to 14 January 2001 as a breach of the express terms of the August agreement. For the reasons already given, this test is amply satisfied on the facts of this case.
107.	A further point is whether it was open to Bradmount to object on 14 January 2002, and at that stage prevent WdB from acting for PMO, having previously acquiesced in WdB acting for PMO. In my judgment, it was not. On 22 or 23 November 2001 WdB became contractually bound to PMO. Mr Bradshaw had been actively involved in approving the terms of WdB’s draft letter of engagement; he expected that, following his agreement with Mr Mountain on 23 November 2001, WdB would be formally appointed; and he knew on 26 November 2001 that WdB had been appointed. Yet he said nothing. By 14 January 2002, not only was WdB contractually bound to PMO but the disruption to PMO of WdB ceasing to act is likely to have increased WdB’s potential liability to PMO for breach of contract. WdB was committed in a way that it was not before 22 November 2001, and whether or not Bradmount’s acquiescence was previously irrevocable, it became so at that time. The circumstances were such that it would be unconscionable to allow Bradmount to move from acquiescence to objection.
108.	On the assumption, contrary to what I have held, that Bradmount is not precluded by its own acquiescence from claiming against WdB for breach of the August agreement, the issue arises as to whether Bradmount suffered any loss as a result of WdB acting for PMO without the written consent of a director of Bradmount. This issue turns essentially on what Mr Mountain would have done if he had understood that WdB could not act without Mr Bradshaw’s written consent and if Bradmount had refused to give its written consent unless Mr Mountain signed the Heads of Agreement. In the written closing submissions, the parties focussed on what Mr Mountain would have done in mid-January 2002 when Mr Bradshaw first objected to WdB acting on the flotation. However, in his closing speech, Mr Sterling also submitted that the “what if” question must be asked for the period starting on 22 or 23 November 2001 when Mr Mountain signed WdB’s engagement letter. 
109.	Bradmount submits that at all times from 22 November 2001 Mr Mountain would have agreed to its continued participation on the terms set out in the December version of the Heads, thereby securing Bradmount’s written consent to WdB’s appointment. Alternatively, it submits that Bradmount lost the opportunity of participation on those terms. It points out correctly that Mr Mountain remained appreciative of the drive which Mr Bradshaw provided to the transaction and that on a personal level he liked Mr Bradshaw. It also points out that until Miss Lake raised Bradmount’s terms with Mr Mountain on 11 January 2002, Mr Mountain was content with the terms agreed in December. While that it is undoubtedly true, it was not until 11 January 2002 that he had reason to believe that WdB, who had the experience to give a commercial view of the terms and their effect on the market, were not also content with them. 
110.	I take first the period from 22/23 November 2001 to 14 January 2002. There is a strong element of artificiality about asking the “what if” question for this period. From 26 November 2001 Mr Bradshaw knew that the engagement letter had been signed and knew that WdB continued to work on the flotation. He raised no objection during that period. If the engagement letter had not been signed, it is scarcely credible that he would have raised any objection, or that events would have differed in any way. 
111.	If in fact the Leeds office of WdB had been aware of the August agreement and had decided not to accept appointment as nominated adviser without Bradmount’s consent, there are three possible sequences of events. First, WdB could have decided not to ask Mr Mountain to sign the engagement letter in which case events would have been the same and there would not, on Bradmount’s case, have been a breach of the August agreement. Secondly, WdB could have asked for Bradmount’s written consent. Given that in the events which in fact occurred, Mr Bradshaw knew that the engagement letter had been signed, but did not object to it, it is likely in my judgment that he would have given his written consent. Thirdly, if Mr Bradshaw had made his consent conditional on Mr Mountain’s signature of the Heads, the WdB team would have studied the Heads and raised exactly the same issues as they did in January 2002, with the same consequences. Contrary to Mr Sterling’s submissions, I see no reason to think that the advice given by WdB or Hammonds would have been any different. Nor is it open to Bradmount to contend that agreement would have been reached on a lower level of benefits. This is not part of its pleaded case, it is not supported by any evidence of Mr Bradshaw and it is contrary to Mr Bradshaw’s reaction when the issue was raised with him in December 2001 and in January 2002. 
112.	I turn now to the period from mid-January 2002. Mr Bradshaw’s attitude was that either Mr Mountain signed the December Heads or Bradmount would object to WdB continuing to act for PMO. The issue is whether, faced with losing WdB, Mr Mountain would have signed the Heads.
113.	Bradmount relies on the disruption and delay which the replacement of WdB by another broker would have caused. But it is common ground that WdB could have been replaced in January 2002. WdB would have been prepared to step down if necessary to protect PMO’s interests and would have helped to find a new broker and ensure a smooth handover.
114.	It is also accepted that the exclusion of Bradmount was to the financial benefit of PMO and Mr Mountain. Mr Bradshaw accepted in cross-examination that a new broker would have given that advice to Mr Mountain.
115.	Bradmount relies on suggested legal ramifications if Mr Mountain and PMO did not continue with both Bradmount and WdB. It is submitted that, properly advised as to the adverse consequences, Mr Mountain would have been deterred from dispensing with both and would therefore have adhered to Bradmount’s terms as the price for its consent to WdB’s continued involvement. This is not a good point, in my view. First, Mr Mountain was in fact advised that, as he had not signed the December version of the Heads of Agreement, he was not bound by them. This advice was correct. As to WdB, it was said that PMO was potentially liable to WdB under the letter of engagement if it was terminated. But, it would be terminated only because WdB, by reason of its own separate contract with Bradmount, could not continue to act without Bradmount’s consent. In my view, there is no basis on which WdB could have made a claim against PMO if WdB was prevented from continuing to perform its duties under the engagement letter because of its own contract with Bradmount.
116.	On the basis of these considerations, the correct conclusion in my judgment is that if the choice for Mr Mountain in January 2002 was between Bradmount’s continued involvement and WdB’s replacement by another broker, he would have chosen the latter. But the strongest basis for that conclusion is Mr Mountain’s oral evidence of his reaction when the terms of the August agreement were disclosed to him in January 2002. He was, he said, “very, very, very upset” to discover it. He was annoyed with WdB, but:
“Secondly, I was annoyed that Mr Bradshaw had knowingly undertaken detailed negotiations with me and that somehow he was in a position where he could control how Williams de Broe would act for us. It was outrageous.” 
Miss Lake was as shocked as he was, and she said (as was the case) that she had no idea of the contents of the letter. Mr Mountain was asked whether he ever got to the bottom of how WdB had come to sign the letter and answered:
“It was discussed at length at all levels. With the advisers it was just a big shock. I mean, I was outraged on two counts; primarily that Mr Bradshaw had had the audacity to send a letter of that nature to restrict an adviser from acting from a company’s point of view and from my point of view that I thought that was just totally wrong and on the other side that Williams de Broe did not know about the contents of it in Leeds and I found that just totally strange.”
Once he had fully understood the terms of the letter, “it became apparent that Bradmount just could not be involved”, and:
“It became very apparent at the end of the exercise when I had read the contents of the letter that he just had not quite acted in the sincerity which really I would have hoped.”
In a vivid moment in the evidence, he gave his reaction to the suggestion that the removal of Bradmount and the discussions leading up to it were a storm in a teacup:
“I do not think it was a storm in a teacup and the letter which is referred to as the August agreement clearly indicates to me certainly was not a storm in a teacup. If somebody – if Adrian Bradshaw could place the letter, which he knew about and we did not, which clearly restricted a professional adviser from advising me in a proper and natural and clean and professional way, I am sorry, but that was bloody wrong.”
117.	A little later there was the following exchange:
“Q. Now you know that Williams de Broe and Bradmount had signed that agreement and must have signed it quite willingly do you think that there was a possibility that in January 2002 you would have sat down and tried to sort things out?
 A. No
 Q. Why not?
 A. Just by the mere fact that Mr Bradshaw had every opportunity in the past several months to tell me himself about the letter  if it had such serious implications. That in itself was just totally wrong from a business perspective. I would not have the man on the board, not a chance.
 Q. So you still blame him, do you?
 A. No, I don’t blame him but I suggest that any business man who would put a letter which restricted one of my advisers from acting in the best interests of the company and of the stock market and shareholders, it restricted them, I would question that from a – just from a moral point of view. He should have advised me. He should have told me.”
118.	I am in no doubt at all that Mr Mountain gave an honest account of his reaction to the August letter. It does not matter that the decision had already been taken to terminate negotiations with Bradmount. What matters is to ascertain what Mr Mountain’s reaction would have been if he had been told that WdB could not continue to act without Bradmount’s written consent. His evidence clearly shows that he would not have continued to deal with Bradmount or Mr Bradshaw. As he said, “I would not have the man on the board, not a chance.”
119.	In the result, therefore, even if Bradmount was entitled in January 2002 to object to WdB continuing to act for PMO without its written consent, I am satisfied that Mr Mountain would not have agreed to Bradmount’s continued involvement and that therefore it suffered no loss from WdB’s continued participation in the flotation.
120.	Bradmount’s claim for damages against WdB for breach of the express terms of the August agreement therefore fails, both because of acquiescence on its part and because in any event it suffered no loss from WdB’s continued participation without its consent.
(3) The claim against WdB for breach of the August agreement: implied terms.
121.	Bradmount submits that a further term is to be implied into the August agreement and that WdB acted in breach of it in January 2002. Three implied terms were pleaded in the particulars of claim, but only one of them, which was added by re-amendment, is now relied on:
“Williams de Broe would act in cooperation with Bradmount and would not oust or displace or seek to oust or displace Bradmount from the transaction [prior to signing of the Heads of Agreement].”
The words in square bracket were added by Mr Sterling in the course of his closing speech.
122.	Bradmount submits that because the restriction in the letter on WdB acting for PMO without Bradmount’s written consent is expressly for the purpose of protecting Bradmount’s position and, because a term against taking steps to oust Bradmount was also necessary to protect Bradmount’s position, it should be implied as a matter of necessity and business efficacy.
123.	Mr Barnes submitted that the suggested implied term failed to meet the criteria for an implied term set out by Lord Simon of Glaisdale in the decision of the Privy Council of BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20:
“… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express terms of the contract.”
124.	This summary was cited with approval by Sir Thomas Bingham MR in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472, with the caveat that “its simplicity could be almost misleading”. Conditions (2) and (3) are, I think, strictly speaking alternative, not cumulative (see Chitty on Contracts (29th ed. 2004) Vol. 1 para 13-004).
125.	The effect of Bradmount’s argument is to turn an agreement with one restriction into an agreement with another, more general restriction. The suggested implied term is not necessary in order to make the express terms workable nor is it obvious that, if raised at the time, the parties would have agreed to it. In connection with this latter point, the possible role for WdB contemplated by Bradmount’s approach on 16 August 2001 was as nominated adviser and broker. In that capacity, it would be WdB’s duty, both contractually as adviser to PMO and under the Stock Exchange rules for nominated advisers, to give objective and independent advice as regards the flotation. It would be wholly improper for WdB, by contract with Bradmount or otherwise, to inhibit its obligation to give such advice. It would contradict the purpose of the engagement of a nominated adviser, as regards both PMO’s own interests and also the wider public interest of potential investors. Yet it is the giving of advice in January 2002 as regards Bradmount’s terms and deal structure which is said to constitute a breach of the August agreement. Not only therefore would the suggested implied term not be so obvious that it goes without saying, but it would not be reasonable or equitable. Mr Bradshaw himself seemed to accept that WdB’s role included giving objective advice:
“Q. It will clearly be William de Broe’s duty to pass on the comments of institutions, good or bad, in relation to the structure, and indeed, to advise themselves as to their own reaction in relation to the structure?
 A. Correct.”
126.	Applied to WdB after it started to “act for” PMO, the implied term would also contradict the express terms of the agreement: “acting for” in this context necessarily includes performing its duties as nominated advisers. Further, the addition of the words in brackets produces the paradoxical situation that WdB would be able to advise PMO in a manner adverse to Bradmount’s interest only when, because of signing the Heads of Agreement, PMO would have to pay £50,000 to extricate itself from the transaction. 
127.	In my judgment, there is no basis for the alleged implied term and it follows that Bradshaw’s claim for damages for breach of an implied term of the August agreement fails.
(4) Claim against Mr Mountain and PMO for inducing breaches of the August agreement by WdB
128.	This claim necessarily fails, because WdB did not breach the August agreement. In any event, it would fail because, in my judgment, Bradmount cannot establish the necessary factual basis for the claim.
129.	It is common ground that Bradmount must establish that Mr Mountain, and therefore PMO, knew of a restriction on WdB acting for PMO without Bradmount’s consent before he signed WdB’s letter of engagement.
130.	Bradmount’s case is that Mr Mountain and Mr Tate orally informed Mr Mountain of the restriction on 22 or 23 November 2001. This is denied by Mr Mountain and is the primary issue of fact. There is a secondary issue which is directly relevant only if Mr Mountain was informed of the restriction at that time. The evidence of Mr Mountain, Mr Jones and Miss Lake is that, although Mr Mountain dated his signature 23 November 2001, he in fact signed and faxed the signed version to WdB on 22 November 2001. If that is correct, then even if Mr Mountain was told of the restriction, it is probable that he had already signed the engagement letter.
131.	Mr Bradshaw’s evidence in his witness statement is that, during the renegotiation of Bradmount’s terms following the feedback from the pre-marketing exercise, he told Mr Mountain that Bradmount had “the power to exclude WdB as WdB could only proceed with our consent and so long as we were happy with the revised terms”. Mr Bradshaw’s oral evidence was that this was said in a telephone conversation but he was uncertain whether it was said on 22 or 23 November 2001. His oral evidence was also that Mr Mountain did not express surprise, nor ask how this had happened, nor ask for a copy of the agreement. Mr Bradshaw said in evidence that:
“…it was fairly gentle negotiation and it was almost said in passing, you know, look you cannot push this too far Geoff. It was along those lines. I do not remember the exact wording that he used.”
There is no evidence that he mentioned the need for consent to be in writing.
132.	Mr Tate had not seen the August agreement but the evidence in his witness statement is that Mr Bradshaw told him of this discussion with Mr Mountain and that Mr Tate himself “discussed this issue briefly with Mr Mountain… but did not emphasise the issue because I considered the parties were in a commercial negotiation phase and that we would soon secure a revised set of terms.” In cross-examination he described the discussion as follows:
“I cannot remember precisely what I would have said. I would certainly not have used the words “exclude” which is what Adrian used to me. On the other hand I probably would have used language along the lines of, this could get contractually difficult because of the introduction or they could cause difficulties with Williams de Broe and that would cause us all sorts of difficulties in the whole transaction. So I would have used those kind of words and the result of me using those words were that we were, we had a common goal to renegotiate.”
Mr Tate did not ask for a copy of the agreement nor did he mention it to any of his colleagues at KPMG or to Mr Pike.
133.	In 2002, after the dispute with Bradmount had arisen, PMO asked KPMG when they first knew about the August agreement. There was a telephone discussion towards the end of April 2002 between David Hartley, by then the finance director of PMO, and Mr Bottomley and Mr Tate of KPMG. Mr Tate recalls this conversation but not the detail. Mr Bottomley gave evidence that it was his understanding from his discussions with Mr Tate during and after the call that Mr Tate was not aware of the terms of the August agreement or that Bradmount had power to prevent WdB from acting.
134.	Following the call, a letter dated 30 April 2002 was signed by Mr Bottomley and by Mr Tate and sent to PMO. It referred to the call and continued:
“Whilst we were made retrospectively aware that Bradmount had made an introduction to Williams de Broe in London, at no time were we told of the detail of such introduction and at no time were we given a copy or given sight of a copy of this introduction.
Furthermore, we confirm that prior to formalising your engagement with Williams de Broe, we cannot recall having any discussions with you, as our client, about this introduction, save perhaps only that an introduction had been made.”
In his witness statement Mr Tate said that he did not appreciate the full implications of the letter at the time.
135.	Mr Mountain gave evidence in his statement and in cross-examination that neither Mr Bradshaw nor Mr Tate mentioned any right or power to exclude WdB. Mr Pike and the members of the WdB team gave evidence that it was not mentioned to them by Mr Mountain, Mr Bradshaw or anyone else.
136.	I have no hesitation in accepting the evidence of Mr Mountain. I find it incredible that if in fact Mr Mountain was told of Bradmount’s right under the August letter, he did not express surprise, or require sight of the letter, or discuss it with WdB to find out the position, or mention it to Mr Pike. My view on this is all the stronger in the light of Mr Mountain’s reaction in January 2002 when Mr Bradshaw undoubtedly did inform him of the terms of the August agreement.
137.	The clarity of Mr Mountain’s evidence in cross-examination contrasts sharply with the evidence given by Mr Bradshaw and Mr Tate. Mr Tate was at the time an adviser to PMO and Mr Mountain. If Mr Tate knew of the restriction, it is extraordinary that he did not fully apprise Mr Mountain of it as a matter of urgency, rather than (as he suggests) giving only a vague indication of contractual difficulties. Mr Tate had the additional task of explaining how, if his evidence in this case was true, he came to sign the letter dated 30 April 2002 (which I am satisfied that he also drafted). His attempts to do so were incoherent and unconvincing. He was plainly very uncomfortable while giving evidence. Suggestions made by him that the letter involved sailing close to the wind were not put to Mr Bottomley, who gave his evidence in a straightforward way. I am satisfied that Mr Bottomley believed that the letter gave an honest and clear account. I find it difficult to determine whether the cause of Mr Tate’s discomfort was because he had known of the restriction in November 2001 and therefore knew that the letter was untrue or because he knew that the letter was true and that his evidence that he knew of the restriction in November 2001 was false. Whichever is the correct explanation, I am satisfied that he did not tell Mr Mountain of the restriction in November 2001.
138.	I am satisfied that Mr Mountain had no knowledge of the restriction in the August agreement when he signed WdB’s engagement letter and that he first learnt of it in mid-January 2002. Bradmount’s  claim against Mr Mountain and PMO for damages inducing a breach by WdB of the August agreement therefore fails.
139.	Since it has a bearing on the credibility of the evidence of Mr Mountain, Miss Lake and Mr Jones, I should also consider the issue as to whether Mr Mountain signed the engagement letter on 22 or 23 November 2001.
140.	When Mr Mountain signed the WdB engagement letter he dated it 23 November 2001. The particulars of claim in this action aver that it was signed by him on that day and that he knew of the restriction in the August agreement. Such knowledge was denied, but it was admitted that the letter was signed by Mr Mountain on 23 November 2001. It was alleged in the defence that WdB had been appointed on or about 10 October 2001 and, by the amendment made in January 2004, that “it was only the formal signature of the letter of engagement that took place on 23 November 2001”. This was confirmed in a witness statement of Miss Lake made in June 2003 for the purposes of a summary judgment application. However, in the witness statements of Mr Mountain and Mr Jones served in October 2004 for use in the trial, they asserted that Mr Mountain countersigned the letter of engagement late in the afternoon of 22 November 2001 and faxed it to WdB that day, with the original letter arriving by post the next day.
141.	The relevant sequence of events on 22 November 2001 as it appears from the evidence of Mr Mountain, Mr Jones and Miss Lake is as follows. In the morning Miss Lake had a telephone conversation with Mr Bradshaw about the feedback from the pre-marketing exercise. At 2.30 pm there was the conference call involving Mr Mountain, the WdB team, Mr Tate and Mr Scaife. The evidence of Miss Lake and Mr Jones is that during the call they raised the subject of their engagement letter, which had been sent to Mr Mountain for signature at the end of October, and that he agreed to sign and return the letter immediately. Mr Mountain’s evidence was to the same effect. Mr Jones’ notes made during the call include “6 Loophole. Can find another broker  appoint now”. In his oral evidence, Mr Jones explained that the loophole was that the letter was not yet signed and that “can find another broker” refers to comments made by Mr Mountain that he was concerned, in the light of some of the feedback, that Mr Bradshaw would try to persuade him to appoint another broker. “Appoint now” summarised Mr Mountain’s comment that he would immediately sign the engagement letter.
142.	 At about 5.15pm Mr Mountain and Mr Bradshaw spoke by telephone. Mr Mountain told him that the advice of WdB was to renegotiate the deal as the existing structure would make marketing difficult. Mr Bradshaw was robust in his rejection of this advice. He said that WdB were not trying hard enough and that, if they found it difficult, Bradmount could do it. (Mr Mountain reported this conversation to Mr Jones at 9.20 the following morning and Mr Jones made a note of it. It is worth mentioning that there is no reference in the note to any right of Bradmount to exclude WdB.) Mr Mountain’s evidence was that later the same day he had a separate conversation with Mr Tate, who told him that if he wanted to continue with WdB he should sign the engagement letter. 
143.	Mr Mountain’s evidence is that following his call to Mr Tate, he signed WdB’s engagement letter. He dated it 23 November 2001 because his secretary told him that they would miss the post that day. It is Mr Mountain’s usual practice, when working late, to date correspondence the following day, if that is when it will be posted. Although he did not know it at the time, his secretary immediately faxed it to WdB and caught the post on her way home. Mr Jones’ evidence was that he particularly recalled the receipt of the fax that day because he was impressed that a management team had done what it had promised to do. He also remembers the original arriving by post the next day and discarding the fax. Miss Lake’s evidence in cross-examination was that she also remembered the fax.
144.	Mr Tate could remember the conference call. While he could not specifically remember discussion of the engagement letter he was sure “it would have been raised”. As regards advising Mr Mountain to sign it, his evidence was that “I certainly would have said that it would need to be signed soon”, but in the light of the decision to renegotiate with Bradmount his “impression” was that it was not signed until after the negotiations with Mr Bradshaw on 23 November 2001, but he accepted that he has no knowledge of when it was signed. Mr Scaife could not remember any discussion of the engagement letter in the conference call.
145.	The defendants’ witnesses were of course asked to explain why the letter was said in the defence to be signed on 23 November 2001. Mr Jones was clear that he had always known that the letter was signed and faxed on 22 November (although he remembered it as the Thursday) but his view was that WdB had been appointed on 10 October 2001 and he did not understand any significance in the difference between 22 and 23 November. Likewise, Miss Lake did not understand that there was any significance. Mr Mountain had forgotten that he signed it on 22 November, and he remembered it only as detailed preparation for the witness statements was undertaken. For him, the important point was that Mr Bradshaw and Mr Tate had not told him about the August agreement.
146.	The witnesses were closely cross-examined on this issue, for obvious reasons. If the engagement letter were signed on 22 November 2001, before Mr Bradshaw alleged that he told Mr Mountain about the restriction in the August agreement, it provided a second line of defence to the claim against PMO and Mr Mountain for inducing a breach of contract. The defendants’ change of position since their defence was filed, combined with the date on the engagement letter, was bound to raise suspicions and justified Mr Sterling’s close attention to the issue. However, having heard the evidence of Mr Mountain, Miss Lake and Mr Jones, I am entirely satisfied that they were telling the truth. Their recollections were clear and as regards the conference call they were corroborated by Mr Jones’ note. Their explanations for the change of position as to the date in the course of this litigation, and Mr Mountain’s explanation for dating his signature as he did were credible. Mr Sterling placed reliance on the fact that WdB could not produce the faxed engagement letter and Mr Mountain could not produce a fax transmission report. However, I do not find surprising Mr Jones’ evidence that he threw away the fax once the original letter with Mr Mountain’s signature arrived, nor Mr Mountain’s evidence that PMO had since November 2001 changed its fax machine. Mr Sterling also drew attention to the fact that Mr Mountain’s secretary did not give evidence but, in view of the other evidence, I do not regard this as significant.
Bradmount’s alleged loss
147.	Bradmount’s case is that if it had not been excluded in January 2002, the flotation would have proceeded, not on the basis set out in the December Heads of Agreement, but on the same basis as the actual flotation in May 2002, with the addition of the Bradmount benefits (the right to subscribe for 180,000 shares on the flotation at the placing price of 100p per share, warrants to subscribe for 750,000 shares (6 per cent of the post-flotation capital) exercisable at 110p per share, options to subscribe for 250,000 shares (2 per cent of the post-flotation capital) at 100p per share, an advisory fee of £22,500 and director’s fees of £12,500 p.a.). The changes to the structure set out in the December Heads of Agreement would therefore have involved the deletion of any deferred consideration, an increase in the amount of new money raised on the flotation from £3 million to £4.5 million and the purchase by the company for £1.5 million of a property which it would otherwise have leased.
148.	Before coming to any question of the quantum, if any, of Bradmount’s loss, the defendants submit that this case fails on two grounds in addition to those already considered. The first is a causation point. I have already found that Mr Mountain would not in any event have agreed in January 2002 to any further involvement of Bradmount. On the assumption that is wrong, Bradmount’s case involves a complete re-negotiation of the terms of the December Heads of Agreement. This would include the changes mentioned above, but no change to the Bradmount benefits.
149.	The defendants submit that there is no factual basis for this case. It assumes that there would have been a radical re-think of the structure as set out in the December Heads and all the changes desired by Mr Mountain and WdB would have been agreed, except that Bradmount would have retained the same benefits. I consider that to be very unlikely. In my view, it is inevitable that in the process of re-negotiation which Bradmount’s case assumes, the objections of WdB to the Bradmount warrants and options would have been forcefully raised. It would have been pointed out, as proved to be the case, that Bradmount’s involvement was not necessary to a successful flotation, and it would have been argued that Bradmount was not providing much value for the grant of the warrants and options. Even if WdB had been replaced by other brokers, I consider it very likely that these issues would have been raised. I also consider that it is very likely that Mr Mountain would have concluded that the Bradmount benefits were not justified, particularly as deletion of the deferred consideration removed Mr Mountain’s protection against the dilutive effect of the warrants and options. There is no case made that Bradmount and its directors would have agreed anything less than the benefits set out in the December Heads. I therefore conclude that Bradmount cannot establish that the flotation would have proceeded on the suggested basis and I am not satisfied that there was any substantial prospect of it doing so.
150.	While it is right to note that, following the re-negotiation of the terms by Mr Bradshaw and Mr Mountain on 23 November 2001, WdB were prepared to continue to work on the flotation, it provides little support for Bradmount’s case. First, WdB’s understanding of the revised agreement was that there were to be 6 per cent options but no warrants. It was when they realised that the deal comprised 6 per cent warrants and 2 per cent options that they raised their concerns on 11 and 14 January 2002. Secondly, they continued to have concerns about the structure, including the Bradmount benefits even without the 2 per cent options. Thirdly, their concerns were increased by Mr Bradshaw’s disclosure that the analyst’s note on the Atlantic Global flotation did not exist and by his failure to supply the list of investors whom he had said would be keen to invest.
151.	The second ground advanced by the defendants is that, even if the flotation had proceeded, Bradmount suffered no loss. The initial letter to WdB in August 2001 outlining the proposal stated that the shares, warrants and options would be issued to Bradmount or its directors. However, all the drafts of the Heads sent to Mr Mountain and his solicitors and negotiated between them provided for the shares on flotation and the warrants and options to be issued to Mr Bradshaw and Mr Mountford personally. This was reflected also in the draft and final versions of the information summary which was approved by Mr Bradshaw and sent to prospective investors in the pre-marketing exercise. There were tax advantages if the shares, warrants and options were taken by the individuals. They had taken this course in the Atlantic Global flotation. There is no indication in any of the contemporaneous documents after 16 August 2001 that Mr Bradshaw contemplated that the shares, warrants or options would be issued to Bradmount. I am satisfied that if the flotation had proceeded with Bradmount’s involvement, the agreed terms would have provided for the subscription of new shares by Mr Bradshaw and Mr Mountford and for the warrants and options to be granted to them. The legal issue as to whether in these circumstances Bradmount could recover substantial damages for loss of those benefits is by no means straightforward. It requires a consideration of, and a possible extension of principles developed in, a number of decisions of the House of Lords, of which the most recent is Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518. In circumstances where I have held that Bradmount’s case fails on a number of grounds, including in particular findings of primary fact, it is unnecessary and of no benefit to reach a conclusion on the legal issue.
Quantum of loss
152.	Bradmount’s claims fail on a number of grounds before any issue of the quantum of loss arises. I will, however, consider the evidence, which comprised the reports and cross-examination of two experts. The claimant’s expert, Michael Jones, worked for many years as a stockbroker. His experience of fund management, market making and placing shares in smaller companies was mainly in the 1980’s. The defendants’ expert, Karine Luckraft, spent 15 years in institutional stockbroking from 1985 to 2000. For most of that time she specialised in small and medium-sized companies, with particular emphasis on smaller companies. Most of the companies with which she dealt had a market capitalisation of less than £250 million, and she had considerable experience of companies with a market capitalisation of less than £50 million. Her experience included both selling shares to institutional investors and acting for companies on flotations and placings. Both experts have relevant experience, although it is fair to say that Ms Luckraft’s experience in relation to small companies is both more recent and more extensive.
153.	It was submitted on behalf of Bradmount that it was “less than satisfactory” that Ms Luckraft should be the defendants’ expert when she is a shareholder, and was a non-executive director from December 2001 to January 2005, of an AIM-listed company, Capcon Holdings plc, and WdB is its nominated broker. She had given notice of her resignation as a director over 3 months before her letter of instruction as an expert in this case. WdB had been appointed in about March 2003 on Ms Luckraft’s recommendation. The main meetings with WdB were handled by the chairman and chief executive of Capcon, but Ms Luckraft would sometimes attend because of her stock market experience. She retains her holding of 115,000 shares which represent 1 per cent of the issued shares.
154.	Mr Sterling did not submit that Ms Luckraft’s evidence should be excluded on grounds of a lack of independence, but he submitted that her connection with WdB was such that where there was a doubt as to which parts of the evidence of Mr Smith or Ms Luckraft to prefer, the doubt should be resolved in favour of Mr Smith’s evidence. I reject this submission. Ms Luckraft’s connection with WdB was tenuous and I am satisfied that her independence and evidence was not in any way compromised by it. 
155.	There are a number of features of placing and dealing in shares in AIM-listed companies about which the experts agreed. First, because of the relatively small size of companies with shares traded on AIM, liquidity is low. Shares are typically held for the most part by management, VCTs and a small number of other substantial investors. Only rarely are there significant numbers of shares being traded. Secondly, even by the standards of AIM, PMO was a very small company with a very illiquid market. Thirdly, because of the low liquidity, the prices quoted by market-makers for PMO shares were for parcels of only 2,000 shares. Those prices are not therefore reliable guides to the prices at which large blocks of shares may sell. Fourthly, large blocks of shares, such as 180,000 or 1,180,000 shares, would need to be placed, rather than sold in the market in the conventional sense. A particular buyer or buyers would need to be identified and the prices negotiated with them. Fifthly, speaking generally, knowledge of an overhang, i.e. that a large block of shares may be available for sale, tends to depress the price. Sixthly, at least when buying existing shares, institutional investors are primarily concerned with a company’s prospective earnings and the resulting price earnings ratio. Any institutional investor would take into account the dilutive effect of any potential issues of new shares on the price earnings ratio.
156.	It is common ground that in the circumstances of this case the appropriate date for the assessment of damages is the date on which the 180,000 shares which would have been subscribed on flotation, and the 1,000,000 shares which would have been issued on exercise of the warrants and options, could have been sold. Because Mr Bradshaw was to be a director, and the directors were subject to a lock-in agreement restricting the sale of shares by them or by persons connected with them for 2 years from flotation, it is also common ground that the appropriate date is in May 2004 when the restrictions would have expired. The hypothesis is, therefore, that Bradmount or its directors would have exercised the warrants and options in May 2004 and immediately sold the resulting 1,000,000 shares, together with the 180,000 shares. It is common ground that this number of shares would need to have been sold in a single placing with one or more placees; sales in small parcels in the market would not have been feasible and a market maker would not take large numbers of shares on to its books without matching sales.
157.	Bradmount also makes an alternative case on the basis of a sale in May 2002 of the 180,000 shares subscribed on the flotation. This case is consistent with the 2-year restriction on sales, which Bradmount accepts is likely to have applied, only if market demand was sufficient to justify a release from the restriction (as occurred when Mr Mountain sold 35,000 shares in July 2003, 100,000 shares in October 2003 and 180,000 shares in January 2004).
158.	Mr Jones’ evidence, as stated in his first report, was that 1,180,000 shares could have been sold in May 2004 at 203p per share. The net proceeds of sale would be £2,389,007, yielding a profit of £1,134,000 on a cost of £1,255,000. The price is at the lowest end of the published bid price range in May 2004, to allow for the size of the sale. Mr Jones drew attention to actual sales of substantial blocks of PMO shares. On 30 July 2004, 90,000 shares were traded with no reduction in the published bid prices. On 22 December 2004, at a time when the market was stronger, 350,000 shares were sold at 245p within the bid offer spread of 240-246p. There had also been the sales by Mr Mountain of 100,000 shares on 1 October 2003 at 189p against a bid/offer spread of 190-198p and 180,000 shares on 15 January 2004 at 195p against a bid/offer spread of 198-207p. On Bradmount’s alternative case, Mr Jones’ evidence is that 180,000 shares could have been sold in May 2002 at a discount of 10 per cent to the average low bid price. On that basis, the price would have been 137p, yielding net proceeds of £245,578 and a profit of £65,578.
159.	The claimant’s case that PMO shares issued to it or its directors would have been sold assumes that, even if agreement had been reached between Bradmount and Mr Mountain, a successful flotation on the assumed basis could have been achieved. The evidence of Ms Luckraft is that, in her opinion, a flotation at 100p per share would not have been possible, because there would have been insufficient demand for the shares at that price. The basis of her opinion is that once the dilutive effect of the warrants and options is factored in, the prospective price earnings ratio produces a price of 93p. In her opinion, that price must be further reduced to 83-88p take account of the likely adverse reaction of the market to the complexity created by the presence of the warrants and options.
160.	The claimant submits that the approach adopted by Ms Luckraft, and her conclusion, are wrong. It submits, first, that it is wrong that institutional investors would be valuing the shares on a prospective price earnings basis. Secondly, it submits that the dilutive effect of the warrants and options would amount to little, if anything. It points out that, on the flotation, a total of £4.5 million of new capital was raised, the applications made by institutional investors had to be scaled back and the market price (albeit for parcels of only 2,000 shares) quickly went to a premium of 60p over the flotation price.
161.	I consider in more detail the points about the importance of price earnings ratios and dilution when dealing with Bradmount’s case that the shares could have been sold in May 2004. As will appear, I accept the principles of Ms Luckraft’s approach. Mr Sterling argued that the experts’ evidence did not support the proposition that prospective earnings and the price earnings ratio was of major concern on a new issue. Ms Luckraft accepted that the quality of the business and its management was the most important factor, but that as it seems to me goes without saying on most investments in shares. It does not reduce the importance of prospective earnings. It seems clear on the evidence that prospective earnings and the price earnings ratio are highly important on a new issue, as is borne out by comments from the VCTs in the pre-marketing exercise.
162.	However, I am not persuaded to the necessary standard that the flotation would not have taken place. There are two principal reasons for this. First, her calculations produce prices below 100p, but flotations are not a matter of precise calculation and the discount to 100p is not so great as to lead me to the conclusion that a flotation with warrants and options could not have occurred at that price. Secondly, while the quoted prices for small parcels are of limited use, the premium of 60 per cent over the flotation price cannot be completely ignored, as it indicates the market-makers’ view that there would be market demand for small parcels of shares if any holder was willing to sell. They marked the bid prices up to attract sellers and there was some trading during May. I am entirely satisfied that the presence of the warrants and option would have made the flotation materially less attractive, but I cannot conclude that it would not have taken place. There is, however, a material prospect that it would not have occurred, which would justify a reduction of 30 per cent in any award of damages.
163.	On the assumption of a successful flotation, Ms Luckraft’s evidence was that a block of 1,000,000 or 1,180,000 shares either could not have been sold in May 2004, or if there were any buyers, the price would be no more than about 120p per share. She does not consider that a block of 180,000 shares could have been sold at a premium to the flotation price of 100p in May 2002.
164.	As regards a sale in May 2004, Ms Luckraft took 4 May 2004 for the purpose of her evidence. The closing price was 218p. The prospect of the dilutive effect of the issue of 1,000,000 shares on exercise of the warrants and options would have had the effect of reducing this price to 210p. Two further factors, the overhang of 1,000,000 new shares likely to be available for sale and (to a lesser extent) the complexity of the capital structure caused by the presence of the warrants and options, further reduce the likely price in her view to about 170p. She considers that a substantial discount of at least 30 per cent would need to be made to that price in order to find buyers for so large a block. Accordingly she concludes that 1,180,000, or 1,000,000, shares could not have been sold for more than about 120p per share.
165.	Ms Luckraft’s approach therefore involved first a calculation of what the share price in May 2004 would have been if the flotation had proceeded on the basis put forward by the claimants. As market prices are a reflection of what buyers and sellers think a company’s shares are worth, her method was to apply the sort of calculation which institutional investors would use, by way of prospective price earnings ratios, on the information then available.
166.	Mr Sterling challenged Ms Luckraft’s evidence that institutions’ primary concern are prospective earnings and the prospective price earnings ratio. However, the claimant’s own expert agreed that it was the primary consideration for institutions:
“Q. Do you accept that institutional investors would make some calculations of the sort that Ms Luckraft has gone into?
 A. Yes, an institution will be primarily concerned, going forward certainly, with the prospective price earnings ratio because, obviously, that is the key ratio that the City uses in terms of comparing the values of stocks. Certainly, any institutional analyst would take into account the effect of potential dilution on the price earnings ratio.”
167.	Although Mr Jones accepted that institutions are primarily concerned with prospective price earnings ratios and carry out the necessary calculations, he did not himself carry out such calculations or seek to assess what the quoted prices might have been. He explained that he was not instructed to do so, but was in effect asked to assume that the market price would have been the same as it was in fact. This means, in my view, that Mr Jones’ evidence on this issue starts with a false step.
168.	As regards the dilutive effect of the issue of 1,000,000 new shares, Mr Jones accepted in the joint statement of the experts that he had not taken it into account in his report, again because he was not instructed to do so. In his second report, after acknowledging that he had not taken dilution into account, Mr Jones stated:
“It is the case that Bradmount would have involved potential dilution, but this would have been offset by an injection of cash from an exercise of warrants and options.”
He concluded that no change was needed to the conclusion in his first report that a sale would have been achieved at 203p. In cross-examination he accepted that it was unrealistic not to take account of dilution and explained:
“…I think what happened, although I did not specifically take them into account in my first report and I said that I had not taken them into account, I think when in actual fact I did make the judgment on what I considered to be a fair price to have sold the shares I think I probably did subconsciously factor that in although I did not make it explicit. So when I came to my second report and had to, as it were, factor it in my conclusions were no different.
 Q. So paragraph 2 in the joint statement goes too far, is what you are saying; you did take it into account, you think, probably subconsciously?
 A. Yes, I think that is the answer although I was not explicitly asked to do so.
 Q. If it was subconscious you were not even aware, I suppose, of having done it?
 A. Yes
 Q. That is your explanation why, having considered it, you have come to the same result?
 A. That is correct.”
A little later he said:
“I think, as I said, I had the dilution factor in my mind, I am sure, but I did not specifically factor it in. I did not regard it as particularly important in the context of what I was being asked to do.”
I have to say that I was not impressed by this evidence.
169.	Mr Jones’ later explanation for not applying a discount for dilution is that it would have been offset by the cash paid to the company for new shares. He accepted in cross-examination that it was not the cash itself but the earnings from the cash which were relevant. The cash would be credited to capital, and it is only the income, or reductions in outgoings, derived from the use of the cash which would affect the company’s profits and hence the price earnings ratio. He also accepted that the return on the cash from bank deposits would be of little help in this respect and of no interest to investors. If the cash was used to repay bank borrowings, he suggested that this would make a positive contribution to earnings, but he accepted that there was no evidence that it was required for this purpose in May 2004. He also suggested that as the warrants and options would have been held by a director of the company (Mr Bradshaw) and/or his associates, investors would take comfort from the expectation that the warrants and options would only be exercised if the cash injection would be beneficial to the company. There is no evidence that Mr Bradshaw would have taken that approach and no very substantial reason for thinking that the market would make that assumption. In any event, the claimant’s case is that the warrants and options would have been exercised in May 2004, whether or not the company could make use of the cash.
170.	In my judgment, Ms Luckraft was right specifically to address the issue of potential dilution and right to conclude that it would have had a material impact on the quoted share price.
171.	I am of the same view in relation to the overhang, and I see no reason to disagree with her estimate that it would justify a discount of 15 per cent. Mr Jones accepted that, as a general proposition, knowledge in the market of a large block of shares to be sold will itself tend to depress the price. He agreed that the 1,000,000 new shares resulting from an exercise of the warrants and options would have been a significant block, relative to both the total number of shares in issue and the number of shares in fact traded. I am satisfied by Ms Luckraft’s evidence that this would make a material difference to demand for shares and therefore the price at which buyers were prepared to deal. Mr Jones’ choice of the lowest bid price in May 2004 (203p on 11 May) to take account of all adverse factors is, in my judgment, inadequate. Ms Luckraft also applies a discount of 5 per cent to the share price in May 2004 to reflect the complexity of a structure which included warrants and options. I am not, however persuaded that this discount is justified, in view of the discount for their dilutive effect and the fact that the warrants and options would have represented the only “complexity” of the structure.
172.	There is the additional problem that Mr Bradmount would be selling a large block of shares at a time when he would have been a director of PMO. I accept Ms Luckraft’s evidence that the market is concerned by sales by directors, particularly of a large number of shares, unless the sale is made to meet a demand from the market. It was market demand for liquidity which enabled Mr Mountain to sell 100,000 shares on 1 October 2003 and 35,000 shares on 11 July 2004, and this is probably the case with the sale of 180,000 shares on 15 January 2004 as it was within the 2-year lock-in period. There is no evidence of market demand in May 2004, particularly for 1,000,000 shares. In the light of Ms Luckraft’s evidence, I do not accept Mr Jones’ evidence that the market would accept the explanation that the sale was only the realisation of the reward for Bradmount’s involvement as a corporate financier. Care must also be taken in placing too much weight on the sales of substantial holdings which in fact took place. If there had been an overhang of 1,000,000 shares, it is likely to have had an effect on whether those various sales could have been achieved and at what prices.
173.	A block of 1,000,000 or 1,180,000 shares is far larger than any other block of PMO shares which has ever been traded. It is common ground that the shares would need to have been placed with a buyer or buyers. The ability to sell so large a block of shares is critically dependent on the existence of one or more interested buyers for so large a block in May 2004. In cross-examination, Mr Jones explained his approach as follows:
“I think here we have got a situation where the lock-in period has finished and the market may well have welcomed a supply of stock because it was not able to get its hands on stock in any meaningful quantity by buying in the market.”
He agreed that he had no evidence that there was a buyer for this number of shares, but said:
“All I can say is that in situations like this, if you happen to find somebody who is really interested in the company, wants to take a significant stake, perhaps thinks it is going to be bid for, whatever, depending on their appetite for the stock and their eagerness to get their hands on a meaningful stake, they may well be prepared to pay the market price.
I mean, I have even seen large blocks of shares in a fairly illiquid company change hands at a premium above the asking price, simply because there were several competitors who wanted to get their hands on a large amount of stock in that particular company.”
174.	In my view this is an insufficient basis on which to conclude that 1,000,000 shares would have been sold at or near the quoted price in May 2004. Without evidence for thinking that there would in fact have been any buyers for a large block at that price, still less any competitive buyers, I consider that Ms Luckraft is right in her opinion that a significant discount would have been needed to sell the shares, if indeed they could have been sold at all.
175.	My conclusion therefore is that, if 1,000,000 or 1,180,000 shares had been offered for sale in May 2004, they would not have been sold at or near to 203p per share. Assuming that there were buyers willing to purchase at a lower price, I see no reason for finding that the price would have been more than 126p, which is the figure of 120p per share put forward by Ms Luckraft but adjusted to take out the discount for complexity.
176.	This leaves Bradmount’s alternative claim that it would have been able to sell 180,000 shares in May 2002. Mr Jones’ evidence is that those shares could have been sold, at a price of 137p per share, representing a discount of 10 per cent to the average low bid price. The discount reflects the fact that a sale of a block of that size would have represented 16 times the volume of trades over the first month. The profit over the subscription price would have been £65,578. Mr Jones acknowledges that a sale of a significant block of shares by a director, as Mr Bradshaw would have been, within the first few weeks of trading would have required a very good reason but he considers it is “just about conceivable that the case could be made that the sale (with a profit of less than £100,000) was to realise payment in lieu of advisory fees”. Mr Jones relies on the fact the quoted prices for small parcels went to a premium of 60 per cent over the flotation price within two weeks of the float, as an indication of demand for shares, and as offsetting any concerns about prospective dilution caused by the warrants and options. He points out that six out of the ten placees on the flotation were scaled down by a total of 256,000 shares and that, if Bradmount had subscribed for 180,000 shares, this would have reduced the number of shares available for the placees.
177.	Once again the number of shares to be sold greatly exceeds the number in fact sold at the time. This again raises the central issue as to whether there would have been buyers for these shares. Mr Jones accepted that the over-subscription for the flotation was not a helpful guide, because most of it (220,000 shares out of an excess demand of 256,971 shares ) came from VCTs whose tax relief depended on taking up new shares, not buying shares from existing holders. Mr Jones accepted that there would not have been any large-scale buyers, but in his oral evidence he suggested that a market-maker could have obtained offers at a discount of 10 per cent from, say, 10 brokers for 18,000 shares each. He suggested that this could have been attractive to brokers who would buy the shares for clients’ portfolios and, by applying the quoted market price, could show an immediate gain of 10 per cent. This suggestion was not put to Ms Luckraft and there is no other evidence to support it. It is conceivable that there would be purchasers on that basis but it is an insufficient basis for a finding that 180,000 shares would have been sold in May 2002 or that there was a real prospect of a sale. Moreover, the presence of warrants and options would in my judgment have led to lower quoted prices in May 2002, leaving less scope for an attractive paper gain in clients’ portfolios. My conclusion is that Bradmount or its directors would have been unable to sell 180,000 shares in May 2002 at a profit.
178.	For completeness, I should mention a submission by the defendants that Bradmount failed to mitigate its loss by not applying for 180,000 shares in the flotation, as it was open to it to do and as Mr Mountain had suggested in January 2002. I accept Mr Sterling’s submission that the proposal for the directors of Bradmount to take up 180,000 shares on the flotation was part of the wider deal involving warrants, options and Mr Bradshaw’s appointment to the board. Taking 180,000 shares without any other part of the package would commercially be a very different proposition and in my view Bradmount did not act unreasonably in not applying for shares in the flotation.
Conclusion
179.	In conclusion, on the various grounds set out in this judgment, I hold that each of Bradmount’s claims fails.