England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
TECHNOLOGY & CONSTRUCTION COURT

		St Dunstan's House 133-137 Fetter Lane London EC4A 1HD
		2 August 2002

His Honour Judge David Wilcox:

1. The first claim is by the Claimant (Johnson) for repayment of sums paid to the Defendant, Techni-Track Europa Ltd. ("TTEL") under three sub-contracts for the installation of electrical equipment. Glaxo Group Research was constructing a site, which comprised six buildings on 78 acres at Stevenage. The main contractor was L.M.K. Joint Venture. Johnson was sub-contracted to install and build controls, controls wiring and carrier systems in three buildings known as Biology, Chemistry and C.R.S.F. There were three separate sub-contracts with identical terms for each of the buildings. The relevant purchase orders were dated January of 1993.
2. There is a counterclaim under the sub-contracts for unpaid valuations certified to be due to TTEL, for work undertaken between the date of the last valuation and the date when TTEL left the site, and for variations, delay, disruption, loss and expense and the cost of additional work.
3. Johnson's claim is for the repayment of monies it alleges were overpaid and the costs of completing the sub-contract works. It alleges that TTEL was in repudiatory breach of contract by removing its employees from site on 9^th February 1994.
4. On 15^th February 1994 Johnson obtained a Mareva Injunction. On 23^rd February 1994 the Court set aside the Injunction and ordered that there should be an enquiry as to damages. TTEL's claim for damages pursuant to the order for an enquiry is brought separately, but the actions have been ordered to be tried together and the parties agreed that TTEL should be the effective claimant at trial.
5. Johnson's claim as to the overpayment in the event was not pursued at trial. Whilst the evidence as to the value of what work in fact was done by TTEL and certified is clearly relevant to this counterclaim, no positive case has been made out by Johnson as to the alleged true value of the works in fact done.
6. In obtaining the Mareva Injunction, Johnson argued that it had two causes of action. The overpayment claim and the alleged repudiation of the contract by TTEL by expressing an intention to withdraw labour from site. Later, when the application to set aside the Mareva Injunction was heard, it changed its position and sought to argue that the withdrawal of labour by TTEL was the repudiation.
7. The Mareva was obtained on 15^th February 1994. Lloyds Bank froze TTEL's bank accounts and there is no doubt that TTEL's ability to trade was significantly affected. The extent of the adverse impact of the wrongfully obtained Mareva is a critical issue, which was the subject of a great deal of conflicting evidence.
8. On 2^nd March 1994 the bank demanded repayment of a net balance after offsets of £236,575.44. TTEL's accountant, Mr Morrison, and an insolvency practitioner at Stoy Hayward advised that TTEL request the bank to appoint an administrative receiver and they did so.
9. TTEL were unable to pursue its claim for damages pursuant to the order for an enquiry until recently because of lack of funding.
10. Johnson did not pursue its claim against TTEL.
11. Mr Terry, the Managing Director of TTEL and a major figure in the group of companies to which TTEL belonged became able to fund TTEL's claims, assisted by other interested parties and with the aid of an insurance policy in 2000 and the whole matter has been revived.
12. The court is thus put in the position of dealing with controversial and complex matters that took place over 8 years ago in the absence of any complete contemporaneous documentation. Company personnel too, have long since been dispersed and gone to other sites. Some, however, who were clearly contactable and party to central matters and who could have given relevant evidence have not been called to give evidence.
13. In the first part of the judgment, I will deal with TTEL's claims. In Part II I will deal with the enquiry, pursuant to the order of H.H. Judge Malcolm Lee QC.

PART I – THE COUNTERCLAIMS

14. Johnsons are a U.S. firm who conduct business all over the world. They enjoy a special relationship with Glaxo in so far as they are a preferred contractor and supplier. At Stevenage they were a sub-contractor to L.M.K. Joint Venture. TTEL were one of approximately 20 sub-sub-contractors in relation to the three buildings.
15. It was made clear from the outset that the sub-sub-contract between Johnsons and TTEL incorporated the terms of the sub-contract between Johnson and L.M.K. Joint Venture. The scheme of payment was pay when paid.
16. It is evident from the evidence of the experts who gave quantity surveying evidence, Mr Geoffrey Ashworth on behalf of Johnson and Mr Kevin Quigley on behalf of TTEL that the tendering was carried out at a time of recession in the construction industry and sub-contractors and sub-sub-contractors had to be very competitive in their pricing in order to obtain work.
17. There was no documentary evidence before the court or available to the Q.S. experts to show the precise build-up of the tender figures on each of the three sub-contracts. Mr Ian Milner who prepared the tender in each case, did not give evidence. Mr Tony Bull, TTEL's operations director, did give evidence. His evidence was contained partly in a sworn statement and in oral evidence on oath but another part submitted pursuant to the provisions of the Civil Evidence Act comprised a statement that he made to TTEL's solicitors which he later corrected and sent back to them. This statement was unsigned. The reason being that he was concerned about the mode of financing this litigation, followed by TTEL and more particularly because he was not in a position to receive any of the proceeds of the action should any be recovered. It is perhaps, not surprising, since he did not subscribe to the insurance policy or undertake any risk in costs. I formed the impression that his evidence when it touched upon TTEL's operations in relation to the three sub-contracts was objective and reliable. It was tested in cross-examination. It was critically considered in the evidence of Mr Whitehead and in the evidence of Mr Geoffrey Ashworth, Johnson's Q.S. expert. It also found some corroboration in the evidence of Mr Lewis, TTEL's principal site supervisor.
18. I rejected the evidence of Mr Tony Bull when he dealt with the reasons for the financial decisions affecting TTEL and the group companies and the reasons for the group companies going into receivership, where that evidence conflicted with that of Mr John Terry, whose evidence, subject to reservations, I preferred as being more accurate and truthful. Mr Bull evinced animus against Mr Terry, and showed that he was prepared to give partial evidence insofar as he gave evidence relevant to the matters I consider in Part II as to the enquiry. I regarded his evidence as being unreliable because as to those matters he displayed that his evidence was for sale. I reject his assertions that he had any true concern for the disappointed creditors of TTEL. His naked concern was for his own pocket.
19. Mr Bull in his first statement said, and I accept, as to Ian Milner TTEL's estimator:

"He would investigate a proposed contract, produce a price based on the specification. On large contracts I would then go through the final figures carefully with him. I was ultimately responsible for the price at which he tendered for a contract.

All project costings were entered using a computer software package called "Pegasus". Over the years the company accounts department had imputted information into this programme relating to materials, labour etc., This information was then correlated within the programme providing feed-back on the project costs. I treated this information as a safety net in that it reassured me that the price we were suggesting for a contract was realistic based on previous project costs. I found the information to be accurate in general to within 5-10% of job pricing. This programme was used when pricing the contracts with Johnson.

In 1992 the company had tendered for work on four buildings in the Glaxo project at Stevenage. We had been successful in three of those tenders, the Chemistry Building (the first tender we won, and the first job we started working on), the Biology Building and C.R.S.F."

20. At the time that the successful tenders were made, TTEL were also working for Johnson on a project at London Weekend Television and with Johnson upon a project with Smith-Kline.
21. Johnson, therefore, had some basis for evaluating the technical competence of TTEL and their approach to tendering. Mr Laurent Lord, Johnson's project manager was concerned with the tender stage. He confirmed that he knew that TTEL had done other work for Johnson Controls that indicated to him that they had experience of the Business Management System ("BMS") to be installed on this site and would therefore tender realistically. He was at that stage principally concerned with the Biology building and the CRSF building and knew that TTEL were being seriously considered for the electrical installation sub-contract on the Chemistry building.
22. The bid for the Chemistry building started in excess of £400,000 and was reduced to £252,000. At first sight this seems to be an enormous reduction but I am satisfied, that this reflected changes to the design and did not indicated a desperate bid to obtain work at any price. I accept the evidence of Mr Terry when he said that the prices tendered were regarded by TTEL as pitched to give them a reasonable return.
23. There is no evidence that would lead me to conclude that the tenders did not reflect a proper costs build-up based upon the true scope of the works at the time of tender and giving a modest margin subject to the unforeseen. It is apparent from the evidence of the Johnson witnesses that Johnsons appreciated that it was not in their interest to have a sub-sub-contractor who had tendered unrealistically. They were concerned with TTEL's ability to execute the sub-sub- contract works until the end of the contract period. In assessing tenders for each of the three buildings they were alive to that consideration.

The Contractual Regime

24. The Glaxo Research Campus was a vast scheme with great emphasis by L.M.K Joint Venture upon safety. There were tool box talks in the canteen every week upon safety topics, which required personnel to be taken by bus from one end of the site to the other, their attendance incurring payment for non-productive time. Because the provision of a pharmaceutical research facility had animal welfare implications the site attracted the attention of the animal rights lobby and there was a need for very tight security on that score and because of the nature of the equipment installed much of which in the later stages of installation became live.
25. With as many as 20 sub-sub-contractors in the three buildings of differing trades, there was a necessity to ensure close co-ordination. Much of this was done using a system of cover up notices. These had to be given by an individual trade to the contractor L.M.K. who, after inspection, would authorise cover. The issue of notices was time consuming and bureaucratic and clearly could cause delay. Equally, where quality control was concerned, and early snagging could be done before covering up the work, it could in the long term save time.
26. The terms of the sub-contract between L.M.K. Joint Venture and Johnson Control Systems Ltd. for B.M.S. Controls applied (mutatis mutandis) to the sub-sub-contracts between Johnson Controls and TTEL.
27. Article V – Notice provides that:

"Any notice, approval, agreement, request, or other communication required or permitted pursuant to the Sub-contract shall be in writing and sequentially serialised and shall be deemed property given when delivered by hand or, if mailed, upon the earlier of actual receipt or three (3) days after being deposited in the mail as registered post or recorded delivery, first class postage pre-paid except during the subsistence of an industrial dispute effecting the postal service in which case service of notices by post shall not be as effective as follows…..".

28. It is common ground that TTEL submitted little in the way of formal notices in respect of delay or Change Orders preferring, it is said, to maintain an informal friendly relationship on site.
29. Under "Clause 1 – Definitions" it is stated:

"Sub-contract price – the total awarded value of the sub-contract as indicated in the sub-contract agreement plus any increase and/or decrease authorised by Change Order.

"Clause 4 – Sub-Contract Period goes on to state:

If during the course of the Sub-contract Work the Sub-contractor shall consider that by reason of …. a delay caused by the Contractor, or the Employer or anyone for whom they are responsible but not by reason of default by the Sub-Contractor, his Sub-sub-contractors or Suppliers, it is unable to complete any Section or Sections according to the Schedule subject to Clause 4.1 hereof, the Sub-contractor shall forthwith give written notice to the Contractor of the cause of delay and the effect such is likely to have upon the completion of any such Section in accordance with the Schedule.

Failure of the Sub-contractor to provide such written notice may be deemed by the Contractor to be a waiver by the Sub-contractor to its entitlement to an extension of time. The Sub-contractor shall use his best endeavours to provide the Contractor within the shortest practicable time, an estimate of the probable effect on the progress of the Sub-contract Work. If the Contractor agrees that an extension of time is valid under certain circumstances and that the Sub-contractor has used his best endeavours to avoid or minimise the effect of such, it shall issue an extension of time in respect of the relevant Section. Where in its opinion the delay is likely to effect the completion of the said Section adversely and is beyond the reasonable control of the Sub-contractors and/or shall issue variations to the Schedule if in its opinion the delay is likely to effect the progress of any Section of the Sub-contract Works in accordance with the Schedule adversely and is beyond the reasonable control of the Sub-contractor.

Without prejudice to the generality of the foregoing, the Contractor may at any time whatsoever, make such extension of time in respect of the relevant Section or such amendment to the Schedule as in all the circumstances may be reasonable, including having regard to any act, omission, default and/or any other breach on this Agreement by the Contractor or the Employer, or anyone for whom they are responsible".

30. It was thus eminently clear that no additional works were to be carried out without written instruction issued by Johnson.

The Contract Works

31. Johnson was sub-contracted to install the business management system. It comprised six essential elements, all of which were tendered in different packages. They were electrical installation, pneumatic installation, air compressors and receivers, main panels, Laboratory Pressurisation Panels (LPP) and the provision of the Variation Air Volume (VAV) box controllers. The necessity for careful co-ordination was paramount.
32. The Chemistry building installation involved the use of at least six different control panels. There was a Main or Motor Control Centre (MCC). This panel distributes the main electrical power to the field equipment such as fans, pumps and motors. It uses contactors, enabled by the out-station panel to switch the power on and off when required. The MCC's are not intelligent, they are what is described as "dumb" panels, only providing electrical protection for the outgoing connection and field equipment. Johnson did not supply these panels. TTEL's obligation under the sub-contract was to connect the out-station to these panels in order to enable and monitor the contactors and overloads. They also had to wire the power connection from the MCC to the field equipment, via local isolators. TTEL did not have to position the panels on site or connect the main supply to the panels within the scope of their works under the contract.

Secondly, there were Laboratory Pressurisation Panels (LPP's). These were small panels located outside the laboratories, which provided the controls for each laboratory and were intelligent panels which did not distribute power. They were used and supplied by Dudley Bower on a site-wide basis, including the Biology Building and the CRSF Building. TTEL's obligation was to wire from the field equipment by way of example, from the VAV box controllers and sensors to the LPP panel.

Thirdly the Room Control Panels (RCP). These were the same as LPP's except that they were used for non-laboratory rooms. In the Chemistry Building there were a number of non-laboratory rooms on the first floor. These panels were supplied by Dudley Bower to the Chemistry Building and TTEL's obligation under the contract was to wire the field equipment to the RCP panels.

33. Fourthly, Control Panels (CP's), the central computer or Head End Computer oversaw the Business Management System and was part of a network. The control panels were on this network and were responsible for communicating with the LPP's, RCP's, and VAV boxes. TTEL's work involved the communications wiring from the control panels to the LPP, RCP or VAV box control. They also had to wire power supplies to VAV box controllers.
34. Fifthly, Outstation Panels. These were large panels, often situated in the corridors or the plant area and were adjacent or close to the Motor Control Centres. The Outstations were approximately 2-3 metres wide and 2 metres high. They had the intelligence and controlled the Motor Control Centres and other low voltage and pneumatic field equipment. These were initially supplied by Paul Carter and Associates. TTEL's obligation under the contract involved wiring field sensors and equipment back to the outstation panels and inter connections from the outstation panels to the Motor Control Centres. They also had to position and fix the outstation panels.
35. The supplier went into liquidation and the balance of the outstation panels not supplied by the time of liquidation, approximately 10-15%, had to be obtained from the liquidator.
36. Finally, there were the System 600 Panels which were stand-alone control panels which controlled and monitored radioactive material. TTEL had no involvement with these panels.
37. There were forty-seven standard laboratories in the Chemistry Building and forty-six specialist laboratories.
38. The Biology Building and CRSF building were a similar size and complexity.
39. TTEL's work was split into three phases. First, Second and Third Fix. The first fix was containment, which included the installation of conduits, trunking and trays as required. After the first fix, sub-contractors were required to submit a standard form indicating the area completed and a Contractors representative (LMK Joint Venture) would check the installed works. The second fix related to cables and wiring which would only take place after other relevant trades had finished parts of their first fix work. The third fix known as 'test and terminate', involved stripping back the cable and terminating it. The use of the cover up notes was part of the scheme of close co-ordination of work to ensure that each trade was able to perform its task efficiently and with an opportunity for snagging.
40. By virtue of the large number of laboratories and other rooms including plant rooms that had to be wired and fitted with basic other equipment, continuity of work was difficult to arrange.
41. I am satisfied that this was made clear to TTEL at the tender stage. Mr Bull, nonetheless, entertained an unrealistic hope that TTEL would be afforded a clear run for each fix, floor by floor. Each floor of the Chemistry Building was approximately 80,000 square feet.
42. Furthermore, Attachment B to the sub-sub-contract (Sub Contract Programme) states:

"5. Further Requirements:-

a) the installation of the BMS will be of a non-continuous nature requiring continuation of activities and/or areas of the works in sequence, to be agreed with the Contractor, to facilitate installation of associated components by others.

………..

The sub-Contractor shall allow for all costs associated with the requirements within the "lump sum tender price". The contract came to an end on 9^th February 1994 and circumstances are set out below.

43. The counterclaim is divided into three parts. Unpaid valuations to 18^th January 1994, unpaid work after 18^th January 1994 and thirdly, sums due in respect of delay, disruption, loss and expense incurred by the defendant in carrying out sub-contract work in consequence of instructions or unproductive working practices instructed by the claimant.

Unpaid Valuations to 18^th January 1994

44. In respect of the Chemistry Building £13,385.80 is claimed. In respect of the Biology Building, £12,703.89 and in respect of the CRSF Building £12,633.85.
45. TTEL contend that these amounts were retentions which had been certified by Johnson to be due. It is argued that Johnson had the opportunity and expertise available to check the work done had it wanted to do so. It did not avail itself of this opportunity and there is no evidence that the work done was less than the value which was certified.
46. Johnson's case is that they were not certified sums. They rely upon the fact that throughout the contract, Johnson paid TTEL the sums applied for and did not actually value the work. It is contended that the payment advices represented a commercial decision to pay what was asked to ensure that the works progressed and that TTEL were funded. It is submitted that it would have required a great deal of work to actually value what had been done so instead a system based on percentages of electrical points installed was used.
47. There is no evidence that the retentions have been paid. Mr Whitehead who is responsible for the payments has not raised any paperwork for payment of these retentions.
48. Mr Theaker who was not site based but had had the oversight of quantity surveying matters on behalf of Johnson in relation to the site, confirmed in evidence that there is no issue as to the quality of the labour or the work done.
49. The Certificate followed TTEL's detailed application and payments on the forms produced by Johnson for the purpose under the contract. Mr Bange, Johnson's solicitor, in February of 1994 in relation to the application to set aside the Mareva Injunction, gave evidence that the certificates were for measured works.
50. Mr Whitehead in considering matters of payment had to peruse the application forms and exercise his judgment. These were forms that were developed by Johnson and the contractor, LMK Joint Venture.
51. Johnson had available to it the time sheets provided by Mr Lewis, the principal site supervisor for TTEL. He had the opportunity to inspect all the work that was being claimed for. The fact that the contract or the site was a large one is irrelevant because if Johnson chose not to inspect but certified, they cannot now assert that some other sum is due, particularly in the light of the fact that it had already placed evidence before the court from its solicitor that the applications were made in respect of the measured works.
52. It would have been open for Johnson to carry out an audit or to sample-check the work that was being claimed for. It had qualified QS personnel on site who could have undertaken such work. Johnson in fact has brought forth no evidence as to what sums they say are due if some lesser sum is due for retentions. It is clear that there was a convention adopted as to how these works should be measured by Johnson and LMK Joint Venture which was practical and pragmatic approach based on counting the number of points that had been completed. The Certificates looked at as a whole are a certified record as to what has been done notwithstanding that the payment advices dated 24^th January 1994, refer to monies for work some of which it was anticipated would be executed after the date of the notice.
53. I accept there may have been some practical and commercial motivation in not expending moneys by actually checking or sampling. That is a matter for Johnson. There is no reason in my judgment to go behind these certificates and in my judgment there is due in respect of the Chemistry Building £13,385.80, in respect of the Biology Building £12,703.89 and in respect of the CRSF Building, £12,633.85.

Unpaid Work after 18^th January 1994

54. TTEL cannot have it both ways. The Certificates show entitlement to remuneration in respect of the three buildings up to and including the date shown. In respect of the Chemistry Building, there is claimed £20,922.66. In respect of the Biology Building there is claimed £21,382.76 and in respect of the CRSF Building, £16,129.
55. The detailed timesheets prepared by Mr Lewis, TTEL's principal site supervisor indicate the work was undertaken throughout the period after the 18^th January 1994. It was work undertaken in accordance with the contract. There was agreement according to Johnson that 46 men should be kept on site.
56. I find that the agreement was in fact adhered to by TTEL. I find that as a result of TTEL not being able to be on site after 10^th February 1994 because they were excluded by Johnson, it was not possible for TTEL to record on the forms provided by Johnson, the work which it had undertaken.
57. It is not seriously contended by Johnson that no work was undertaken at all. If work was done pursuant to the contract and the proper documentary procedure were not adhered to by TTEL in consequence of Johnson's action, it would be wrong for a court not to do its best on the evidence before it, to ascertain the value of that work, and what if any, monies are due to TTEL.
58. Mr Theaker has given evidence of overpayment. The difficulty with Mr Theaker's evidence is that he was not site-based and did not visit the site and make first-hand enquiries himself of matters upon which he now bases his QS opinion. The only first-hand evidence is that of Mr Lewis who struck me as being a reliable and methodical recorder of labour upon the site and whose contemporaneous records corroborate his oral evidence. Mr Quigley on behalf of TTEL in his expert testimony adopts a robust approach saying that there is a yardstick as to the value of the work done namely performance of a similar body of men in the three week period immediately preceding that claim form. And that is as good yard-stick as any to evaluate moneys due in the absence of other evidence, save that of Mr Lewis'.
59. Mr Ashworth, Johnson's Q.S. expert does not seriously attempt to value this work. He takes the view that TTEL was unable to demonstrate by the required contractual means, the true value of any work which had been undertaken and is not entitled to any payment. That is an unattractive argument in all the circumstances.
60. The court must do its best on the evidence before it.
61. Analysis of the tenders and the claims for variations demonstrate the labour content of work undertaken by TTEL was in the order of 75-80% of the work. The labour record for the period up to 18^th January 1994 and thereafter provide a reasonable indication of the similarity of the value of the work undertaken before and after 18^th January. Mr Quigley in my judgment, is clearly an experienced and practical quantity surveyor who independently analysed the value of the work based upon the material and information available to him. This claim was originally pleaded in the sum of £58,000. Mr Quigley was unable to support that value, preferring his own independent assessment of £38,658.18. I accept his evidence but I judge that this assessed figure should be further reduced to take account of the period between 18^th January and 27^th, covered by the certified payments that I have adjudged to be due. I propose therefore to reduce £38,658 by one third. In my judgment the proper sum due for work after 27^th January is £25,972.
62. Payment is a contractual entitlement. I reject the submission that because some workmen may have been paid arrears by Johnson after 9^th February that this sum is not due.

THE LOSS AND EXPENSE CLAIM

63. The provisions relating to notices in respect of delay are set out above at paragraph 27. These requirements never seem to have been complied with by TTEL, in connection with their alleged complaints of delay and disruption. There are further provisions in the contract that are relevant to such claims.
64. Clause 4.8 sets out the need for an instruction to be issued before Johnson could require TTEL to accelerate the works:

"The Contractor may at any time, but not unreasonably, issue to the Sub-contractor a request to accelerate the carrying out of or to alter the sequence or timing of the Sub-contract Work or any Section or Sections thereof (an 'acceleration request').

Within ten(10) Working Days of the date of the Acceleration Request (or within such other period as may be agreed between the Contract and the Sub-contractor, the Sub-contractor shall provide the Contractor with:-

"The Sub-contractor's explanation as to why it is unable to apply with the proposed revised programme date;

or

In addition to the details under Clause 7.1, full details of measures the Sub-contractor deems necessary to comply with the Acceleration Request.

The Sub-contractor shall not take any further action until the Contractor issues an instruction requiring a Change.

Any Change Order issued under this provision in accordance with the procedures set out in Clause 7.1 shall incorporate a revised Schedule and the Sub-contract shall be read and construed accordingly.

The Sub-contractors may, at any time, submit to the Contractor proposals for early completion of the Sub-contract Works or any Section or Sections thereof or any amendment thereto. If such proposals are acceptable, the Contractor shall issue a Change Order in accordance with Clause 7.1 and this clause".

65. I observe that non-productive overtime was in fact paid by Johnson to TTEL on occasions during the currency of the sub-sub-contract. The terms under which payment can be made for overtime working are set out in Clause 6.14:-

"No Overtime other than Casual Overtime shall be worked without the prior written approval of the Contractor. The request to work such Overtime shall be made in writing at least four (4) Working Days in advance of the planned performance of such Overtime. Additional payment for such approved Overtime will only be made on the prior written agreement of the Contractor.

Casual Overtime by the Sub-contractor or all Sub-sub-contractors shall be the Sub-contractors responsibility and may be performed without prior notification to the Contract or within the Working Day solely at the Sub-contractors expense.

66. It is clear from, the evidence of Mr Bull, Mr Lewis and Mr Ahluwalia TTEL's Contracts Manager that the Sub-sub-contract works were subject to some disruption and some delay. For the defendants to succeed on their counterclaim in this respect, they must establish a contractual entitlement to payment in respect of such delay. Some delay is always inevitable on a construction site when materials and equipment are supplied by various suppliers and a variety of trades are involved in installing systems as diverse as electrics and pneumatics. In installation work for highly specialised laboratories, and on the best-regulated construction sites, some disruption is inevitable, despite the finest co-ordination systems that can be put in place. Personnel are also subject to illness or accident. There are many events which may have a programming consequence and are part of the general risks and contingencies covenanted for by a sub-contractor for which he will wisely price for or agree special arrangements to forestall.
67. As I observed earlier, this contract expressly drew the attention of the sub-sub-contractor to the fact that the continuous work was not guaranteed and there was no express provision to release particular parts of the building for the exclusive use of TTEL.
68. The evidence of Mr Mark Whitehead, which I accept was that there was a steady work-face of laboratories, a number of which were available at any one time. He exhibited a pre-programme detailing the planned availability of laboratories as they came available for each floor. TTEL's work was Stage I work and their initial work would have been the first stage work in any of the laboratories depicted. This programme shows that there was a flow of work available at any one time. I accept Mr Whitehead's evidence that TTEL could and should have seen that the individual buildings on the Glaxo project would have to be broken down into manageable units to co-ordinate the construction work. Mr Lewis, the principle site supervisor for TTEL, and Mr Jason Hassell, a tradesman employed at the site by TTEL both made a positive point which I accept, that there was always a sufficiency of work to do throughout the day in either of the three buildings upon which TTEL were engaged.
69. TTEL's case is refined insofar as they identify specific causes of delay leading to loss and expense in terms of lost productivity in the document sent under cover of a letter dated 6^th January 1994 by Mr Bull to Mr John Waddelove of Johnson.
70. The introduction to that document is in the following terms:-

"We have undertaken the controls electrical installation as sub contractor to Johnson Control on the CRSF building, the Glaxo site in Stevenage. We have, during the contract, experienced delays, disruption and uneconomical working which has resulted in us incurring substantial additional costs, which we are seeking to recover.

The purpose of this document is to provide further details and substantiation in respect of our additional costs in order that they may be accessed and agreed in a fast and efficient manner. In order to maintain the site progress, it is essential that we are able to quickly resolve the claim situation to enable additional funds to become available against the project."

71. Later in the section 'delays and disruption' the following narrative appears:

"Delays and Disruptions

We believe that during the course of the contract we have experienced severe delays and disruption to our works, which could not have been foreseen or envisaged at the tender stage. We have progressed diligently with our first and second fix activities and have suffered in terms of productivity as a direct result of site conditions. We are currently experiencing severe delays of our final terminations as a direct result of our of sequence work in respect of late delivery of control panels and controllers and the non-completion of works by other trades, including trunking, duct work and fume cupboards.

We have provided a comprehensive schedule of completion of our electrical installation and have detailed areas that are being delayed although work is outstanding by others causing disruption and associated uneconomical working. We also highlighted WERE (sic) possible cover up dates in respect of our first fix and wiring works which we believe clearly demonstrate that we have been delayed in completing our works for several weeks. It should be noted that the schedules provided are not fully complete and that additional work is being added on a number on an ongoing basis and will be updated in due course.

We believe that the procedures associated with the cover up notices were not highlighted within the specification at tender stage and we are still of the opinion that they are not clearly identified in the specification now. The associated administration disruption and substantial loss of productivity associated with these procedures are significant and we feel entitled to recover costs in respect of lost productivity.

We believe we have demonstrated from the enclosed schedules that the majority of our work has revolved return visits, out of sequence working and a significant degree of disruption in order for us to complete out works., Wee feel justified in claiming the lost productivity associated with the out of sequence working and the associated disruption. We have highlighted the cost in the next section associated with lost production man hours."

LATE DELIVERY OF CONTROL PANELS

72. Johnson disclosed a schedule showing delivery of panels. I am satisfied that it is accurate.

It confirms that some panels were late delivered.

Mr Whitehead in his evidence in relation to Outstation panels accepted that there was some delay in the supply of these because the supplier, Paul Carter and Associates, went into liquidation. In consequence 10-15% had to be completed and recovered through the liquidator. It was TTEL's responsibility to wire field equipment and interconnections with the MCC's to the Outstations and to position and fix the Outstation panels, which were two to three metres wide and two metres high.

73. There was an issue as to who was to pay for the costs of positioning the panels on site. Eventually this cost was acknowledged to be the responsibility of TTEL by Mr Bull. Mr Laurent Lord in cross-examination about late panels said:-

"Q. They are delivered later than the anticipated programme, are they not?

A. I think what you are trying to make me say here is that they were late on site and it caused a problem. I personally believe they were later than we thought, but that, you know, there were other things to do and those things would have to be installed later".

74. Mr Ahluwalia, TTEL's contract manager, asked about correspondence complaining that terminations were not available said:

"Q. You also said that you were 'extremely concerned with regard to the recent request for us to carry out final connections and terminations at …….the late… delivery of control panels'. Do you recall what was the concern about that?

A. Because we wanted to connect both ends at the same time.

Q. Why did you want to do that?

A. Because it was convenient for us, that is all

Q. Otherwise out of sequence working?

A. No it would not have been because if you are only connecting on end, one end is about 30-40 metres away to hook on the other and so it would not have made any difference.

Q. It was more convenient for you?

Y. Yes.

Q. You've got to come back; instead of going up to it and doing it, you'd have to come back some time later and do it?

A. No. The two items are not close to each other.

Q. What was the concern then?

A. From my point of view?

Q. Yes.

Q. I was identifying so that if at a later date the panels were not completed on time. It was stated in a letter that we could not do them at the same time. I was contractually covering ourselves."

It is clear that some panels were delivered late. The consequence of late delivery was some interference with the continuity of TTEL's programme of working. Such delays may have given rise to loss and expense by TTEL.

TTEL's difficulty is that it cannot demonstrate that any particular delay did cause loss and expense. Neither can it demonstrate that any particular delay was critical or in breach of any agreed programme.

Within the scope of the original contract, as Mr Theaker confirmed, there is always a necessity to revisit. TTEL contend that the level of re-visiting went beyond that which was acceptable and therefore led to loss of profitability and loss of expense. I accept that on occasions, tradesman were unable to terminate connections and had to leave wiring coiled at the location that a panel or item of field equipment was later to be fitted at. This had the advantage of expensive pieces of equipment not being exposed to the risk of damage by other trades during the course of work within later fixes.

No excessive margin of re-visit over and above contractual scope has been proved in this case. Furthermore, as to loss of productivity there is no evidence that tradesman were standing around with nothing to do. The evidence of those on site, employed by TTEL Mr Lewis and Mr Hassell is to the contrary.

CEILING GRID ERECTION

75. Johnson, on 24^th November 1993, wrote to TTEL acknowledging that ceiling erection was acknowledged to be an area of concern. Mr Laurent Lord accepted that since conduits went through the roof void, the erection of ceiling grids could impede access and lead to the job taking more time. Mr Whitehead accepted that the concern expressed in the letter of 24^th November 1993 was prompted because of the cost impact to both Johnson and to TTEL.
76. Mr Ahluwalia, TTEL's contract manager, however, put a slightly different emphasis upon the matter in his oral evidence.

"Q. Just help me with what the problem about the ceiling tiles was. I know you were writing about it. Tell me what the problem was about.

A. The problem is that if ceiling tiles went up then somebody would have to take the ceiling tiles down.

Q. Yes.

A. Our point on that was as to if there was any damage or anything to the ceiling tiles, we would not accept any responsibility because the controllers were not there at the right time.

Q. Did it limit accessibility?

A. No.

Q. Did not limit accessibility?

A. They could work through it.

Q. There was complaint because there was more work involved?

A. The complaint was to cover ourselves if there was any damage or anything like that.

Q. Also, because there was more work involved to take the tiles down?

A. We would not take the tiles down.

Q. You would not?

A. No. The ceiling fixers take them down.

Q. You'd have to wait until somebody came along and took them down?

A. We just identified which ones we wanted and they would take them down.

77. The evidence is that the erection of ceiling grids and tiles got in the way of the smooth continuity of working naturally preferred by TTEL.
78. In order to fit conduits, controllers and other equipment in the void, TTEL's tradesmen may have had to wait for ceiling fixers to remove tiles to enable them to have any access. Fitted grids would cause marginally more difficulty in any event in getting free access to the roof void. TTEL however, have not identified building by building, room by room where the difficulty was, who caused that difficulty and what impact it had day by day upon their productivity. Were operatives stood down because there was no work for them to do? Did they have to work extra time? There was no evidence led by TTEL.
79. TTEL have been unable to demonstrate the degree of any delay, or who caused it, or whether it was a TTEL's failure to follow a programme, or Johnsons failure or another trades failure, or whether any was such a delay was within the original scope of works.

COVER UP NOTICES

80. Johnsons said that on the 10^th November 1993 they had expressed their concerns to the contractor LMK Joint Venture as to late or non-receipt of N.G. Bailey cover-up notices. N.G. Bailey were the principal nominated electrical contractors. Mr Whitehead accepted that Johnson was concerned because the delays which would be caused probably would have a cost impact.
81. The site cover-up notice system was onerous. Mr Bull confirmed that he had been involved in other contracts with similar requirements. The system clearly, if properly applied, can assist in the co-ordination of works and cut down on the final snagging load with its attendant inconvenience and expense.
82. There was no attempt by TTEL to particularise its case as to disruption causing delay or loss of productivity in consequence of particular notices being late, or batches of notices, in relation to particular areas and demonstrating the consequence of any lateness on its programme.
83. TTEL failed to demonstrate that the lateness of cover up notices caused any particular delay or loss of productivity.
84. As Mr Lewis and Mr Hassell emphasised, there was always plenty of work to do. The absence of a cover up notice in a particular area on a particular day could be one of many matters that might affect the decision of the supervisor as to where he would put his operatives on the following day or week in order to maximise the effectiveness of his work-force.

SITE SECURITY

85. It is evident that with this large site, with more than 20 sub-contractors and many more sub-sub contractors and with anti-vivisectionist and animal rights interest in the site, that security could become somewhat bureaucratic.
86. There is no evidence that the security requirements were any more stringent than had been indicated in the tender documents. I have no doubt that the inconvenience of obtaining passes added to the administrative burden of TTEL and was irksome to individual personnel needing to use passes, but no case is made out that the degree of security went beyond that indicated in the tender documents or that which was reasonably required within the scope of the contract.

LABORATORY FURNITURE

87. Some benches and laboratory equipment were installed before TTEL completed the works but there is no real evidence that the presence of such equipment impeded the flow of TTEL's work. TTEL's concern was that possible damage might be contra charged to TTEL as Mr Bull confirmed in his oral evidence. There is no contemporaneous document recording that the installation of laboratory benches or equipment in fact caused any critical delay to TTEL and had a demonstrated cost consequence.

TOOL BOX TALKS

88. As at the 7^th December 1993, TTEL particularised the lost hours that they contended had unjustifiably occurred as a result of the requirement for TTEL personnel to attend toolbox talks on issues of safety. This was stated to be 300 hours. A preliminary view expressed by Mr Quigley TTEL's QS expert was that this could be one of the principal reasons for delay. However, he agreed in the first joint expert report that TTEL were not entitled to claim any additional costs arising out of the requirement that their personnel attended toolbox talks because it was clearly an express contractual requirement.
89. I am satisfied from the evidence of Mr Laurent Lord that the contractor LMK Joint Venture placed a premium upon safety issues and had an intense programme to incentivise workers by having raffles with motor cars as prizes and by using cajolery and education in the regular toolbox talks on Fridays. This requirement was apparent and obvious at the tender stage. Mr Jason Hassell, a tradesman employed by TTEL on a freelance basis, who was subjected to the safety campaign, seemed to make no complaint. His assessment of the time spent in relation to these talks is sharply at variance with other estimates given by TTEL justifying the inference that their claim under this head of delay and disruption was greatly exaggerated.

THE EXPERT EVIDENCE

90. Mr Geoffrey Ashworth the experienced and informed quantity surveying expert called to give evidence on behalf of Johnson emphasised in relation to this head of claim and indeed all others, that there was a clear contractual regime to be followed in making and particularising claims. Timely notices, with particulars of proposed changes and costings as required were never provided. He maintained therefore that in relation to the counter-claim matters TTEL have never properly justified a claim under the contract. He agreed, that the reality was that parties to a contract sometimes took a more relaxed approach to the form of requirements and where they had, he agreed that the court had to look to the substance and not to the form of communications between TTEL and Johnson.
91. Mr Kevin Quigley acknowledged that the parties had not acted in accordance with the contractual scheme and he sought to look to the substance of the communications.
92. As to the valuation of TTEL's claim for loss and expense, disruption and delay, he endorsed TTEL's approach as a valid one. He referred to the information sent to Johnsons under cover of the letter of 6^th January 1994 as being simply a record of the progress of installation to the dates in mid-December of 1993, together with calculations of costs. He confirmed that these costs were based on a comparison of the costs of the quantity of man-hours recovered through applications made by TTEL to Johnson against the costs of the actual man-hours used on site, enabling a comment on the levels of productivity to be made.

He said in his report:

"The calculation of the actual man-hours was based both on the record and time spent on various buildings, as recorded on TTEL's time-sheets and backed up by the daily records of labour on each element of the project as provided to LMK and via JCS by TTL. The calculation of recovered hours is deduced from the gross values of agreed applications made by TTL, having made allowance for materials content of the application, and using, the tendered labour rate, the hours are calculated.

TTL then calculate the apparent losses on labour committed to the contract by using the lost man-hours calculation, price and the rate included within the tenderers/sub-contract orders for the projects. In addition they projected the probable losses in terms of man hours to complete the contracts, in order to indicate to JCS the possible total costs:

"In addition to the calculation for loss of productivity/man-hours, TTL included some additional costs on the chemistry project due to changes in drawings from tender stage when compared to actual construction drawings issued to them. Arguably these additional costs would not necessarily form part of the loss and expense claim, but would be recovered as a variation item to the various projects. However, it must be remembered the impact of such variation may lead to prolongation of the contract, to a claim by TTL for such prolongation.

These methods of calculating loss productivity are often used in the mechanical services section of the Construction Industry for the calculation of additional costs due to delays etc. Had the Contract not been repudiated, I would assume that JCS and TTL would have negotiated some form of settlement around the information provided by TTL, possibly with JCS taking such information forward as part of their claim for delay, destruction etc, against their employer ELMK:

"I see no flaw in the method and calculation used by TTL, but would note that ultimately a settlement figure for such claim for delay, destruction etc.., would probably be lower than the figures included by TTL in their documentation….."

93. I accept that that may be a valid starting point to value a delay and disruption claim where causative delay and disruption is demonstrated. Mr Quigley was unable to establish the responsibility and reasons for the delays said to lead to disruptive or unproductive working advised by TTEL. He sampled a number of pages of the claim document, namely every ten pages, because he was unable to carry out any detailed analysis of the individual items of the claim which might indicate the state or extent of the work completed on each item in order to establish the party with whom the responsibility for the apparent delay lies.
94. Mr Quigley in this sampling exercise allocated the party to whom he believed the responsibility or delay or non-completion of the work lay. The results show that as a percentage of the total items sampled, TTEL appear responsible for 1% of the number, unknown 47% and JSL 52%. He concluded that given that the document was prepared by TTEL the low level of their apparent responsibility is of no surprise. He then suggested that the unknown portion would have to be split between either TTEL and Johnson, as from their point of view they were the only parties to the sub-contract between them. He entered the caveat that the percentage split indicated made no allowance for the weighting of the responsibility for delay based on the importance of the item concerned.

"Taking the non weighted percentage…above it would seem that 52% of responsibility lies with JCS. Whilst 47% seems to lie with unknown parties and only 1% lies with TTL, I will assume that the 47% should be split between TTL and JCS. If all 47% falls to JCS then virtually all the responsibility and therefore the majority of acceptable costs lies with JCS. If all 47% falls to TTL then something approaching an equal split of responsibility exists, with some 50% plus of the acceptable cost due to TTL. However the probable level of split lies between these two extremes, and if I take the half-way mark of equal split of responsibility of my unknown items, then I believe this would give an outcome of moneys due to TTL of some 75% of acceptable cost claimed under the document of January 1994.

"Whilst this calculation cannot be completed this time given the number of assumptions I have used, I am mindful that TTL's directors would have performed such analysis which may have led them to report to their Bankers an overall recovery of approximately half of the claim figure that TTL had submitted to JCS". (Emphasis supplied).

95. An assessment of probabilities is a matter of evidence. The evidential basis for such a conclusion has not been established. As I have observed above in relation to each aspect of this claim for loss and expense TTEL has failed to demonstrate any occasion of unforeseen delay or event of disruption causatively leading to recoverable loss and expense under contract. I reject Mr Quigley's speculative and theoretical approach to assessing responsibility under the contract for the general delay complained of. It is arbitrary and ignores criticality.
96. TTEL have a further claim, that Johnson are in breach of contract have failed to pay to them the sum of £53,310.69 in respect of additional works carried out on the Chemistry Building at the request of the claimant.
97. The principle evidence that such work was done comes from the Civil Evidence Act statement of Mr Bull:

"39. We had a meeting with Johnson in early December when we explained to them that the situation on the site was beginning to have cash flow implications. In order to assist us, Johnson had provided prompt payment against our October valuation and had agreed to reduce the period for paying from 60 days to 45 days. They had also agreed to the release of retentions. With that letter I summarised for Johnson our concerns and highlighted where we considered that additional costs were being incurred by us. Their letter in response seemed to us to be not unsympathetic and asked us to particularise where we considered our losses were.

40. Following this challenge by Johnson to prove the variations we submitted in the week preceding Christmas 1993, the company produced a detailed document setting out the specifics of each individual variation claim, in comparison with the original tender, and the reason for the difference. The document was submitted to Johnson under cover of a letter dated 6^th January 1994. These variations were perfectly normal and properly related back to the initial tender.

41. At no point had there been any dispute on site as to the fact that the work for these variations had been properly carried out. We were not even seeking full payment for them at that time, simply part payment in recognition of the extra work performed. There were literally hundreds of variations totalling around £350,000 in value. These changes in the work were required by Johnson. The original tender was not under-priced and were it not for the conduct of Johnson and other external hindrances beyond the control of the company, I believe the contract could have been completed on time at the price quoted….".

98. In the claim document served on 6^th January of 1994 in the introduction to the section "Additional Works and Associated Costs", the following narrative appears:

"The original tender document supplied by Johnson's clearly identified the systems and associated points in respect of land, office and plant room areas. We are currently doing detailed comparisons between the tender documents and the construction issued drawings and schedules in order to highlight any changes or discrepancies. When this process has been completed a full and final comprehensive schedule of all additional works will be provided along with the associated cost…..".

(my emphasis)

99. Clause 14.11 of the contract obliges the sub-contractor to keep an accurate record of 'as built' conditions as the sub-contract work progresses.
100. Clause 7 sets out the mechanisms involved with changes.

"7.1 The Contractor shall have the right at any time to require any alteration in, addition to, and/or deduction from the Sub-contract Work (a Change) without rendering the Sub-contract void. In such circumstances the Contractor shall issue a preliminary instruction for a Change Order to the Sub-contractor indicating the Change and the Sub-contractor shall forthwith consult with any of its sub-sub-contractors and Suppliers whose work would be effected by the said Change to ascertain any adjustments to their Sub-sub-contract sums and extensions of their sub-contract periods consequent upon such a Change.

If following such consultations the Sub-contractor and the Contractor can agree upon such matters, the Contractor shall issue a Change Order to the Sub-contractor adjusting the Sub-contract Price and/or Schedule and may provide Drawings and Specifications describing the Change. Each Change Order will be incorporated in the Sub-contract….All Changes in the Sub-Contract Work shall be completed within the time schedule set forth in the Sub-contract or the Change Order and shall be performed in accordance with the provisions of the Sub-Contract and the Change Order. The adjustments resulting from a Change in the Sub-contract Work shall be based on proposals and schedules prepared by the Sub-contractor properly itemised and supported by sufficient substantiated data to permit evaluation and approval by the Contractor. Proposal for the said adjustment shall be accompanied by a sufficient breakdown and supporting details to permit evaluation and approval by the Contractor. Said adjustment shall be consistent with a bid submitted by the Sub-contractor for that portion of the Sub-contract Work. Notwithstanding the foregoing, the Contractor shall be entitled to issue a construction to the Sub-contractor at any time requiring a change and the Sub-contractor shall comply with the Instructions.

In the event the Contractor and the Sub-contractor are unable to agree the value of an Instruction for Change then the Contractor shall determine a fair valuation of such instruction and such valuation shall be binding until Practical Completion of the whole of the Sub-contract Work.

7.2 Should the Sub-contractor or its Sub-sub-contractor perform any sub-contract work or proceed in any manner which the Sub-contractor may subsequently allege has caused the Contractor or its Sub-sub-contractor increased costs, damage or loss purporting in each case to have acted upon oral instruction or with a tacit consent acceptance or approval of the Contractor or any other direction other than by a properly executed Change Order pursuant to Clause 7.1 the Sub-contractor or its Sub-Sub-Contractors shall be held to have done so at their own risk, the Sub-Contractor and its Sub-Sub-Contractor shall have no claim against the Contractor or Employer on account of any alleged increased costs, damage or loss.

7.3 If the Sub-contractor believes that any interpretation, decision or act or omission of the Contractor causes a change in cost or time and should be considered as an instruction or a Change, it shall immediately notify the Contractor. The Contractor shall determine if it agrees then either issue an instruction for Change or a Change Order or notify the Sub-Contractor that it disagreed. In the latter event the Sub-Contractor shall continue to prosecute the Sub-contract work including the matters which are the subject of the said disagreement notwithstanding the said disagreement.

7.4 No Change Order or instruction for a Change shall be issued where

7.4.3 the Sub-Contractors or its Sub-Sub-Contractors proceed with any section of the Sub Contract Work without giving notices as required under the Sub-Contract.

Needless to say in respect of work and variations neither Johnson nor TTEL seem to have followed the strict contractual regime. Mr Quigley rightly observes that the parties had adopted a more informal approach to matters of notices and formalities under the Contract and accordingly is not surprised that there are no formal notices complying with the rigor of Clause 7 served and counter-served.

The experts in their joint report conclude:

Chemistry Building Initial Works Claim

The experts agree that five of the six items of work claimed were 'estimates' representing £38,730.25 out of £53,310.69 claimed.

GNA's Report (Paragraphs 6.53 to 6.59) relies on paragraph 62-66 of Mr Whitehead's Witness Statement.

KLJKQ (paragraph 4.5 of his report) cannot comment on the validity of the quantities claimed but he said that the rates used in the calculations appear to coincide with those used in the build-up of earlier variation prices.

The experts agree that they were unable to comment on the extent of the work actually carried out on the six items claimed".

101. The reference by Mr Ashworth to Mr Whitehead's evidence is a reference to the only other direct evidence as to whether or not the work was done.

Mr Ian Milner who compiled the claim document was not available to help. There was no other direct evidence, save that of Mr Bull. Mr Quigley in his report would only go so far as to say

"….If the differences between the numbers of these specific items have increased during the project, then the variation should be allowed to the account of TTEL" (Emphasis added).

102. TTEL did claim for other variations in their claims payments. These claims for variations were paid in full. For some reason they did not make a claim in relation to these. They never provided to Johnson then or later the promised full and final comprehensive schedule of all additional works.
103. Mr Whitehead gave a detailed commentary on the claimed extra work done on the Chemistry Building. It was not the subject of cross-examination., Mr Quigley did not comment upon this evidence. In cross-examination he was unable to contradict the evidence.
104. I had the advantage of seeing and hearing Mr Whitehead. I found him to be a careful and accurate witness whom I found completely reliable. From paragraph 58 to paragraph 68 inclusive of his written witness statement, he commented in detail on excerpts from the claim document, which TTEL submitted for payment for additional works in January 1994 insofar as it relates to the Chemistry Building.
105. It is evident from Mr Whitehead's evidence which I accept, that a substantial number of the matters claimed as additional works by TTEL were in fact works within the scope of the contract. Another substantial part of the claim related to contractual works that TTEL expected to be less onerous but involved more than they had anticipated. There is no evidence of any significant changes of location of equipment fitted, the inference being that TTEL in all probability failed to provide for sufficient cable and conduit in their tender assessment.
106. As to additional Laboratory Pressurisation Panels (LPP's) he concluded that with the exception of system LPP276 there was very little change. However in relation to LPP 276 there was change. There were an additional 65 points, installed in Laboratory 276, which was controlled by LPP 276. Extra conduit and cable was claimed for by TTEL on the basis of multiplying the number of points fitted by an estimated standard amount of conduit and cable. The physical size of the laboratory is 16 metres by 24 metres, an overall area of 384 metres square. Laboratory 276 had 79 existing points at the tender date before the additional fitted points for which containment had already been provided for. TTEL claimed that 715 metres of extra conduit had been supplied, enough to traverse the length of the laboratory 29 times or the width of the laboratory at least 45 times. Mr Whitehead comments that given the amount of ductwork and equipment in the ceiling void, it would have been impossible and pointless to install this amount of additional conduit. In any event there would have been existing containment or used trunking already provided by the main electrical contractor N.G. Bailey.
107. TTEL have not demonstrated an entitlement to payment for additional works because they have not in my judgment established that additional work was in fact performed. The claim document in important respects is shown to be unreliable and inaccurate. I reject this claim in its entirety.

THE TERMINATION OF THE CONTRACT

108. Johnson have never made any criticism as to the quality of TTEL's work. That is of significance in the light of criticisms made by Johnson of the fact that many of the personnel used by TTL on site were self-employed and provided through an agency. It was said by Mr Ahuwalia, TTEL's contract manager that agency labour was not motivated, and that there was a rapid turnover and new entrants had to familiarise themselves with the job and the high standards required. This may have led to reduced productivity. There is certainly no evidence, however, that it led to a poor standard of workmanship. Perhaps this is due to the quality of the supervision by Mr Lewis, the principal site supervisor for TTL and the method of inspection before cover up to ensure a consistent high quality of work. Certainly, Johnson were content to take on the corpus of the work force as constituted and used by TTL on the 10^th February 1994.
109. I am satisfied from the contemporaneous records kept by Mr Lewis and submitted to Johnson week by week that the manning levels agreed with Johnson were fulfilled.
110. Whether these were sufficient for the additional demands put upon Johnson by the contractor LMK Joint Venture is open to question. On 12^th January 1994 the contractors issued a Direction, serial No. CD21910 which represented a modification for the sequence of works and represented a compression of the programme activities on the Chemistry Building. The work begun was within the contractual scope of works and was not expressed to be an acceleration order. Mr Theaker complained "One of Johnson Controls own difficulties with LMK Joint Venture was that they refused to classify this as an acceleration". He clearly thought that it should have been.
111. In consequence of the LMK's direction, TTEL were told to "man-up" which meant that they required to provide additional labour on the Chemistry building.
112. TTEL had been providing the agreed quota of men for the site and they had candidly told Johnson that they were experiencing cash flow problems. There was a meeting in early December when it was explained that the situation on site was beginning to give rise to cash flow implications and in order to assist, Johnson provided prompt payment against the October valuation and agreed to reduce the period for paying from 60 to 45 days. In December not unreasonably, Johnson asked TTEL to particularise where they considered their losses were. The result was the document submitted to Johnson under cover of the letter of 6^th January 1994 with its evident shortcomings. There were meetings with Mr Brian Russell of Johnsons and Mr Bull whereby more particular substantiation of TTEL's claim was required. At one point the suggestion was made that professional help should be sought. In mid-January Mr Terry and Mr Bull again candidly put their cards on the table as to cash flow and Mr Brian Russell took the advice of Mr Theaker, Johnson's Q.S. Consultant and it was agreed to pay £150,000 to TTEL. Mr Theaker says that he was motivated by a desire to keep TTEL afloat in order to complete the works and that the money was on account of payments that would become due in the future. Mr Terry and Mr Bull said that it was merely an early payment of monies to which an entitlement had already been shown. I prefer the evidence of Mr Terry and Mr Bull upon this point, although the difference between the two accounts is not great, Mr Theaker was doubtless mindful of the strict contractual arrangements as to the time for entitlement to payment. That money was paid upon 27^th/28^th January 1994 and was not regarded by TTEL as sufficient. They therefore pressed their case for a further payment in respect of their conceived entitlement to delay and disruption. They had made it plain to Johnsons that funding would, in the long term, affect their ability to continue the agreed manning levels. Assurances were given as to manning levels and with the exception of one day when there was genuine sickness, the manning levels were adhered to in accordance with the agreement. On 8^th February 1994 there was a meeting attended by Mr Bull and Mr Terry. Also present at that meeting were Mr Russell and Mr Theaker. TTEL sought this further meeting to press for more money and to provide further details substantiating the existing claim.
113. In my judgment it is clear that by 8^th February Johnson's patience was wearing thin. They were subject to the pressure on manning imposed by LMK without the advantage of an acceleration direction. They arranged to have a further meeting on 9^th February in order to further discuss TTEL's claims. On that day Mr Terry and Mr Bull drove from Kent a journey of some 2 hours to the meeting which lasted a matter of three minutes and at which they were handed a letter in the following terms:-

"Re Glaxo Group Research Campus: Stevenage

Chemistry/Biology/CRSF

With regard to your sub-contracts on the three packages referred to above, we wish to advise given the mandatory notice that you are failing to execute the works with due diligence and expedition.

Your failure is with regards to not employing sufficient labour to ensure the execution of the works in an expedient manner to facilitate the available work faces on all three contracts required by Clause 3.2 of the Sub-contract document. Therefore should you fail to remedy the situation in compliance with this notice by 8am on Friday 11^th February 1994 then we will take the works wholly out of your hands. In this event we will have the free use of all the tools, tackle, stores and other things that may be on site in connection with the works.

The balance will be re-claimed. All the costs of executing the remaining works if they exceed the value of the balance. Such costs you will have to pay.

Yours faithfully,

G. Fitchett".

114. The letter in fact was drafted by Mr Theaker. The agenda for the meeting agreed for 9^th February was a pretext. The reason for termination was bogus.
115. Mr Theaker accepted in cross examination that there had been no independent assessment of manning levels despite the fact that Johnsons were in possession of the manning levels returns provided by Mr Stephen Lewis on a weekly basis. Mr Theaker's recollection is that the purpose of the meeting on 9^th February was to issue TTEL with a notice of termination.

It is apparent that on 8^th or at latest 9^th February, Johnson also decided to sue TTEL for the recovery of moneys allegedly overpaid represented in part by the sum of £150,000, the payment of which was advised by Mr Theaker and was in fact paid on 28^th January in the light of the information of cash flow difficulties, candidly revealed to Johnson by TTEL. The effect of the letter of determination was reinforced by the active decision to commence proceedings and to obtain a Mareva Injunction.

116. The ground chosen upon which the letter of termination was based was a spurious one. It is clear that the service of that letter marked an abrupt discontinuation of the process of discussion and negotiation which Johnson thought they had been engaged in and which they were encouraged to believe they were engaged in.
117. There is no evidence that the contract was getting behind. There was no concern as to the quality of work done.
118. Johnson in my judgment, deliberately engineered the situation whereby it knew that it was highly unlikely that TTEL would be able to carry on with the contract. The day before the termination letter was handed over Mr Lewis, TTEL's senior supervisor was approached and asked if would work for Johnson if the circumstances were that TTEL was not on site. The core of TTEL's workforce were approached later and joined Johnson who took over TTEL's plant and equipment.
119. By their letter 9^th February 1994 Johnson terminated the contract. TTEL were locked out of the site on 10^th February and had no choice but to accept the termination.

THE MAREVA INJUNCTION – THE ENQUIRY

120. The repudiation was a matter that affected the mind of Mr Taylor, TTEL's cautious and independently minded bank manager. Mr Taylor was an impressive witness who conscientiously kept contemporaneous notes of his views and judgments. He also made appraisals of the state of TTEL throughout its relatively short history and gave reports to his superiors. I found that Mr Taylor had a good recollection of the events of 1993 and 1994, based upon these documents and some independent recollection.
121. Mr Taylor worked in conjunction with TTEL's consultant accountant Mr Bruce Morrison. It is clear that Mr Morrison kept the bank informed of TTEL's financial health on a frank and candid basis which was regularly kept up to date. Mr Taylor said that Mr Morrison had told him of the events at the Glaxo project. He was also informed that the problems on site appear to have had a knock on effect to TTEL's other work.

"I therefore had to ask that the Company reduces overdraft with the bank as quickly as possible with a view to the account being in credit from the end of February and that thereafter we would have to re-negotiate the overdraft facility. I needed full information about the problems on the contract".

122. The repudiation was the event that ensured the company's viability was fatally compromised according to the evidence of Mr Granger, TTEL's accountancy expert, following his analysis in the report of 12^th March 2002.
123. Mr Taylor confirmed that the bank would have been prepared to renegotiate the facility in the right circumstances. For instance, had TTEL issued shares to the holding company Warwickshire Properties, to the value of £235,000, this could have been used to repay the overdraft. Had that happened, taking account of the strength of the company's debtors and other assets, his recommendation would have been to support the company, provided of course that due diligence enquiries including a month-by-month profit projection were favourable and cash flows satisfactory.
124. Mr Bull confirmed that the question of the liquidation of TTEL had not been raised before 15^th February and he did not think that his co-director Mr Terry had made any decision about liquidation. Mr Terry in fact in evidence expressed the view that had the injunction not been granted the company would have continued to trade.

"….I anticipate that the company would have continued to trade. I accept that we may not have recovered everything we considered we were owed by Johnsons. In the construction industry one does not bank on receiving full payment, and it is well known in the industry that Johnson in particular regularly pays smaller contractors less than the value of the work done. As stated in paragraph 15 above, both Tony Ball and I were always conservative when producing figures for claims in our management accounts. I do however believe that we would have recovered a minimum of £100,000 out of our claim for £372,000.

Even had we not recovered anything, although this would have made a serious debt in our profits for February, one of the proposals that I was going to discuss with Johnson was that the Company withdraw from the contract so as to stop our losses. I appreciate that I may have had difficulty in persuading the bank to support us any more than they were already doing, but I believe that the bank would have continued its support"

125. Mr Ahluwalia, the contracts manager, also gave evidence that had the company been able to work on the other contracts, it would have survived.

Mr Bull gave evidence on Day 8 that the labour element of the sub-contract was of the order of 70/75%, the rest being materials; he explained however, in relation to the labour element that the real cost incurred was in the order of one third of that charge.

126. The effect of the Mareva injunction with its drawing limit of £1,000 per week for a company with a £3m turnover was described objectively by Mr Taylor, the bank manager,

"I can say that the imposition of the Mareva injunction was a defining moment in the relationship between the Bank and the Company. It was the event which left me with no confidence in the company's ability to trade and which made me decide that the facility should be called in. Prior to then, I had the concerns that I have previously expressed in the light of the percentage of the Company's turnover that the Johnson contract represented. If the Mareva Injunction had not been taken out, I may well have required the Company to produce its cash flow on a weekly basis. Had the company reorganised its balance sheet as described…above..in those circumstances I believe that the Bank's support would have been forthcoming…." .

127. Once the bank support had gone as would have been readily foreseeable by Johnson in the light of TTEL's candour about its cash flow position, the ability of TTEL to successfully trade with normal trade credit, and ready bank support was gravely compromised. What thereafter occurred has to be considered in the light of what was commercially reasonable and how TTEL shareholders could mitigate their loss.
128. I am satisfied that the prime cause for TTEL being placed into receivership and ceasing to trade was the effect of the Mareva. It is facile to maintain that a loosening of the tight physical restraints by permitting credit up to £40,000 could have led to a resumption of normal trading. I have no doubt that Johnson knew full well what the probable consequences of obtaining a Mareva injunction was on TTEL and that met with their approval. Both Mr Terry and Mr Bull gave evidence as to how Johnson's Mr Brian Russell viewed their attempt to challenge Johnsons

"I'll crush you, you'll be finished! You play by my rules or not at all!"

129. Johnsons submit that even if the court concludes that the grant of the Mareva injunction may have fatally flawed the credit standing of TTEL, nonetheless I should not in my discretion proceed to an enquiry as to damages.

I reject that submission. I hold that I have no discretion in the matter since an enquiry was ordered by HHJ Malcolm Lee QC and that order was never appealed. He had discharged the injunction concluding that it was wrongfully sought. That decision was appealed and the appeal rejected. The decision to discharge an injunction and the decision to enforce an undertaking as to damages given to the court, are two separate matters. It may be that the decision to enforce an undertaking in many cases is best left to the trial judge. In this case it was not.

130. In Cheltenham & Gloucester Building Society v Ricketts & Ord.[1993] 1 WLR page 1545 the Court of Appeal reviewed the authorities and gave the following guidance as to the enforcement of a cross undertaking in damages. In the judgment of Neill L.J. at page 1551D:

"(1) Save in special cases an undertaking as to damages is the price that the person asking for an interlocutory injunction has to pay for its grant….

(2) The undertaking there described as an undertaking as to damages, does not found any cause of action. It does, however, enable the party enjoined to apply to the court for compensation if it is subsequently established that the interlocutory injunction should not have been granted.

(3) The undertaking is not given to the enjoined but to the court.

(4) In a case where it is determined that the injunction should not have been granted, the undertaking is likely to be enforced, though the court retains discretion not to do so.

(5) The time at which the court shall determine whether or not the interlocutory injunction should have been granted will vary from case to case. It is important to underline the fact that the question whether the undertaking shall be enforced is a separate question on the question of whether the injunction should be discharged or continued.

(6) In many cases injunctions will remain in being until the trial and in such cases the propriety of its original grant and the question of the enforcement of the undertaking will not be considered before the conclusion of the trial…..

(7) Where an interlocutory injunction is discharged before the trial the court at the time of discharge is faced with a number of possibilities:

(a) the court can determine forthwith that the undertakings to damages should be enforced and can proceed at once to make an assessment of damages. It seems probable that it will only be in rare cases that the court can take this course because the relevant evidence of damages is unlikely to be available…….

(b) The court may determine that the undertaking should be enforced but then direct an enquiry as to the damages in which issues of causation and quantum will have to be considered…….in the light of the decision of the Court of Appeal in Norwest Holst Civil Engineering Ltd. v Polysius Ltd Transcript No.644 of 1967, the court should not order an enquiry as to damages and at the same time leave open for the tribunal at the enquiry to determine whether or not the undertaking should be in force. A decision that the undertaking should be enforced is a pre-condition for the making of an order of an enquiry as to damages.

(c) the court can adjourn the application for the enforcement of the undertaking to the trial or further order.

(d) the court can determine forthwith the undertaking is not to be enforced.

8. It seems that the damages are awarded on a similar basis to that on which damages are awarded for breach of contract. This matter has not been fully explored in the English cases though it is to be noted that in Air Express Ltd., v Ansett Transport Industries (Operations) Pty Ltd [1979] 146C.L.R. 249, 267 Aickin J. in the High Court of Australia expressed the view that it would be seldom that it would be just and equitable that the unsuccessful plaintiff 'should bare the burden of damages which were not foreseeable from circumstances near to him at the time'. This passage suggests that the court in exercising its equitable jurisdiction should adopt similar principles to those relevant in a claim for breach of contract."

131. The observations that are particularly material to the present case are in para (3) the emphasis that the undertaking is given to the court; para (7)(b) the decision that the undertaking should be enforced is a pre-condition for the making of an order of an enquiry as to damages; para (8) that in the assessment of compensation the court would adopt similar principles to those relevant in a claim for breach of contract.

I hold that I have no discretion as to whether I proceed or not with the enquiry as to the appropriate compensation in this case. Had it been open for me to consider such an exercise of discretion, I would have found little difficulty in concluding that the undertaking should have been enforced by the court and that an enquiry into the measure of compensation should be undertaken.

132. Mr McMullan relied upon delay as being a significant factor in this case. That is the delay between the discharge of the injunction and the present enquiry. I accept that it is a significant factor but in my judgment caused in large part by the impecuniosity of TTEL which was brought by Johnsons own actions. He relied upon a passage in the judgment of Peter Gibson L.J. in Cheltenham & Gloucester Building Society at page 1557A:
133. "There are only a few reported decisions on what constitutes special circumstances. If the respondent delays unduly in seeking an enquiry as to damages, he may be refused: Smith v Day [1882] 21 Ch.D.421..in the Canadian case, Hessin v Coppin [1874] 21 GR 253 an interlocutory injunction, with the usual undertaking in damages had been granted on the basis of the validity of a patent, but a motion to continue the injunction was dismissed when the patent was found to be invalid. On an application for an enquiry as to damages, Blake V.C. exercised his discretion against granting the enquiry, saying at page 254:

     "I do not think the conduct of the defendant presents so meritorious a state of facts as compels me to grant the enquiry asked."

     In Modern Transport Co. Ltd. v Duneric Steamship Co. [1917] 1 KB.370, 380, Swinfen Eady L.J. said that inequitable conduct by the defendant constituted special circumstances such that no enquiry as to damages was to be granted, even if the claim for an injunction could not be sustained at the trial; but that was a case where he held that the plaintiffs were justified in applying for an interlocutory injunction. In Upper Canada College v City of Toronto [1917] 40 O.L.R. 483, the court in refusing to order an enquiry as to damage on an undertaking given on the grant of an interlocutory injunction discharged at the trial, had regard to a number of circumstances including the good faith of the plaintiffs and the fact that no costs were awarded against them when the action was dismissed. In Attorney General for Ontario v Harry [1982] 25 C.P.C.67, a factor taken into account by the court in refuting to enforce an undertaking as to damages, notwithstanding the discharge at the trial of the interlocutory injunction, was the inequitable conduct of the defendant. These cases support the general words of Turner L.J. in Newby v Harrison [1861] 3 De G.F. and J. 287, 290:

     "There may be cases in which the court will not consider it just to enforce an undertaking, though the jurisdiction to do so exists".

134. In relation to the decision to undertake an enquiry as to damages Mr McMullan also sought to characterise Mr Terry as a dishonest witness and as the controlling hand in a number of companies that since 1985 had been put into liquidation in order to wrongly defeat creditors with the assets of those liquidated companies later being salvaged at low price by 'lifeboat companies' set up for that purpose. He relied upon the evidence of Mr Bull and his analysis of the companies in which both he and Mr Terry were involved.
135. The passage relied upon by Mr McMullan in Cheltenham & Gloucester Building Society of course exemplifies how the discretion was exercised in a number of cases as to whether an undertaking should be enforced whether an enquiry as to damages ordered. As I have observed earlier the time for such a decision is well passed. But since Mr McMullan's submissions also touch upon the credit of vital witnesses, they must be careful considered.
136. Firstly, other than in relation to matters as to the day to day operations of TTEL with Johnson, I did not find Mr Terry a reliable or credible witness. He was ready to put his evidence up for sale. He displayed animosity to Mr Terry because he felt that he was not given the chance to be a beneficiary should this litigation succeed, notwithstanding that he refused to contribute to the costs of this action or undertake any of the risk of loss. He was privy to all of the main commercial and financial decisions made in relation to the companies he was involved in with Mr Terry. He affects a false naivety in relation to these matters. I preferred the evidence of John Terry wherever it conflicted with that of Mr Tony Bull. There are aspects of Mr Terry's character that are not attractive. He displays a degree of ruthlessness in his business dealings and has a conviction in 1995 for corruption in relation to his dealings on behalf of Signs & Designs (UK) Ltd. that led to an order of conditional discharge. Nonetheless on seeing and hearing him give evidence subject to the close cross-examination and rigorous testing of Mr McMullan, I found that he was frank and open when he gave evidence, and when it came to financial matters which took place so long ago, he did his best to assist the court. At all times, it is apparent, that he made decisions in relation to the organisation of the companies and setting up of subsidiaries consistent with advice given by reputable and independent professionals and accountants.
137. There is no proper basis in my judgment for the implicit allegation that he and Mr Bull operated Phoenix companies and stripped the assets of defunct companies to the detriment of creditors.
138. Mr Terry was first involved with his wife in a company called Greenstone Ltd, a building company registered in January of 1980 which was wound up in 1988 because it had not traded for many years.
139. On 20^th June 1982 with Mr Tony Bull, and Mr Terry as sole shareholders and directors Powerdome Building Services Ltd., was incorporated to conduct a buildings systems consultancy business. This was wound up in 1991. In April 1994 NEL Electrical Ltd was incorporated, the directors being Mr Bull, Mr Terry and a Mr Boyce, the business partner of Mr Terry. The Company's business was electric installation. Mr Boyce ceased to have an interest in the business and in 1985 the business became Signs & Designs (UK) Ltd. which was incorporated on 22^nd November 1983. This was a successful company and its business was sold in May of 1991 for £600,000. Of the proceeds, £120,000 went to Lionpost Ltd. a company set up by Mr Bull and Mr Terry to provide labour on an agency basis. They had been professionally advised by their accountants according to Mr Bull that to employ self-employed labour directly would cause difficulties with the Inland Revenue and that such labour would be regarded as employed labour. His evidence was confirmed by Mr Terry. Capital Gains Tax was paid in relation to the proceeds of sale and the balance of £360,000 went to Mr Bull and Mr Terry as shareholders in Warwickshire Properties Ltd., incorporated in 1987 which owned 75% of the shareholding in Signs and Designs (UK) Ltd.
140. Signs and Designs (UK) Ltd in May of 1991 changed its name to Techni-Track Europa Ltd. (TTEL).
141. On 17^th December 1984 Technitrack Ltd was incorporated with Mr Bull and Mr Terry, the sole directors and shareholders Lionpost Ltd, the labour agency provided the labour for the electrical installation business and a satellite company, Stuart & Davies Ltd., incorporated in September of 1987, designed and manufactured control panels for Technitrack Ltd and other contractors.
142. Stewart & Days Ltd got off to a good start and was a profitable and successful manufacturer in its first two years of trading, but by the third year, I am satisfied that the company became affected by the recession. By the end of 1990 there was a loss of £130,000 and it went into liquidation on 22^nd January 1991. The principal creditor was the group comprising Warwickshire Properties Ltd., Techitrack Ltd and Loinpost Ltd. Some £170,000 was owed to the group companies when Stuart & Davies (UK) Ltd., was put into liquidation.
143. In May of 1991 Science & Design (UK) Ltd., changed its name to Techni-Track Europa Ltd., (TTEL). Some of the Technitrack Ltd. contracts were purchased and novated to TTEL.
144. The demise of the group comprising Stuart & Davies (UK) Ltd., Technitrack Ltd and Lionpost Ltd came about as a consequence of the recession in the building industry.
145. I reject the inference sought to be drawn by Mr McMullan that there were colourable dealings and wrongful manipulations of the company assets. It is significant that Mr Terry suffered significant personal loss by being called upon to sell his family home to repay the guarantees given by Mr Bull and himself.
146. By the summer of 1991 TTEL was trading and undertaking electrical installation work. It also undertook some of the control panel manufacturing that Stewart & Davies (UK) Ltd. had been responsible for prior to January of 1991. I accept that this was not satisfactory in the long run because TTEL's competitors were not willing to purchase control panels from a competitor installation company. As a result there was a limit to TTEL's manufacturing potential.
147. On 22^nd December 1992 an off-the-shelf company, Highglitz Ltd was purchased and its name changed to Techni-Track Europa Engineering Ltd. (TTEEL). The business of manufacturing control panels thereafter was undertaken by TTEEL providing panels for TTEL and others.
148. The holding company of TTEL, and TTEEL, continued to be Warwickshire Properties Ltd. in which Mr Bull held 49% and Mr Terry 51%. They were the sole directors of the company. Warwickshire Properties Ltd did not trade, save to provide support and services to TTEL, TTEEL and to two associated labour agency companies Reachpause Ltd and Engadine Ltd.
149. The vital function, however, relative to TTEL was Warwickshire's role in relation to the overdraft facility enjoyed by TTEL with Lloyds Bank Ltd. A significant proportion of TTEL's overdraft at any given time was secured against Warwickshire Properties cash deposits at the same bank. Some of the commercial risk undertaken by TTEL was thus in part "laid off", or shared with Warwickshire Properties Ltd.
150. Mr Taylor described how the imposition of the Mareva Injunction was a defining moment in the relationship between the Bank and the Company. Confidence was lost by suppliers and other main contractors and the inevitable formal demand for repayment of the overdraft was issued on 2^nd March 1994. As a result of the injunction being imposed, TTEL incurred bank charges for stop-checks and return cheques and direct debits and standing orders, together with management support staff time at £1,847. This clearly is recoverable by the company.
151. Mr Terry sought the advice of Mr Bruce Morrison of Hurst Morrison Thomson as to the wisdom of future trading by TTEL. Mr Terry had come to the view that the damage done to the TTEL was irreparable. Mr Morrison advised that it would be unwise to trade on and the independent advice of an insolvency specialist, Mr Raymond Hocking of Stoy Hayward was sought. In consequence of Mr Hocking's intervention and advice the bank took the view that it was appropriate that an administrative receiver should be appointed and on 3^rd March 1994 Mr Hocking and Ms Dayman were appointed as joint administrative receivers of TTEL.
152. Absent bank credit and normal trade credit it was inevitable that TTEL would go into receivership and cease to trade. The evidence of Mr Ken Willock, the Manager of TTEL's principal supplier served to underline the impossible position that TTEL were put in. I found Mr Willock to be a reliable witness and reject the suggestion that he was a stooge of Mr Terry and had been compliant in writing to Mr Terry of TTEL to support a bogus claim for compensation.
153. Mr Simon Granger gave expert accountancy evidence on behalf of TTEL.
154. Given that the foreseeable demise of TTEL was caused by the wrongful grant of the Mareva injunction, his evidence was that it was reasonable to value the company before and after the Mareva injunction on the basis of the application of an appropriate price/earnings ratio to the defendants maintainable post-tax earnings stream.
155. Johnson's case is that there was no sustainable earning stream and the company had no value. Mr Granger was of the view that there was a sustainable earning stream, but given the short history of trading by the company and the severe recession, there should be a heavy weighting to reflect the risk posed by these factors.
156. Mr Kapila, Johnson's expert witness sadly failed to consider what an appropriate multiplier would be in the event that Mr Granger's evidence of a maintainable earning stream being accepted by the court. Notwithstanding having the advantage of sequential exchange of experts reports, and participation in joint meetings and being involved in the compilation of a joint report and a supplemental report, he did not choose to address his mind to this matter until pressed by the court when he gave oral evidence.
157. TTEL and the other members of the group had the advantage of professionally qualified internal accounting expertise and that of the independent consultant, Mr Bruce Morrison whose expertise was much valued by Mr Taylor of Lloyds Bank throughout.
158. Both experts had the advantage of some audited accounts and various sets of management accounts. Mr Kapila had the advantage of ready access to Mr Bull, a director of all the companies had he wished to exercise it. He did not.
159. Mr Kapila has had considerable experience in accountancy relating principally to audit and financial investigation in connection with forensic work. It was evident that his approach when reporting and when giving evidence was that of an auditor which led to his failing to step back and to consider the position of a prospective purchaser doing a due diligence assessment.
160. Mr Simon Granger has specialised throughout in corporate finance work and his practice has included financial investigations for funding institutions and acquirers as well as advising companies on fund-raising acquisitions and disposals. He has had experience of being seconded to the banking sector to a unit of National Westminster Bank carrying out financial investigations into corporate customers and is clearly well-versed by qualification and experience in due diligence assessments of companies such as TTEL.
161. At the time of making his first report, Mr Granger was a partner in the firm of Hurst Morrison Thomson which firm had provided professional services to the defendant and other companies.
162. He no longer is a partner in that firm. I am satisfied that he is wholly independent of that firm and that his evidence is in no manner coloured by any potential conflict or interest. It is a matter of interest that Mr Kapila saw fit to pursue company searches in relation to Mr Granger, but was unable to elicit anything that might affect the credit of his fellow expert.

TTEL's PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30^TH APRIL 1993.

163. The experts agree that TTEL's profit before taxation of £56,602 during the year ended 30^th April 1993 includes one-off profits achieved through the realisation of book debts purchased from Technitrack Ltd. These clearly must be excluded from an assessment of what is a sustainable earning stream as a basis of valuation. Just as exceptional expenditures of a non-recurring nature must be excluded, such as the expenses of TTEL abortively pursuing business in Portugal, Archangel and the Baltic.
164. However, Mr Kapila contends that on the basis of extracts from a contact report dated 21^st July 1993 relating to a meeting between Mr Bruce Morrison, TTEL's consultant accountant and Mr Richard Taylor of Lloyds Bank and a letter dated 20th January of 1993 from Mr Taylor to the Intensive Care Unit of his Regional Office, it is reasonable to conclude that TTEL's one-off profits rising from the realisation of book debts purchased from Technitrack Limited amounted to £83,000 during the year ended 30^th April 1993.
165. Mr Taylor refers to 'a profit for the half-year [to 31^st October 1992] of £64,193 and says that the amount is computed after the inclusion of other operating income shown at £82,087 within the accompanying profit and loss account for the sixth month to 31^st October 1992 described it as "something unlikely to be repeated as it mostly relates to the net recovery achieved after the purchase of the Techni-Track Ltd debtor book from the receiver for £10,000."
166. On the other hand, a letter from Mr Jackson, TTEL's company accountant, and their former bank manager to Mr Peter Connolly of Ernst & Young refers to the possible purchase of the remaining book debts of Technitrack Ltd and notes that the 'remaining debts include £50,000 of retentions which are considered to be good but the balance of £50,000 is likely to produce very little return'. A further letter from Mr Jackson of 13^th February 1992 to the receiver refers to the proposed purchase of the book debts and comments 'realistically we believe that we [are] not likely to recover more than £30,000'.
167. Mr Granger is of the view that the latter two letters show that a significantly lower profit would have arisen from the realisation of book debts purchased from Techni-Track Ltd during the year ended 30^th April 1993, after taking into account consideration for purchase, stamp duty and legal costs. In my judgment Mr Kapila's view is optimistic and does not take into account such considerations, on purchase as stamp duty legal costs and other expenses. Nonetheless, I have no doubt that Mr Jackson on behalf of TTEL would have taken a very cautious view. In my judgment the proper figure would be £45,000.

TTEL'S TURNOVER AND TTEEL'S TURNOVER AND EXPENSES DURING THE 8 MONTHS ENDED 31^ST DECEMBER 1993.

168. The experts agree that TTEL's turnover of the order of £9.9m during the eight months ended 31^st December 1993 as stated in the management accounts, relied upon in the Granger Report includes turnover of £415,083 attributable to TTEEL.
169. The relevant documents considered in this relation are two versions of the profit and loss account of TTEEL for the eight months ended 31^st December 1993 showing sales of £450,083, working papers supporting TTEL's management accounts for the seven months ended 30^th November of 1993 showing that sales of £300,635 during November of 1993 included aggregate sales of £44,492 attributable to TTEEL and supported by print-out invoices issued by TTEL during 1993, and the working papers and print-out of invoices issued by TTEEL during December 1993. In addition there were the working papers supporting TTEL's management accounts for the eight months ended 31^st December 1993 showing that the defendant's sales of £291,469 during December of 1993 included aggregate sales of £48,531 attributable to TTEEL and supported by a print-out of invoices issued by TTEEL during December of 1993. Further there were manuscript schedules of adjustments highlighting an amount of £415,083 as representing 'an adjustment to management accounts to show true TTEL turnover' with an adjustment to record a management charge income from TTEEL of £395,000. Finally were TTEEL'S un-audited financial statements for the period ending 31^st October 1993 filed at Companies House.
170. Mr Kapila contends that given the variable amounts attributed to TTEEL's management charges during the eight months ended 31^st December 1993, that it is not unreasonable to assume that TTEEL could have achieved a gross profit margin of the order of 30%. On this basis and after taking account of the financial statement for the six months ending 31^st October 1993 filed at Companies House (which shows TTEEL accounting for its own turnover and profits at that time distinct from those of TTEL) Mr Kapila argues that TTEL's profit and loss account for the eight months ended 31^st December 1993 should be re-stated to exclude the turnover and gross profit attributable to TTEEL of the order of £125,000. The difficulty with Mr Kapila's evidence in this relation is that in the joint report, he asserts that the gross profit margin was 30%, and that an adjustment to TTEL's position, should be shown reflecting this. The audited accounts, however, clearly showed a turnover of £322,000 the cost of sales at £259,000 and the gross profit £63,000, a gross profit of 19.7%. In cross-examination he accepted that he had done that calculation at the time of his first report and indeed he was able to correct counsel who put it at "slightly less than 20%".

Q. …you have assumed a gross profit in Engineering of 30%, not the 19.7% which you knew to be disclosed by the audited accounts.

A. that is true. I would like to caveat that on two fronts, if I may. One is, my Lord, that I had not fully absorbed the nature of the journal entries between the different sets of management accounts by the time I had prepared this report, and a lot of that came through to me during my discussions with Mr Granger. Secondly it is only recently in fact that I developed some thoughts on that. I accept that point. I accept that I made the initial assumption of gross profit margin of 30% but I would not say that this is my view at this point. (My emphasis).

171. Mr Kapila was then referred to paragraph 7.1(a) on his report and his assumptions that a gross profit margin of 30% was have been achieved by TTEEL.

Q. You've made an assumption. You have not referred at all comparing that assumption to the actual accounts which you had which revealed a gross profit margin in engineering of 19.5?

A. Is that correct?

Q. That is correct. I would like to expand on that if I may. That was simply because I could not relate the cost of sales at that time within the statutory accounts of engineering to the charge from TTEL to engineering but I was able to do so subsequently. In other words, I did not have the link. I did not want to make an assumption simply because it was there.

Judge Wilcox: But you had the accounts

A. That is true my Lord

Q. They are staring you in the face and you say they are statutory accounts and that you give them face value. Then you make an assumption that is very much elevated from that. I cannot understand that.

A. OK let me explain my Lord. There are two issues there. One is if we look at the statutory accounts. I was unable to pinpoint that the turnover into statutory cuts was linked with the turnover of Europa. However, at that time when I prepared my report, I accept that I was not able to link the cost of sales with the management charge that was made by Europa. I made an assumption because I was not sure. I did not sufficiently explore my thought processes on the gross profit margin that was used in the statutory accounts; that is the point I am really making. In other words I made the assumption on the basis that if they are both roughly in the same type of business, is 30% a reasonable assumption because Europa had made a gross profit margin of 30. I will assume 30.

Q. I can understand you were making an informed assumption, but why was it not on the basis of 19.7%?

A. Simply

Q As was shown in the statutory accounts.

A. Because my Lord I could not support the cost of sales figures in the statutory accounts in relation to the records of Europa, that is the reason.

172. For the purposes of the joint report, Mr Kapila had to review the audited accounts and the other documentation. It is to be remembered that an exchange of reports was sequential and that when Mr Kapila was instructed he had full opportunity to see what Mr Granger's view was and respond to it. The joint discussions and the review culminating in the joint report gave yet a further opportunity for Mr Kapila to refine and correct his views.

Q. You know the duty of an expert to draw to the attention of the court matters which are adverse to the case of the party which you are called to give evidence on behalf of?

A. Absolutely.

Q. In making an assumption about the gross profit margin of engineering, you have material….namely the audited accounts in engineering which were adverse to that assumption, did you not?

A. I had statutory accounts which were adverse to that assumption; I accept that, although I would like to add, as I keep saying, that I wanted to link the transactions that I could identify in Europa's books with their statutory accounts and I have now been able to do that. My Lord I am very……I have been conscious of this before the start of my evidence, that this has been a moving scenario in three stages. One is I identified a lot more about the relationships between the companies during my meeting with Mr Granger and I have identified more since then, because I have been undertaking further analyses. I do not have any…in other words, I have developed my though processes.

Judge Wilcox But you have not drawn the change brought about by your thought processes to the attention of the court until it has been enquired into, have you?

A. They have been drawn to

Q. Have you?

A. I have to the extent that it is covered in the single joint report, which is a later document.

Q. Yes Mr Eklund

Mr Eklund In the joint report you repeat the assumption that engineering could have achieved a gross profit of the order of 30% do you not? Page 139.

A I repeat that assumption, but I also highlight in paragraph 7.2 the existence of the two separate sets of management charges. At that stage, I had not quite come to grips with why there were two separate sets of figures; I accept that point. The reason I did draw to the attention of the court the fact that I had other information at hand

Q. What you have not done is drawn to the attention of the court what you now accept, namely the gross profit margin engineering should be taken at less than 20%

A. At around 20% yes.

Q. When you prepared your report, you had for your information and to enquire into a substantial number of documents including various versions of the management accounts and general entries did you not?

A. I did.

Q. Yes. Please turn to page 133

Judge Wilcox Is that 133 Mr Eklund

A. Yes that is a page from the joint statement which you set out in paragraph 3.3 'for the avoidance of doubt we have set out the various documents referred to in the Chapel report with copies of identified documents being designated as document 1 etc in manuscript at the right-hand side of each copy.

A. Yes.

173. Mr Kapila went on to accept that he had all the accounts and the underlying material which went behind the management accounts including journal entries available to him when he prepared his first report. He accepted that he reviewed the material and considered it as part of his view. He sought to put matters into a perspective

A. One of the primary sets of instructions that I had apart from looking at the valuation of the company was to review Mr Granger's report. The document supporting Mr Granger's report included only one version of those set of management accounts. I then received separately papers from the administrative receiver's files, which had a whole set of various management accounts all co- mingled. In order to establish a sort of audit trail if I can call it that is an exercise which has been going on since I was instructed essentially and I accept that at that time I had not fully absorbed that audit trail. It had come through to some extent from my discussions with Mr Granger.

Q. Since your discussions with Mr Granger and the signing of the joint report signed on 6^th February 2002, have you prepared any further report clarifying your view as a result of your understanding of the documents which you are now referring to?

A. I have prepared analyses for conferences with counsel but no reports.

174. Mr Kapila then went on to emphasise that he specialised in forensic accountancy and that his firm was committed to the development of forensic accounting as a distinct branch of the profession of accountancy and that he wrote articles for legal journals, and presented courses and seminars on forensic accountancy to many branches of the legal profession. He accepted that he had a clear understanding of the importance of journal entries and of the importance of drawing to the court's attention matters adverse to the party he was representing. He accepted that he had the great advantage of having Mr Granger's report before he embarked upon his exercise of valuing TTEL on an ongoing basis and commenting upon Mr Granger's report.
175. It was sadly apparent that Mr Kapila when it came to matters of detail, was not as thorough as the court is entitled to expect of an expert witness giving evidence in a matter such as this. He was willing to persist in asserting conclusions based on demonstrably faulty data. I did not find him a reliable or objective witness.
176. Mr Granger contends that TTEEL existed as a sales invoicing vehicle, for sales which would be factored with International Factors Ltd. TTEL made the purchases, employed the staff and provided the premises. TTEEL's customers were clearly customers of TTEL and its cost of sales represents the management charge from TTEL with its expenses and interest charges relating wholly to the factoring arrangements. As such, the profitability, or otherwise that it would report to a separate statutory entity was entirely dependant upon the level of the management charge from TTEL. It is apparent that the un-audited financial statements for TTEEL for the period ended 31^st October 1994 were made up for a period for which no financial statements were made for TTEL and moreover were not filed until August of 1994 by which time TTEEL was the trading vehicle. It is apparent from the TTEEL profit and loss account for the 8 months ended 31^st December 1993 that in the two months ending 31^st December 1993, TTEEL invoiced sales of £92,468 while the cumulative management charge had increased by £136,000 in the same two month period. I accept Mr Granger's evidence that TTEEL's apparent trading record prior to the Mareva injunction must be regarded as part of the trading record of TTEL since the only trading of TTEEL was invoicing derived from TTEL.

TTEL'S ACCOUNTING TREATMENT OF CLAIMS & VARIATIONS IN RESPECT OF THE GLAXO CONTRACT

177. The experts agree that it is reasonable in accordance with generally accepted accounting practice to exclude any amount for an agreed claims and variations attributed to the Glaxo contract by the defendant from the profit before taxation of £92,807 stated in TTEL's management accounts for the 8 months ending 31^st December 1993. The experts agree that it is reasonable for costs relating to claims and variations attributable to the Glaxo contract to have been carried forward to the extent that those costs were reasonably and prudently expected to be recovered.
178. In view of my earlier findings, it may at first blush seem that there is a degree of unreality about this exercise, but an intending purchaser in 1994 following due diligence would have pursued the exercise agreed by Mr Kapila and Mr Granger to be appropriate. Then recollections would have been sharper, and more contemporaneous documentation to hand. Furthermore a dialogue may well have been engaged in by the parties leading to settlement or arbitration.
179. Mr Kapila contends that it is reasonable to exclude claims and variations of £86,190 attributed to the Glaxo contract by the defendant from the profit before taxation of £92,807 stated in TTEL's management account to the 8 months ended 31^st December 1993 as relied upon ion the Granger report. He also contends that it is suitable to include costs of £86,190 attributed to the Glaxo contract during the eight months ended 31^st December 1993 within the defendant's prospective costs of sales, excluding claims and variations of this order of magnitude from TTEL's maintainable turnover on the basis that there was no certainty that these amounts would have been successfully recoverable from the claimant. The basis of Mr Kapila's opinion is that it was reasonable to assume that irrecoverable costs on contracts such as the Glaxo contract could have been a recurring feature of the defendant's prospective activities. Mr Granger contends that this assumption is not warranted in assessing the maintainable earning stream immediately before the grant of the Mareva Injunction, and it is appropriate to exclude the costs of the work which has given rise to claims and variations irrespective of the assessment of costs related to claims and variations that have been carried forward. This assessment has to be made for statutory accounting purposes as the recoverability of those costs as otherwise the future maintainable earnings are distorted by the dispute with Johnson. He suggests that the prudent purchaser might have sought an adjustment mechanism whereby consideration would be adjusted on a pound for pound basis by reference to the amount by which the ultimate recovery from Johnson was less than or exceeded the costs carried forward in the balance sheet of TTEL.
180. In my judgment in a due diligence exercise on behalf of a prudent intending purchaser Mr Granger's approach would be the appropriate one. I reject Mr Kapila's view that it is reasonable to assume that irrecoverable costs on contracts such as the Glaxo contract would have been a recurring feature of the defendant's perspective activities had it not been for the Mareva Injunction. It seems to me, that these costs are properly characterised as a one off feature rather than of a recurring nature.

ADMINISTRATION SERVICE CHARGE PAID BY TTEL TO WARWICKSHIRE PROPERTIES LTD

181. The experts agree that having regard to the audited financial statements of Warwickshire Properties Ltd. for the year ended 30^th April 1994 filed at Companies House, which show that services were provided by Warwickshire Properties Ltd to TTEL during the 8 months ended 31^st December 1993, it is reasonable to deduct the administration service charge of £45,000 payable by TTEL to Warwickshire Properties Ltd as taken into account in computing the profit before taxation of £92,807.00 stated in its management accounts for the 8 months ending 31^st December 1993 as relied upon in the Granger report. They agree that for the purposes of evaluating TTEL's maintainable earning stream, had it not been for the Mareva Injunction, it is reasonable to take into account the administration service charge of £45,000 payable by the defendant to Warwickshire Properties Ltd in respect of the 8 months ended 31^st December 1993.
182. Mr Kapila, however, contends that it is reasonable to deduct an additional administration service charge of £90,000 payable by TTEL to Warwickshire Properties Ltd in evaluating TTEL's financial performance during the 8 months ended 31^st December 1997. His contention is based upon manuscript schedules and adjustments to management accounts to show true TTEL turnover.
183. He contends that a proportion of the additional administration charge of £90,000 would be taken account of. He does not specify what proportion of the additional administration charge he considers reasonable to take into account.
184. Mr Kapila's difficulty is that he tries to follow an audit trail and confuses his function which is to consider with due diligence the value of the company to an intending purchaser.
185. Mr Granger exemplifies the approach that is appropriate, namely by taking account of the director's remuneration of £23,500, pension contributions of £15,106 and an administrative service charge of £45,000 which all annualises to a salary cost of £125,000 in addition to the cost of company cars. His opinion, which I accept, is that this sum would have been more than adequate from the perspective of a purchaser to cover basic remuneration of a management team to whom that purchaser might also have offered bonuses as a proportion of excess profits above maintainable earnings.
186. I reject Mr Kapila's contention that a proportion of a notional additional £90,000 would have to be taken into account in evaluating the defendant's financial performance during the 8 months ended 31^st December of 1993.

TTEL'S ADDITIONAL MOTOR EXPENSES

187. The experts agree that the additional motoring expenses of £10,800 were incurred during the 8 months ended 31^st December 1993, relative to the amount of £53,451 included in the administrative expenses within TTEL's management accounts for the 8 months ended 31^st December 1993 and as relied upon in the Granger report, it is reasonable to take additional motor expenses into account in evaluating performance during the 8 months ended 31^st December 1993. It is apparent that the additional expenses have been calculated on the basis of three vehicles of £400 per month for 9 months, thus additional motoring expenses of £9,600 should be taken into account in evaluating TTEL's performance during the 8 months ending 31^st December 1993 on the basis of the 8 months account period in question. It is therefore agreed for the purposes of evaluating TTEL's maintainable earning stream had it not been for a Mareva Injunction, I should take into account motor expenses of £63,051 in respect of the 8 months ended 31^st December 1993.

TTEL'S CZECHOSLOVAKIAN COSTS

188. The experts agree that these commercial frolics are clearly costs that are assumed to be of a non-recurring nature and therefore need not be taken into account.

TTEL'S ADDITIONAL REPAIR COSTS

189. It is agreed that repair costs of £22,675 were charged by Warwickshire Properties Ltd to TTEL in respect of the 8 month period to 31^st December 1993 relative to the overall amount of £5,174 included in the administration expenses within TTEL's management accounts for the 8 months ended 31^st December 1993 as relied upon in the Granger report. Mr Kapila nonetheless contends that additional repairs for £22,675 were incurred during the 8 months ended 31^st December 1993 relative to the overall amount of £5,174 included in administrative expenses within TTEL's management accounts for the 8 months ending 31^st December 1993 referred to in the Granger report. Thus he says it is reasonable to take repairs costs of £27,849 into account in evaluating TTEL's financial performance. The document upon which Mr Kapila relies attributes the repairs to what is described as 'being expenses of Pinegrow year to date 94'.
190. These costs have been borne by Warwickshire Properties ltd. and were carried in that company's balance sheet prior to being recharged to TTEL. Techni-Track Ltd, TTEL's predecessor company, at one time occupied offices forming part of the development site then being assembled by Pinegrove Ltd in Rochester and that although the offices of Warwickshire Properties Ltd and TTEL were at Warwick House, Maidstone, for some reason TTEL assumed Techni-Tracks Ltd's repairing liability. These charges are in the nature of delapidations and Mr Granger contends that it is unreasonable to take into account the additional amount of £22,675 in respect of the 8 months ending 31^st December 1993 for the purposes of evaluating TTEL's maintainable earning stream. In my judgment this is correct. There is no evidence to show that any benefit enured to TTEL and there is no basis for an intending purchaser to assume that this is a recurring matter.

TTEL'S FINANCIAL POSITION PRIOR TO THE MAREVA INJUNCTION

191. The experts agree that the defendant's available cash resources before the Mareva Injunction would have been adversely affected if payment had been made on the due date, 1^st February 1994, in respect of TTEL's corporation tax liability of the order of £25,000. It is agreed that TTEL was supervised by the Regional Office of Lloyds Bank throughout the period under consideration and that its overdraft facilities were kept under review on a regular basis. They further note that the available evidence shows that the letter of 15^th February 1994 from Lloyds Bank to Mr Terry which stated 'until such time as we can arrange a meeting once the Glaxo problems have been finally resolved, I must ask you to reduce your overdraft facility with the bank as quickly as possible with the account to run in credit from the end of February 1994 pending re-negotiation of the facilities' was issued before Lloyds were aware of the Mareva Injunction. It is accepted that given that letter, had been a resultant decrease in the defendant's overall facilities of the order of £100,000, this would have had a material and adverse effect on its financial position resulting in an impairment of its ability to continue as a going concern regardless of the Mareva Injunction.
192. Mr Kapila contends that following the letter of 15^th February 1994, TTEL would have failed within a relatively short period afterwards. Mr Granger's view is that the letter of 15^th February was in fact an invitation to negotiate the facilities and was not a formal demand. It is significant that the letter of 1^st March 1994 from the regional office of Lloyds in Cambridge to its debt recovery department shows that as at the 28^th February 1994, there was full cash cover for the overdraft. Mr Kapila in his report draws attention to the net current liabilities position of TTEL as at 30^th April 1993 as warranting the inference that TTEL was in financial difficulty before the Mareva Injunction was granted.
193. Mr Granger expressed the opinion that in his experience whether a company's balance sheet shows net current assets or net current liabilities, is not in itself likely to bear directly on the adequacy of that company's working capital, i.e. its ability to meet its liabilities as they fall due. Accounting ratios, which take into account the relative weighting of assets and liabilities are more helpful while it is important to have regard to the constituent element of both current assets and current liability. As at 30^th April 1993, the ratio between current assets and current liabilities as expressed as a percentage was 87.3%. On the same basis the management accounts indicated an improvement in the ratio to 106.3%. More than 100% indicates that the current assets exceed current liabilities. The liabilities include bank indebtedness in the form of the overdraft and the government loan. The loan had structured repayment terms. The overdraft was technically repayable on demand, and represented a flucturing facility to finance the working capital requirement, rather than properly part of the working capital. Both as at 30^th April 1993 and the 31^st December 1993 Mr Granger concluded that there was a healthy trade debtor creditor ratio and even taking into account the tax and social security, the position was manageable. In relation to the bank the actual overdrawn position was £245,000. The bank had a limited exposure of 30% on the government guaranteed loan and the cash offset with Warwickshire Properties Ltd., gave an exposure of approximately 17% of the book value of its primary security. The Lloyds Bank papers indicate whereas there had been earlier concerns, at this time the bank was relatively comfortable with such a position. The effect of the continuing dispute with Johnson absent the injunction in my judgment having regard to the expressed intentions of Mr Terry and Mr Bull and the guarded optimism of the bank manager, Mr Taylor, would not have prevented the continuing trading of TTEL. Indeed a compromise might have been found whereby Johnson would have agreed to honour future claims effectively setting aside the accumulated balance of claims for later resolution, possibly on a final account. It is possible, however, that no compromise would have been found in which case the dispute would have gone to arbitration. In fact the repudiation by Johnson resolved the position insofar as the lock-out and re-employment of TTEL's labour was such that further costs of the contract could not be incurred and that itself was sufficient action in my judgment to preserve the viability of the company. Furthermore, it is of significance that the bank had confidence in Mr Terry and in the independent financial advisor Mr Bruce Morrison.
194. I reject Mr Kapila's analysis and expressed view as to the defendant's position prior to the grant of the Mareva Injunction.

THE VALUATION OF TTEL

195. The experts agree that for the purposes of valuing TTEL on the basis of its perspective earning stream, it is appropriate to take into account administration service charges as payable by TTEL to Warwickshire Properties Ltd., and TTEL's additional motor expenses.
196. Mr Kapila gave evidence that given his appraisal of TTEL's trading performance during the year ended 30^th April 1993 and the 8 months ended 31^st December 1993, it was difficult to envisage the circumstances in which the business could have been acquired by a prospective purchaser on the basis of its short and according to him, unprofitable trading history. He contended that TTEL had a negligible value prior to the grant of the Mareva Injunction and the Mareva Injunction did not therefore result in the loss of its value as a going concern.
197. Mr Granger's appraisal of TTEL's trading performance during the 8 months ended 31^st December 1993 showed that the company had maintainable earnings before tax of about £83,000 after taking account of the administration service charge of £45,000 and additional motoring expenses of £9,600.
198. Mr Granger's adjusted figures follow agreement with Mr Kapila (as to the adjustments only) based upon the December account showed:

Turnover £1,899,556

Cost of Sales (£1,381,211)

Gross Profit £518,343

Administrative Expenses (£460,131)

Other Operating Income £1,073

Interest Payable £17,271)

£42,016

Claims and Variations £86,190

Administration Service Charge (£45,000)

Maintainable before Tax £83,206

199. Mr Granger's figures in my judgment illustrate the proper approach to the valuation of this company in ascertaining its maintainable earnings stream.
200. The 1993 accounts although in my judgment showing a loss if the one-off profit is excluded, nonetheless are encouraging insofar as they show that with increased turnover there was a sufficient margin as would indicate future maintainable profitability. Indeed it is of some significance that Mr Taylor was impressed by the way that Mr Terry with the advice of Mr Morrison during 1993 pulled the company round into profitability in the face of all difficulties including a recession.
201. The appropriate multiplicand, namely the earnings before interest, tax, depreciation and amortisation in my judgment is £75,000. The question as to what is the appropriate multiplier is more difficult. It is a matter in relation to which I derived no assistance from Mr Kapila who had not considered the matter.
202. Mr Granger has done considerable research based upon the FTSE in All share index which in 1993 had a category of Contracting and Construction. The individual constituents of this segment of the index were examined and companies with a significant exposure to house building and/or property investment were removed as were those companies whose activities related purely to the hire of plant and machinery and scaffolding etc.
203. An analysis of those companies left warranted the conclusion that the price earnings multiplier applicable to smaller quoted companies operating in this sector in early 1994 calculated on an historic basis but allowing for a full tax charge was generally within the range from the lowest 7.35 to upwards of 15 times earnings.
204. A check analysis was done over a number of companies in that segment including companies with exposure to house-building and property investment which gave a mean prospective price earnings ratio of 12.56. There are helpful guidelines to the valuation of small companies published by the Law Society and the Practitioners Corporate Finance Manual published by the Institute of Chartered Accountants in England and Wales (ICAEW).
205. The ICAEW Manual offers the view shared, by the Law Society Guidelines that "in the case of the discount to reflect lack of quotation and un-marketability, the general rule of thumb in the marketplace indicates between 25% and 40% discount."
206. Thus on Mr Granger's analysis of the relevant companies in the FTSE sector, there is a range of 4.4 times historic earnings and a maximum of 11.25.
207. Of the twelve companies in the sector, including those with house-building or property investment exposure, the adjusted figure would give a multiple of 7.5 which figure whether historic or prospective would appear to be supported by available stock-market data.
208. Addressing the relatively small size of the company and its relatively short trading history, Mr Granger gives a further discount of 40% to reflect these features giving a base multiple of 4.5 times.
209. Mr Granger in his report also gave evidence of a comparable transaction involving a contracting company with a turnover less than TTEL which was offered at net asset value plus goodwill – the goodwill being effectively valued at 2.5 times the maintainable operating profit, untaxed. It confirms Mr Granger's view based upon his other research. I accept the evidence of Mr Granger as to the approach to the valuation of this company.
210. The multiplier of 75% of course is pre-tax. 33% reduction would allow for a full effective tax charge that should give a post tax profit of £50,000.
211. The appropriate multiplier in my judgment is 4.5 which would give a value in my judgment of £225,000.
212. I accept Mr Granger's evidence based upon his experience that a company of the size of TTEL would have found a ready market as a going concern albeit that the purchaser would have paid a relatively low multiple of profits.

CONCLUSIONS

A: The Claim

213. ) The claim is dismissed.

B: The Counterclaim

214. ) Judgment

a) £13,385.80 )

£12,703.89 )

£12,633.85 ) (para 53)

b) £25,972.00 (para 61.)

C: Enquiry into damages

Judgment:

i) £1,847.00 (para 150)

ii) £225,000.00 (para 211)

_________________

TOTAL £291,542.54