Agreements will often contain a provision that something can only be done with the consent of a particular person. Does this mean that the person has an absolute veto over the relevant action? Or are there any limitations on the way in which the person may exercise their power?
Watch out for option agreements
In a recent case the directors of Adoreum Partners (Adoreum), a business development consultancy, claimed that they were entitled to exercise options over shares in a luxury watch retailer (Watchfinder).
The companies had entered into a service agreement under which Adoreum would provide various services, including introducing new investors to Watchfinder. In particular, Watchfinder were seeking investment from a high end watch brand, Richemont.
Although Richemont were not willing to invest in Watchfinder, another company that Adoreum introduced did provide significant investment. Despite this, Watchfinder decided to terminate the service agreement with Adoreum on the basis that they had not managed to get Richemont on board.
Adoreum then attempted to exercise their share option. This was refused by Watchfinder, who pointed to a clause in the option agreement which read: ‘the option (to acquire 5% of the company’s shares for £150,000) may only be exercised with the consent of a majority of the board of directors of the company’. Watchfinder said that as the required consent had not been given, the share option could not be exercised.
Adoreum challenged Watchfinder and requested copies of board minutes and relevant evidence that set out how the decision had been reached. Watchfinder refused to provide any information and repeatedly pointed to the clause. At the time, following a recent sale of part of the Watchfinder business, the value of the shares subject to the option was £1 million.
Adoreum commenced court action for specific performance of the option agreement.
