No Need To Imply Term Of Reasonableness For Exercise Of Discretion

Daniel Stewart & Co plc v Environmental Waste Controls plc [2013] EWHC 1763 (QB)

EWC engaged DS to be its nominated advisor and broker in listing the company on AIM. Under the engagement letter, there was to be an abort fee of £150,000 if the transaction was aborted "for reasons unconnected to [DS] or its performance prior to completion of the marketing and book build process". No fee was to be payable if upon completion of the marketing and book build process, both parties agreed that "admission cannot or should not proceed". EWC's managing director wanted to proceed with a high valuation of EWC in order to raise sufficient funds for an alternative project. The engagement letter did not set out any minimum valuation. DS advised going ahead at a lower valuation with the result that EWC decided not to proceed. DS claimed the abort fee. One argument submitted by EWC was that a term should be implied that DS was obliged to act reasonably when deciding whether the listing should proceed.

The High Court (Simon Picken QC) held that EWC was obliged to pay the abort fee. Much of the judgment is concerned with interpretation of the precise words of the engagement letter. On the question of whether a requirement to act reasonably should be implied, the judge held that such an implication would itself create uncertainty which was not otherwise present, so it seemed inappropriate to countenance making the suggested implication. The wording of the clause was perfectly enforceable and workable if (as per the Socimer case) it was understood as being subject to "implications of good faith and rationality, and lack of arbitrariness or perversity"...