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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Claim No: HT-06-374 Royal Courts of Justice Strand, London, WC2A 2LL
		19 December 2007

His Honour Judge Peter Coulson QC:

A. INTRODUCTION

1. The Defendants, Mr Robert Smith and Miss Jacqueline Isaacs, own two adjoining hotels in Brighton, The Ascott and The Arlanda. In 2004, they decided to link the two buildings together and to redesign the interior to allow for, amongst other things, a common reception area and a gym/spa area at the rear ("the project"). They engaged the Claimant, Nigel Witham Limited, a firm of Chartered Designers and Planning Supervisors, to carry out a concept design. The concept design was carried out in late 2004-early 2005. In March 2005 the parties entered into a second agreement in respect of the detailed design and the project management of the building works. However, progress on the detailed design was slower than had been anticipated, and was suspended altogether between early October 2005 and early January 2006 as a result of the Defendants' budget difficulties. The project resumed in early January 2006 but tensions between the parties began to surface and in May/June 2006, the relationship between the parties broke down completely.
2. In these proceedings, the Claimant seeks various sums by way of unpaid fees. These claims fall under a number of distinct heads, each of which involves a number of different legal and factual considerations. The Defendants deny the claims made and contend that, on a proper analysis, the Claimant has been overpaid. One feature of the case is that both the sums claimed by the Claimant, and the sums counterclaimed by the Defendants, have reduced significantly in the run-up to and at the trial. In particular, the Defendants' pleaded counterclaims, based on the alleged inadequacy of the Claimant's various cost estimates, were withdrawn altogether during the Defendants' closing submissions. This has meant that the sums at stake in this case, which were always modest by the standards of this Court, have reduced to such a level that the maximum further sum due to the Claimant (on its own case, and excluding the claim for costs as fees) is just £94,132.53. On the Defendants' case, the maximum overpayment that they have made to the Claimant is £13,956.37.
3. Despite the modest sums in issue, a judicial settlement conference, chaired in October 2007 by HHJ Wilcox, failed to bring about a settlement. The subsequent trial before me involved eleven full lever arch files of documents, and lasted five days. It must be questionable whether such an elaborate and expensive process can ever be justified in a case where the maximum difference between the parties is under £110,000. However, that observation should not be taken as a criticism of trial Counsel. On the contrary, both Miss Lindsey, for the Claimant, and Miss Shaw, for the Defendants, steered the trial through a plethora of issues and disputes, efficiently keeping to the timetable that had been agreed at the outset and providing considerable assistance to the Court. It would therefore be quite wrong for me to embark on this lengthy Judgment without first thanking them both for their considerable efforts.
4. The shape of this Judgment is as follows. In section B below, I set out a chronology of some of the relevant events. At section C, I deal briefly with the issues that arise out of the original agreement between the parties. At section D, I also deal briefly with the issues that arise out of the supplemental agreement. Sections E–J inclusive then deal with the principal remaining issues, which arise out of the second agreement between the parties. Section E deals with the issues that arise out of the suspension between October 2005 and January 2006, whilst section F deals with how the second agreement was terminated in May/June 2006 and considers the parties' respective cases as to termination. At section G, I identify how, in accordance with the second agreement, the Claimant's percentage fee should be calculated. At section H, I deal with the Claimant's claim for the costs of pursuing these proceedings as a claim for additional fees under the second agreement although, by agreement between the parties, I deal with that issue solely as a matter of principle. At section I, I deal with the Claimant's time-based claim for variations. At section J, I deal with the miscellaneous items of claim. And, finally, at section K, I attempt a reconciliation of the figures, taking into account the sums already paid, to arrive at the judgment sum.

B. CHRONOLOGY

B1. The Original Agreement

5. The original agreement, in respect of the concept design, was evidenced by the Claimant's letter to the Defendants of 1^st November 2004. Given the very limited nature of the disputes between the parties arising under the original agreement, it is unnecessary for me to set out in any detail the terms of that agreement. It incorporated one page of what the Claimant referred to as "our standard conditions of business". It also included something described by the Claimant as "my guarantee of satisfaction" which offered the Defendants a money-back guarantee if they considered that the Claimant had not achieved the standard of service identified in the guarantee.
6. Pursuant to this original agreement, on 11^th November 2004 the Claimant produced a draft design brief. This set out in general terms the nature of the work required by the Defendants. It was signed by the Defendants on 19^th November 2004. It recorded that they required a Health Spa that would be accommodated in a combination of the lower floors of the two hotels. The Claimant sought, and has been paid, the sum of £3,390 in respect of the work done under the original agreement.
7. During this period, the Claimant made a telephone inquiry of the local council as to the listed status of the hotels. The junior member of the Claimant's staff who made the call was apparently told by the Council that only the façade was listed. The Claimant then wrote to the Council seeking confirmation of that position. This was of some importance because, although the bulk of the proposed work was internal, the concept design involved the construction of the spa in the courtyard at the back of the buildings. No response was received from the Council in answer to the query and no attempt was made by the Claimant to chase up a reply.
8. Many months later, at a meeting on 30th March 2005, it became apparent that the whole building was listed and that the Council were not happy about the idea of covering over the yard to accommodate the proposed spa. In a letter to the Defendants of 20^th April 2005, the Claimant noted:

"… I would accept your criticism of us were you to say that we should have pressed the Council further when we first enquired about the listed building status. We did write to the Council but they did not respond and told us during a telephone conversation that only the façade was listed. We do try to offer the best standards of service and we should have been more wary of this. Thank you for not raising the point but we do feel responsible."

In consequence of this, the design had to be altered. There is now a counterclaim by the Defendants for £4,046.50 in respect of the abortive work alleged to arise out of the late discovery of this planning restriction. That claim is addressed at section C below.

B2. The Supplemental Agreement

9. In February 2005, the parties met and the Defendants gave instructions to the Claimant to revise some of the concept design drawings. In the Claimant's letter of 11^th February 2005, Mr Witham said:

"I explained to you that the revision work (and some of the other work we have already carried out) is beyond our original terms of engagement and will therefore incur extra fees. I also explained that, since I consider we are all working very well together towards a full project, which will be conducted with reference to our standard scale of fees, I do not intend to raise any further accounts unless the project is aborted. I understand that you agree that this is fair. Accordingly, we will record time spent on your project, which you may see at any time."

10. This became known as the supplemental agreement. The Claimant now seeks £4,890 in respect of the work done on these revisions, on the grounds that the project was ultimately aborted. That claim is addressed at section D below.
11. The other important point about the letter of 11^th February 2005 is that it contains a reference to the Defendants' budget of £450,000. Mr Witham noted that this represented "a considerable reduction from the initial cost analysis we have prepared in the sum of £704,000". As far as I am aware, this was the first written reference to any budget figure. As I have indicated, prior to the trial, budgets and estimates loomed large in this case, because the Defendants alleged that the Claimant was always aware of their budget and maintained that, if the Claimant's cost estimations had been more accurate, the Defendants would have realised that they could not have afforded the Claimant's scheme, and would have decided not to proceed with the scheme at a considerably earlier date. However, as I have indicated, the counterclaims based on inadequate estimates (and therefore potentially earlier termination dates) were all abandoned by Miss Shaw in her closing submissions. It is therefore unnecessary for me to deal with them now.

B3. The Second Agreement

12. The second agreement lies at the heart of this dispute. It contained a number of documents. These included:

(a) The Claimant's letter of 15^th March 2005;

(b) A programme of works;

(c) The Claimant's standard conditions of business – 2005 version;

(d) An estimated schedule of costs;

(e) Certain plans and drawings;

(f) The Claimant's 'help sheets'. There is a dispute as to the extent to which these help sheets were incorporated into the contract.

13. I deal briefly with each of these categories of documents below.

(a) Letter of 15^th March 2005

14. The letter, which was countersigned by the Defendants on 22^nd March 2005, recorded that the objective of the second agreement was "to continue with the project we commenced on a preliminary basis in November last year…" The letter recorded four stages of work: stage 0 being pre-planning and health and safety; stage 1 being conception; stage 2 being development and stage 3 being implementation. The second agreement was therefore principally concerned with stages 2 and 3.
15. The part of the letter dealing with fees was amended in manuscript. The amended version read as follows:

Our fee for all the above work will be £37,784.00 plus VAT including all expenses and travelling times.

Our fee is calculated as follows:-

Budget price prepared by us based on drawing 691-02 Rev B excluding

£39,000 design fees	£469,000
Anticipated savings for reducing structural openings either side of entrance door and within restaurant	(£20,000)
Total budget at commencement	£449,000
Scale fee from our fee graph as appended 9.2%	43,104
Deduct fee already paid for preliminary work	(£5,320.00)
Total estimated fee	£37,784.00 plus VAT

Our terms are monthly retainer paid in 12 equal monthly installments by standing order, backdated 1 month to cover for the unbilled extra work we have carried out on the preliminary stages. Each payment will therefore be £3,148.67 plus VAT (total £3,699.68). This amount will be due to us on the last day of each month until January 31^st, 2006^[1]. A payment of £7,399.37 will be due on March 30^th, 2005.

We may adjust the monthly fee if the budget for the project changes and therefore the estimated fee changes in accordance with our standard conditions of business, which we will be pleased to explain to you.

The charging rate for any additional work we may be required to carry out that is not included in this quotation will be £120.00 plus VAT per hour for my time [Nigel Witham] and £80 plus VAT per hour for Sanjay Mistry, Adam Rose's or Vicky Funnell's time or £40 per hour for Laura Jones' time."

16. The letter made plain that the Claimant's quotation was subject to their (attached) standard conditions of business which had to be signed and dated by the Defendants. The letter also recommended that the Defendants read the help sheets. There was no express reference in the letter to the money-back guarantee which had been provided in respect of the original agreement, and nor was such a guarantee enclosed with the letter.

(b) Programme

17. The programme was prepared on 15^th March 2005. It envisaged completion of stages 2 and 3 of the project (i.e. completion of all the works) by the end of the first week in March 2006. This was important, because the Claimant's fees were paid in monthly installments on the basis of this programme. There was no mechanism in the contract for the monthly payment schedule to be adjusted if the progress of the detailed design fell behind this programme. Eventually, as we shall see, the Claimant was being paid in accordance with the schedule for the provision of certain services, such as project management, which it had not even begun to perform.

(c) Standard terms and conditions

18. It is unnecessary for me to set out all of the Claimant's standard terms and conditions. It is, however, necessary to identify all those concerned with additional fees, percentage fees and termination.

"Additional fees

30. If, due to reasons beyond our control, we are involved in extra work or we incur extra expenses, because (for example)

1. The scope of the services is varied by you; or

2. We are required to vary any item of work commenced or completed in accordance with the contract;

3. Or performance of our work is delayed, disrupted or prolonged;

then we will charge for this. Additional fees will be calculated at a rate pro-rata to the fee in the original quotation subject to any normal price increases or reductions or (at our discretion) at appropriate hourly rates at the time the additional work is carried out.

Payment (if you disagree with our charges)

31. If you disagree with any amount we have charged you must

1. Tell us in writing within one week of our bill specifying the amount you propose to pay and the basis of calculation of that amount or

2. Tell us in writing at least one week before the final date of payment of any amount due to us, if you intend to withhold payment of any of that amount stating the amount you propose to withhold and the ground for doing so.

In default, the amount invoiced shall be payable in full by the due date in any event, you must not delay payment of any undisputed part of the charge…

Interest and administration fees

33. Any sums not paid on or by the due date stated in our quotation letter will bear interest (after judgment, as well as before) at 2% per month, calculated monthly, until paid, plus an administration of £31.00 for each month during which payment is late.

Cancellation and Suspension

34. If you wish to cancel this agreement

1. Because you reasonably consider that we have not complied with our obligations under the contract you must tell us in writing why you think we have not complied, giving us reasonable time to rectify or explain any apparent non-compliance and if we fail to do so to your reasonable satisfaction then you may terminate this contract by giving seven days notice in writing and by paying all sums due.

2. For any other reason you must tell us in writing giving at least three months notice or, if greater whatever notice period stated in the quotation (the notice period). You must pay and continue to pay during the notice period

Our fees for the work carried out up to the time notice of termination or suspension is given and

The fees that would have been due to us for work that would have been done within the notice period had the project proceeded as proposed and the scope of work been as described in the most recent brief and/or drawings and/or specification and/or designs.

35. We may cancel this agreement

1. By giving you seven days notice of cancellation if you

Fail to make payment due to us without complying with condition 31 or

Refuse to follow advice relating to your statutory obligations or

Fail to provide us with information that we may reasonably require in order to progress your project.

Should we exercise this clause we will require you to immediately pay all sums due under the contract as if the project had proceeded to a proper completion….

36. If the project is delayed for any reason outside our control we will still be incurring overheads relating to the project. You must continue paying our fees as scheduled and we are entitled to charge any extra fees or expenses incurred when the project resumes pursuant to condition [30].

Percentage fees

37. If our fee is calculated as a percentage of the project cost (or other cost) then, during the project, interim fee payments on account will be due on the basis of estimated budgets, which we will prepare from time to time using our knowledge of normal marker rates charged by professional contractors, sub-contractors, manufacturers and suppliers. If the estimated budget is increased during the project, either because your requirements increase or because your requirements cost more than anticipated, we may require all payments to be increased and be re-scheduled commensurately at any time at a rate calculated by reference to our standard scale of fees. If the original budget estimate on which the interim payments are based is higher than subsequent estimates, then (subject to condition 37) our fees will be reduced.

38. If you reduce the budgeted project cost at any time then the project designs, drawings and specifications may have to be completely revised or started again and we may at our discretion either treat this as a termination of the original project or charge revision fees at an appropriate hourly rate.

39. Subject to condition 37, if you reduce the scope of the project in order to meet budgets then the percentage fee for the future stages will be reduced accordingly by reference to our standard scale of fees. We will not reduce our fee for complete stages which fee will be based on the most recent true cost estimates provided by us at the time. At our discretion we may also charge extra fees at an appropriate hourly rate to revise or amend the designs, drawings and specifications to meet budgets, unless the revisions are minor or would have been needed anyway during the normal course of the design work.

40. At the end of the project, when the final actual project cost is known, the fee will be recalculated and any balancing payment (from or to you) will then be due. If the project is not completed for whatever reason then the fee due will be calculated by reference to our standard fee scale and based on our most recent estimated budget."

(d) Estimated schedule of costs

19. This three-page document was in the total sum of £507,859. That included £39,000 by reference to the Claimant's own fees. That was the amount referred to in the letter of the 15^th March (noted at paragraph 15 above), which was excluded from the total project cost figure on which the Claimant's percentage fee entitlement was calculated.

(e) Plans and drawings

20. The drawings were very similar to the design brief and showed the construction of the gym/Spa at the rear of the ground floor of the hotels, in the area of the courtyard.

(f) Help Sheets

21. These help sheets included the graph by which the percentage fee was to be calculated. The fees shown on the graph were described as a "percentage of project costs". Other help sheets referred to commitments both from and to the Claimant. Commitment 9 from the Claimant was described as follows:

"We will provide written proposals and obtain your agreement before carrying out any chargeable work for you."

Commitment 6 from the Defendants to the Claimant was in these terms:

"Stick to your instructions and accept that, after we have acted on them, we will charge extra if you change your mind or if you add to your requirements."

22. I consider that the help sheets, which were sent with the letter of 15^th March 2005, were thus part of the second agreement, particularly as one of them contained the graph, without which it was not possible to calculate the final percentage fee due to the Claimant. By the same token, I consider that the money-back guarantee, which was not sent with the letter and nowhere referred to in the letter and the documents sent with it, was not part of the second agreement.

B4 Progress: March – September 2005

23. As noted at paragraph 8 above, the first significant event after the signing of the second agreement was the meeting with the Council on the 30^th March in which they indicated that, because the hotels were listed, they were not happy with the proposal to cover the yard with a single storey extension. As a result of this, as the Claimant's letter of 20^th April 2005 made plain, two new design options had to be considered. The first was to put the gym underneath the yard, thereby retaining the external appearance of the buildings and the open space at the rear. Alternatively, the Claimant proposed that the single storey extension would be reduced in size, but would form the basis of a new rear extension that affected the first, second and third floor levels as well, providing additional bedrooms and thereby adding to the capacity of the hotels and their overall value. This became known as the 'tower' scheme.
24. During the early summer of 2005, the Claimant progressed the detailed design based on a loose combination of the two schemes. As a result, there was a new focus on the upper floors. Consideration was given to the hot and cold water systems for the whole building and the extent to which those systems needed to be upgraded. By August 2005 it was clear that both the building services engineers who had looked at the hotels considered that a comprehensive upgrade and renewal of the services was required: see, for example, the Claimant's letter to the Defendants of 29^th August 2005. The same letter revealed that, because of budgetary constraints, the Defendants might have to choose between the basement gymnasium on the one hand, and the tower on the other.

B5 The Suspension of Work: October 2005 – January 2006

25. At a meeting on the 28^th September 2005, the parties considered the revised budget estimate produced by the Claimant. This was based on a stripped-down scheme which proposed the installation of the gymnasium on the ground floor (within the footprint of the existing building), and which did not envisage either the excavation of a basement or the construction of the tower. At the outset of the meeting, it appeared that the budget estimate for this work, which did include an upgrade of the services, was £733,518.35. During the meeting, it was agreed that a figure of £25,000 in respect of leased items for the garden could be removed from the estimate, which reduced the budget estimate to £708,518.35. This estimate was provided to the Defendants in a typed up version immediately after the meeting. Subsequently, a further revised estimate was provided by the Claimant to the Defendants which removed the sum of £22,776 in respect of internal alterations at ground floor and £12,520 in respect of the garden. This reduced the estimate further to £671,433.35. That figure included the Claimant's fees. Without their fees, the estimated cost was £616,634.
26. As a result of these estimates, the Defendants suspended work on the project whilst they endeavoured to resolve their funding arrangements. There is a dispute as to whether this suspension was agreed at the meeting on the 28^th September and, if so, the precise terms on which such a suspension was agreed. I deal with those disputes in section E3 below. At all events, on October 3^rd 2005, the Defendants emailed the Claimant to say that they had not anticipated that the core cost of the scheme would still reach nearly £600,000 and that, having discussed the matter over the weekend, they felt that they needed "to review our funding and we have today arranged another meeting with our bank. In the meantime we do not want you to proceed with the scheme until we clarify exactly what funding we have available." In his reply of the same day, Mr Witham said that he looked forward to hearing from the Defendants once they had met with their bank and that the Claimant "will do our best to catch up any lost time but since we are already behind time it may be inevitable that the project will be delayed slightly."
27. Towards the end of the year there was a delay in the payment by the Defendants of one of the monthly installments of the Claimant's fees. The Claimant chased, both for payment of the outstanding sum and for instructions to get started again, on the 5^th December 2005. A further chaser was sent on December 14^th and an apologetic response was received from the Defendants on the 20^th December. That referred to the good news that the valuation had been received and "was still good". A formal offer from the Defendants' bank was awaited. It appears that that formal offer from the bank was received early in the New Year and on the 4^th January 2006 the Claimant emailed the Defendants to say that he was pleased that the project was proceeding again. It appears that the outstanding installment was also paid on that day.

B6 The Resumption of Work: January 2006 – April 2006.

28. Once the project restarted, there were a number of differences in the relationship between the parties. In particular, it is plain from the correspondence that both Defendants began to concern themselves with the detailed aspects of the Claimant's design in a way which had not apparently happened before. There was a good deal of to-ing and fro-ing in relation to the detailed design and layout of the spa area and the bar. In an email of 14^th February 2006 Mr Witham estimated that the revisions in the spa area would take approximately 4–5 days' of extra work. Another point referred to in the correspondence, and which is now the subject of one of the disputed variations, was in respect of the visual impact of the steam room and spa. On 9^th March the Defendants said to the Claimant that "we need to know what these will look like".
29. This widened out into a more fundamental dispute. In an email of 10^th March the Defendants told the Claimant that "there is no point in you designing or ordering anything unless we have seen what it looks like and agreed it". The Claimant was unhappy about this partly, I suspect, because at least some of these matters of detail had not been raised by the Defendants before, and partly because the Claimant was obviously used to being given a relatively free hand in all matters of design for commercial projects. In his email of the 12^th April to the Defendants, he set out a rather singular view of the designer's role:

"Normally when we work with clients they come to us because we are expert designers with the marketing skills, knowledge, equipment, experience and time to create unique designs that appeal to their potential customers. It is less important to most of our clients whether or not they like the design since they are making a business investment and not a personal choice and they are happy to rely on our proven skills to guide them. This is why I said yesterday that you are too close to things. It should not be necessary for you to select light fittings, if you do you should not copy what you have seen elsewhere which is probably chosen with a different brief in mind or copied itself."

30. By the middle of April 2007, the tensions between the parties were becoming apparent in their email correspondence. Mr Witham plainly felt that the Defendants were becoming far too involved in the nitty-gritty of the design process. The Defendants were apparently frustrated that, on their view, the Claimant was making design choices without any reference to them. And behind these differences was the larger issue of delay: instead of being in the situation envisaged by the second agreement, which indicated that the entirety of the project would have been completed by April 2006, the parties found themselves in the position whereby the detailed design drawings had not yet been completed, let alone sent out to tender. The Defendants began to complain to the Claimant about these delays: in an email sent to the Claimant on 16^th April, the Defendants said that "we would like to express our displeasure that you are still not ready to put this job out to tender".

B7 The Termination Of The Second Agreement

31. Because of the parties' competing cases as to the circumstances in which the second agreement came to an end, and because a number of the claims turn, in one way or another, on my findings as to which party was responsible for the termination, it is necessary for me to set out the relevant facts in respect of termination in some detail. I analyse the issues as to responsibility in section F below.
32. In an email of 19^th April 2006, the Defendants pointed out to the Claimant that they had paid almost all of the fee stage payments but, because of the delays, those payments were far ahead of the progress that had been thus far achieved. They made plain that, whilst they were not withholding payment or disputing payment, it was their belief that the Claimant was being unreasonable in expecting full payment before the project had been completed. The email proposed a compromise, to the effect that payment of the final installment would be made when the job went out to tender which, as the Defendants pointed out, still put them in the position of trusting the Claimant "to complete a job to the best of your ability which you have already been paid for."
33. Although the Claimant's reply of the following day indicated that it partially accepted the compromise solution, the email went on to make plain that "we [the Claimant] are stopping work on your project now" and that it required a post-dated cheque before work was resumed. At this point, the only outstanding stage payment of the Claimant's fees was the sum of £4,050.87, being the monthly payment due on 1^st April 2006. That payment was made on about 27^th April, according to the evidence. The penultimate monthly installment, due on 1^st May, was paid on about 3^rd May. Thus, at the critical time of late April/May 2006, no sums by way of fees were outstanding from the Defendants to the Claimant.
34. Having stopped work on the project, the Claimant did not appear in any great hurry to recommence. The i-chat records of the conversations between Mr Witham and his sub-contractor, Mr Mistry (who was based in India), recorded that, some days earlier, on the 25^th April, Mr Witham was "very fed up" with the Defendants and recorded his belief that their project was "distracting us from better things". He said in terms to Mr Mistry that he was "not sure" that he was interested in finishing the project; that he was "not keen to proceed" and "would like to withdraw". The same record indicated that the Claimant was considering what "tactics" to use in order to achieve this.
35. On the 3^rd May 2006, the Claimant's accountant emailed Mr Witham suggesting that "it should be straightforward to come up with the 'gloom and doom' termination scenario and a positive conciliatory 'what a fab project' alternative." The subsequent email from the Claimant to the Defendants on 4th May might be described as somewhere between these two extremes, although even that document did not radiate a very positive outlook, concentrating as it did on the additional monies that the Claimant wanted in order to complete the project. It set out what the Claimant called its "bottom line" conditions in these terms:

i) "A structure finance plan to ensure adequate funding is in place to conduct the construction contract properly.

ii) The remainder of our existing percentage fee fixed paid exactly to terms with no late payments on 1 May [subsequently paid on 3^rd May] and 1 June.

iii) The fees for all project management work after the drawings were complete – about £20,000 paid on monthly time sheet, can be fixed if design is fixed and construction contract formed by negotiations. All fees must be paid when due.

iv) The rough costs of agreed variations at £5,000.

v) The rough costs of my weekend time this year – say 8 days at £1,000 = £8,000 (which is discounted; it should be £140 per hour x 8 hours = £1,120 per day).

vi) Say £2,000 towards the other costs of design to cover Sanjay and delaying other projects – again this is way cheap and under cost."

36. On 10th May, the First Defendant met Mr Witham to discuss these proposals. Plainly, one of the most important points was the proposed fee for the project management services which were still to be performed. This was already included in the percentage fee recoverable under the second agreement and had therefore, save for the final installment, already been paid by the Defendants to the Claimant. For the reasons set out in his email, the Claimant was seeking to be paid additional sums for that work. It appears that, at the meeting on 10^th May, the First Defendant asked for a fixed fee for the project management and negotiation work, and was plainly hoping for a reduction in the sum quoted. Later that same day, however, Mr Witham responded to say that, although he had given an indication of £20,000, the market rate was actually £30,000-£35,000. The email quoted fees for the project management work made up of a preparatory/negotiation fee of £13,440 plus VAT, and a site visit fee of £14,280 plus VAT, namely a total of just over £30,000.
37. On 16^th May 2006, the First Defendant replied in terms that spoke of his 'shock' at the proposed increase. In my judgment, this email marked the effective end of the second agreement:

"When I came to see you it was in the genuine hope that we could reach a compromise and complete the project together. I had explained that we were not happy with the prospect of paying an estimated £20,000 on an hourly basis for the project management, particularly when we felt that under our original percentage fee contract we had already paid for this. I also explained that we did not have this sort of money available.

I felt from our conversation that you also wanted to complete the project so when you said you would try to work out a fixed fee for the project management I thought you would be trying to meet our concerns and bring down the price. In point of fact your email illustrates an increase of 50% upon the estimated £20,000 and that is on the basis that everything goes smoothly.

It is with regret therefore that we have to inform you that we are unable to accept your proposal. We do not consider it equitable and it is just not affordable. We have since met with two other companies who are willing to carry out the tendering and project management for considerably less and we have no choice but to proceed with one of these. We therefore need to have confirmation from you that we can proceed with the third party to implement your designs. We will do our best to honour your designs and assuming you wish it you will receive the appropriate credits. It is our opinion that we have paid for the design and indeed paid for the project management but clearly no purpose would be served in wrangling over this matter."

38. The following day, the 17^th May, Mr Witham replied saying that he hoped the First Defendant would understand that "we cannot work at a loss, which is what you would be expecting us to do were we to reduce our fees any further." The email went on to seek clarification, saying that "it seems that you are asking me to cancel our agreement with you forthwith….."
39. On 21^st May 2006, the Defendants sent the Claimant a lengthy letter purporting to terminate the second agreement. The letter is topped and tailed with the same complaint that was made in the First Defendant's email of 16 May, namely that, having stopped work on the project, the terms on which the Claimant was prepared to recommence work were too onerous and jeopardised both the entire scheme and the Defendants' financial viability. The concluding paragraphs of the letter reiterate the shock that the Defendants felt when, having discussed the estimate for an additional £20,000 in respect of project management at the meeting on 10^th May, the Claimant promptly increased that estimate to a fee in excess of £30,000. The First Defendant said:

"I have eaten humble pie to try and get the scheme back on track and you have thrown the gesture back in my face.

You say you want to be reasonable and you want to complete the job but your actions make these empty words. You give the semblance of reasonableness and having our best interests at heart but the reality is far removed from this."

40. The letter also set out numerous other complaints about the Claimant's conduct, including allegations of delay; an alleged failure to communicate the parties' respective roles and the nature of the design; allegations that the Claimant has ignored the Defendants' input and comments; an allegation that the Defendants had not been informed of progress; and an allegation that the stated fees had been exceeded without warning. These criticisms were grouped together under headings that made reference to the money-back guarantee which I have concluded, for the reasons set out above, was not a contract document. However, it seems to me that it was open to the Defendants to make those allegations by reference to the Claimant's standard terms and conditions and the other contract documents set out above: the real question for me, with which I deal in section F below, is whether or not the allegations in the letter were justified.
41. The Claimant replied on 23^rd May, refusing to release his designs until the differences had been settled. He asked the Defendants to reflect on the wisdom of their position. He referred to his willingness to take legal action to recover what is due "despite the stress, worry and expense such action invariably involves for both sides. I am confident that such action will be successful, but enormous additional sums will be incurred in legal fees, the vast bulk of which ultimately will be borne by you." The letter invited the Defendants to take part in an independent mediation.
42. On 30^th May the Claimant wrote again, this time taking the point that the guarantee was not part of the second agreement. The letter went on to say that the Claimant planned to treat the defendant's letter of 21^st May "as an attempt to terminate the contract under condition 34.1, if you can confirm that is your intention." The invitation to take part in independent mediation was repeated.
43. On 9^th June 2006, the Claimant wrote again to the Defendants attaching a copy of a letter from Justin Nelson to the Claimant. Mr Nelson was both the Claimant's company secretary and its solicitor. His letter concluded that the Defendants seemed to be trying to avoid paying what was due and coming up with various complaints in an attempt to justify this. Again there was a reference to mediation. Neither the Claimant's letter, nor, on analysis, the letter from Justin Nelson, made any attempt to address the detailed points in the Defendants' letter of 21^st May.
44. On 27^th June 2006, the Defendants' then solicitor wrote a lengthy letter saying, amongst other things, that the letter from Justin Nelson did not address the legitimate concerns of the Defendants. The letter went on to say that:

"…Without prejudice to our clients' primary assertion that the contract has already been terminated, on behalf of our clients we hereby give notice of termination in accordance with clause 34.1. As you have already been paid more than your entitlement under the contract, no further sums are due and, if it still exists, the contract will terminate in 7 days".

45. It was Mr Witham himself, not Justin Nelson, who replied to this letter on 30 June. His letter said that, unless the Defendants were prepared to make a serious offer in full settlement to dispose of matters, proceedings would be commenced in the Brighton County Court. Mr Witham now denied that the Defendants were entitled to invoke clause 34.1. At the end of the letter, Mr Witham purported to invoke clause 35.1 of the contract and expressly resigned from his role as designer and planning supervisor with 7 days' notice. As Miss Lindsey rightly conceded, no specific justification for termination under clause 35.1 was identified in the letter. During her opening, Miss Lindsey said that it should fairly be inferred from the letter that the Claimant was terminating under clause 35.1 because of unpaid fees. On analysis, it became apparent that, by that date, the only sum not yet paid was the final monthly installment. Whether or not that sum could be described as outstanding at the end of June 2006 was a matter of debate at the trial, and I address that issue at section F4 below.

C. THE ISSUES ARISING OUT OF THE ORIGINAL AGREEMENT

C1 Fees Due/Paid

46. There is no dispute that the sum of £3,390 was due to the Claimant under the original agreement and that this figure has been paid. It includes VAT. It is necessary to identify this sum solely so that the ultimate financial reconciliation, which takes the gross sums due to the Claimant and then makes a gross deduction for the sums paid, can be finalised.

C2 The Counterclaim In Respect Of Listed Building Work

47. It was a term of the original agreement that the Claimant would "check relevant building control regulations, with approved independent inspector, and planning restrictions with council, and amend drawings if required". At the time, it was estimated that this would take one day. For the reasons set out at paragraphs 7-8 above, it appears that the Claimant failed to chase up its letter seeking confirmation that it was only the façade of the hotels that were listed. As a result of this failure, following the second agreement, it then came as a nasty surprise to everyone to see that the concept scheme, which involved a gym in the covered yard at the rear of the hotels, was not going to be possible because of the listed status of the entirety of the hotel buildings. As a result, alternative design options, as set out in the Claimant's letter of 20^th April 2005, had to be considered.
48. It seems clear that this was a failure on the part of the Claimant. Indeed, the relevant paragraph from the Claimant's own letter of the 20^th April 2005, set out at paragraph 8 above, is incapable of being read in any way other than as an admission of error. Further, I note that Mr Armes, the Defendants' expert, records at paragraph 38.5.1 of his report "that the Claimant did not exercise due skill and care in his approach to obtaining planning consent during contract 1." Although Mr Armes' view was criticised because he was a qualified architect, as opposed to a chartered designer, I do not accept that this renders his opinion any less valid on this particular point. The failing is self-evident.
49. In addition, I also note that, although this particular of negligence was pleaded in the Defendants' counterclaim, Mr Barrett, the Claimant's expert deals with the allegation (as he deals with so much of this case) in an extremely broad-brush way. He does not address Mr Armes' specific criticisms. He does not deal with the particular failure at the heart of the allegation, namely the failure to obtain confirmation of the precise listed status of the hotel buildings. Mr Barrett also admitted in cross-examination that, in the circumstances, he would have chased up a reply to the letter to the planning authority. Given the terms of the Claimant's admission, the terms of Mr Armes' report, and Mr Barrett's concession, I consider that the allegation of negligence has been made out. I do not accept that, if the planning authority had been properly chased by the Claimant, the difficulty with covering the rear yard would not have emerged much earlier. On the contrary I conclude that, if it had been, the subsequent redesign would have happened before the second agreement was even entered into.
50. The question that remains is what loss (if any) was caused as a result of this culpable default. Mr Barrett's principal point was that work would have been required in any event as a result of these events and that there was no loss in consequence. If there was abortive work, I think it was Mr Barrett's view that it was carried out under the supplemental agreement, for which no charge has been made in any event. Mr Armes assessed this item of counterclaim in the sum of £4046.50, this being a total of 48.25 hours of abortive work at various hourly rates. That assessment of loss was not really challenged during his cross-examination.
51. I consider it inevitable that there was some abortive work as a result of this default. If those working on the concept design had known, towards the end of November 2004, that the covered yard proposal was not going to be accepted, then they would have switched to the other two options much earlier. Some of the early concept design work was, therefore, wasted.
52. By the same token, notwithstanding the absence of a detailed challenge to Mr Armes' calculation, I cannot see how the abortive work can amount to £4,000 odd, an amount greater than the total sum due and paid under the original agreement. I recognise that this abortive work was, in all likelihood, carried out prior to the second agreement, because the redrawing to identify the new options began almost immediately after that second agreement had been reached. In the round, therefore, I consider that there was abortive work, but I do not believe that such abortive work has cost the Defendants more than £1,000. I therefore assess this item of counterclaim at £1,000.
53. In addition, I should note that, in the documents, Mr Witham's daily rate of charge was about £1,000 per day (£140 per hour: see the reference at paragraph 35v) above). I consider that one day's wasted work is about right for this item of counterclaim. And turned round the other way, I note that one day was the length of time expressly referred to in the original agreement as being the time that it would take the Claimant to deal with the listed building matters. In the round, therefore, given my findings of culpable default in this regard, I consider that it is fair to deprive the Claimant of that element of its original fee.

D. THE ISSUES ARISING OUT OF THE SUPPLEMENTAL AGREEMENT

D1 The Claim For Extra Work

54. I am inclined to think that it rather overstates the significance of the letter of the 11^th February 2005 (set out at paragraph 9 above) to describe it as a supplemental agreement. It simply records a discussion at which the Claimant indicated that it was apparently relaxed about carrying out revisions to the conceptual design without charge. It is also clear that no invoice was ever rendered in respect of this work once the second agreement was terminated. It is difficult to resist the idea that this claim has been used as something of a device to increase the overall value of the Claimant's post-termination claim.
55. All that said, it seems to me that, given the terms of the agreement set out in the letter, the Claimant might be entitled to additional fees for those revisions, unless it could be shown that the Claimant had already made a claim and been compensated for that work and/or the project was aborted by reason of the Claimant's wrongful repudiation. Plainly, if the Claimant was culpably responsible for the circumstances in which the contract was aborted, no claim could be made in consequence.

D2 Already Paid?

56. Within the letter evidencing the second agreement, as set out at paragraph 15 above, the Claimant clearly stated that the equal monthly installments had been backdated by one month "to cover for the unbilled extra work we have carried out on the preliminary stages". That is plainly a reference to the alleged revisions referred to in the supplemental agreement, for which no invoice was rendered. The parties were therefore agreeing that the monthly installment payments under the second agreement should be backdated by one month, so that the Claimant was being paid each installment one month earlier than would otherwise have been the case, as compensation for the unbilled revision work. That is a clear agreement between the parties: the financial arrangements within the second agreement were amended to the Claimant's advantage to compensate the Claimant for this unbilled work.
57. In those circumstances, it seems to me that the parties have agreed the method and nature of the Claimant's compensation for the unbilled work. That compensation, in the form of early payments, has been paid. In those circumstances, there can be no further claim for such unbilled work now: that claim has been compromised by the second agreement. The claim arising out of the supplemental agreement therefore fails.

D3 "Unless The Project Is Aborted"

58. In my view, if the supplemental agreement was binding and if, contrary to the view expressed above, the Claimant has not already been compensated for the unbilled revision work, then the Claimant would be entitled to be paid for such work if the project was aborted, unless the project was aborted due to the Claimant's default. It would be nonsense to suggest that the Claimant was entitled to bring about the end of the project through his own default, and was then entitled to be rewarded for that default by bringing a claim under the supplemental agreement. In my judgment, an implied term of the supplemental agreement to prevent the bringing of a claim in such circumstances would plainly meet the test of necessity – that the term 'went without saying' - set out by Lord Pearson in Trollope & Colls v North Western Regional Hospital Board [1973] 1 WLR 601 at page 609.
59. I have set out at section B7 above the relevant written materials in respect of the termination. I analyse those materials, and the other evidence as to termination, in section F below. For the reasons set out there, I am in no doubt that the Claimant wrongfully repudiated the second agreement and was therefore responsible for the project being aborted. Accordingly, the Claimant is unable now to rely on that wrongful repudiation to make a claim under the supplemental agreement, which claim would not be open to the Claimant but for that wrongful repudiation.
60. For both these separate reasons, the claim under the supplemental agreement must fail.

E THE ISSUES ARISING OUT OF THE SUSPENSION

E1 General

61. The Claimant seeks £27,920.20 as a result of the suspension of work on the project between early October 2005 and early January 2006. There are a number of singular features of this head of claim as presented at the trial. First, this is not a claim that was made either during the period of suspension or after work recommenced in January 2006. Indeed, it was not a claim that was made at any time by the Claimant during the currency of the contract between the parties, and was first formulated in these proceedings.
62. Secondly, there is no substantive link between the period of suspension and the sum claimed. The £27,920.20 which is sought under this head is arrived at in this way. The Claimant has purported to calculate the hours worked on the project once it resumed in January 2006. From the total hours worked, the Claimant has deducted those hours which are attributable to the alleged variations (dealt with in detail in section I below). The remaining hours worked, namely those that cannot be attributed to a particular variation, are claimed under this head. In essence, therefore, by this head of claim, the Claimant seeks an entitlement to be paid for carrying out work in respect of the original (i.e. unvaried) workscope on a time basis, in addition to being paid for that very same work through the mechanism of the percentage fee.
63. Accordingly, there are a number of sub-issues arising out of this head of claim. Is the Claimant entitled to fees on a time basis (as well as a percentage basis) as a matter of construction of the second agreement (section E2 below)? Is the Claimant entitled to fees on a time basis (as well as a percentage basis) as a matter of fact (section E3 below)? Is the Claimant's pleaded claim recoverable in any event (section E4 below)?

E2 Is The Claimant Entitled To Fees On A Time Basis (As Well As A Percentage Basis) As A Matter Of Construction Of The Second Agreement?

64. The relevant terms and conditions relied on by the Claimant in support of this claim are clauses 30 and 36, set out in paragraph 18 above. Clause 36 allows a claim for "extra work", or if the Claimant incurs "extra expenses" due (amongst other things) to delay.
65. As I have already noted, this head of claim is not and cannot be presented as a claim for extra work. The work that was done in the hours which form the basis of this claim was the work that the Claimant always had to carry out pursuant to the terms of the second agreement. It was the basic, unvaried contract workscope. It was not extra at all. Clauses 30 and 36, which arise on the carrying out of extra work, cannot, therefore, support this claim.
66. In addition, whilst clause 30 allows a claim if "we incur extra expenses", that is plainly designed to cover expenses incurred by the Claimant (i.e. monies paid out) as a result of, in this instance, the suspension of work by the Defendants. Thus, if as a result of the suspension, a particular expense was incurred by the Claimant which would not have been incurred but for the suspension, like the extended hire during the suspension period of a particular piece of machinery to produce clear 3D images, then that additional expense would potentially be recoverable under clause 30. But, again, that is not the basis of this claim. This claim is not a claim for expenses incurred by the Claimant at all; it is a claim for fees for work done on a time basis. In addition, the rates claimed are those set out in the contract, which rates are emphatically not expenses incurred by the Claimant. For example, Mr Mistry's time within this head of claim is charged at £80 per hour. That was not an 'expense' to the Claimant; the documents which were belatedly provided in their unredacted form show that the Claimant was paying Mr Mistry just £4.50 an hour.
67. Accordingly, for these reasons, I am in no doubt at all that clauses 30 and 36 do not begin to support a claim for basic workscope fees to be calculated on a time basis, as well as on the percentage basis, even if there was a suspension. Further support for that conclusion can be found, if it is required, in the last words of clause 30. That allows a claim "at appropriate hourly rates" but it is plainly linked to the carrying out of "additional work". Here, on the Claimant's own case, there was no additional work, because the work that is the subject of this head of claim was the work that it always had to carry out.
68. For these reasons, on the true construction of clause 30, this claim for £27,920.20 must fail. It is strictly, therefore, unnecessary for me to deal with any other aspects of this claim, but because I have reached a firm view on those matters, and because they were fully argued by both sides, I set out my review of the remaining issues below.

E3 Is The Claimant Entitled To Fees As A Time Basis (As Well As A Percentage Basis) As A Matter Of Fact?

69. It was the First Defendant's evidence that, at the meeting on 28^th September 2005, Mr Witham advised the Defendants that they might suspend the works until they were sure of their funding position, and that he went on to say that, although the Claimant could charge them for delay costs, he would waive this. He also recalled Mr Witham saying that, if the works were suspended, the Claimant would be actively seeking alternative work and, as a result, if the project did resume, there might be a delay before it was able to recommence work on the project. The First Defendant said he was "confident and certain" that this is what Mr Witham had said. The Second Defendant gave evidence that she recalled Mr Witham suggesting that suspension was the best thing in the circumstances so that the budget could be sorted out. When challenged in cross-examination as to the waiver point she repeated that, in her recollection, Mr Witham did say that he would waive making a claim for suspension costs.
70. The evidence of Mr Witham was less clear, and he honestly accepted that he could not remember making the statements attributed to him. He did, however, accept that if he had made such a statement, then the further point that both Defendants expressly recalled, namely that he said that he might not be in a position to recommence work on their project immediately if he found other work, was the sort of thing that he would have said in such circumstances. Given that, on this point, I consider that all three of the principal witnesses were doing their best to recollect a discussion that happened more than two years ago, I would be inclined to find that, on the balance of probability, there was an oral agreement, or at least a common assumption by the parties, that any suspension would take place with the Claimant's blessing and that no claim for additional fees would be made in consequence.
71. However, what confirms that conclusion is the content of the contemporaneous documents. First, it is noteworthy that, in the e-mails that the Claimant sent to the Defendants during the period of suspension, on 4th, 10^th and 26^th October, and 5^th December 2005, not once was any mention made of the suspension coming as a surprise to the Claimant or, more importantly, that a claim would be made for additional fees or expenses as a result of that suspension. The Claimant's e-mails are only consistent with an agreement or common assumption between the parties that there would be no claim by the Claimant for additional fees or expenses as a consequence of the suspension.
72. Further, the waiver agreement was expressly referred to by the First Defendant in his e-mail to the Claimant on 19^th April 2006. In his response of 20^th April, Mr Witham responded to and challenged a number of the points that had been made, but he did not say that he had not waived the right to make a claim, and did not challenge the statement attributed to him by the First Defendant.
73. Accordingly, I consider that the contemporaneous documents, particularly those emanating from the Claimant, are only consistent with there having been an agreement between the parties, or at least a common assumption, that no claim would be made by the Claimant against the Defendants for costs arising out of the suspension. I therefore find that it was agreed that there would be no such claim, alternatively that the Claimant is now estopped from seeking to make a claim for these costs. As I have already indicated, this claim was never even intimated by the Claimant until after the termination of the second agreement. That is not a small point given that clause 30 (which is, after all, the clause on which the Claimant purports to rely in pursuing this claim), expressly provides that a claim for suspension at hourly rates would be made "at the time the additional work is carried out". The Claimant was therefore in breach of its own condition in failing to make this claim at that time. I consider that to be yet another indication that the parties had, in fact, agreed that there would be no such claim.

E4 Is The Claimant's Pleaded Claim Recoverable In Any Event?

74. Even if I was wrong as to the proper construction of clauses 30 and 36, and even if I was wrong on the facts and there was no waiver or estoppel, I would still conclude that the pleaded claim for £27,920.20 was not recoverable in any event. This is because it is a claim for fees that are already recoverable under the percentage fee arrangement. The fact of a three-month suspension does not and cannot entitle the Claimant to be paid twice over (once on a percentage basis and once on a time basis) for precisely the same work.
75. There may have been, in principle, a claim open to the Claimant for loss of contribution to overheads and loss of profit consequential upon the suspension. Indeed, there was some evidence, from the Claimant's accountant, Mr Kendrick, that seemed designed to support such a claim. Mr Kendrick had looked at the published accounts and concluded that the Claimant's turnover was less in the year ending 31^st October 2006 than had been the case in 2004 and 2005. There was also a suggestion that the total fees invoiced by the Claimant's in the early part of 2006 were less than in the previous year. Although it was unclear, the suggestion was that these changes were the result of the suspension.
76. There are a number of points that can be made about this evidence. First, it appeared to support a type of delay claim (for diminished contribution to overheads and/or loss of profit) which was emphatically not the pleaded claim brought by the Claimant. Secondly, the exercises performed by Mr Kendrick were wholly undermined by the fact that he relied on his own analysis of the Claimant's accounts, without disclosing any part of those accounts themselves. When Mr Witham was asked why the Claimant's accounts had not been provided to the Defendants, his pithy response was that the accounts "were none of the Defendants' business". I have recently expressed my bafflement in another case as to how a party in civil litigation can purport to rely on secondary documents, of the sort prepared by Mr Kendrick, but refuse to disclose the primary documents on which that analysis is based and, without which, the secondary analysis becomes entirely self-serving^[2].
77. Thirdly, even on Mr Kendrick's own analysis, the Claimant invoiced its clients in October/ November 2005 (two-thirds of the suspension period) in total sums that were higher than the equivalent period in the previous year. In addition, the Claimant's billing over the three months of the suspension exceeded his average monthly billing for 2005. Therefore, without more, Mr Kendrick's analysis does not support the suggestion that the suspension caused any loss at all.
78. The reason for the absence of any cogent evidence as to loss can, I think, be found in the evidence that showed that the Claimant was busy with other work during the suspension period. Mr Witham admitted that in the last part of 2005, the Claimant was involved with other projects, so that when Laura Jones left the Claimant to work in London in November 2005, she was replaced by Russell Chabot. In his e-mail of 3^rd February 2006, Mr Witham said to the First Defendant that, during the suspension period, "we had booked in replacement work". He reiterated this in his email of 16^th April to the Defendants, when he said that the Claimant "committed to others" during the suspension "in order to fill our time and meet our own commitments and then had to fit your work in as well as theirs when your project has resumed." In all the circumstances, therefore, I conclude that the suspension did not cause any loss (much less the purported "loss" relied on by the Claimant in its pleadings) to the Claimant's business. That is a further reason why this head of claim fails.
79. For completeness, I should note that, in respect of this part of the claim, Miss Shaw, on behalf of the Defendants, raised a series of points about the Claimant's timesheets. It is unnecessary for me to deal with those points here, because, for the reasons which I have set out, this head of claim must fail. However, the Defendants' attack on the timesheets is very relevant to the claim for variations, and I deal with it in some detail in paragraphs 159-172 below.

E5 Conclusions

80. For the reasons set out above, I consider that the claim made by the Claimant for fees on a time basis, in addition to the percentage fee, in respect of the unvaried workscope must fail:

(a) On the proper construction of clauses 30 and 36; and/or

(b) Because any such claim had been waived and/or the Claimant is estopped from asserting it; and/or

(c) Because the pleaded claim is irrecoverable in principle and there was no evidence of any loss caused by the suspension in any event.

F HOW WAS THE SECOND AGREEMENT TERMINATED?

F1 General

81. The key events and documents relevant to the arguments on termination have already been set out in some detail in section B7 above. It is the Defendants' primary case that, for a variety of reasons, the Claimant wrongfully repudiated the contract in April/May 2006, which repudiation they accepted by their lengthy letter of 21^st May (paragraphs 39-40 above). Their alternative case is that the letter of 21^st May amounted to a notice of termination under clause 34.1. It is the Claimant's case that it did not repudiate the contract and that the letter of 21^st May was not a notice under the clause 34.1. Accordingly, the Claimant's case is that it terminated the contract pursuant to its own letter of the 30^th June 2006 (paragraph 45 above). Given that those respective cases arise in chronological order, I deal with the arguments in that same sequence.

F2 The Defendants' Primary Case; The Claimant's Wrongful Repudiation

(a) The Principal Complaint

82. I have already made the point that, on the face of the letter of the 21^st May 2006 from the Defendants, the principal complaint being made was that the Claimant had stopped work and was not prepared to recommence work on anything other than terms which, as the Defendants saw it, were too onerous. This complaint was, in truth, a repetition of the complaint in the First Defendant's earlier e-mail of 16^th May (paragraph 37 above), a further indication that this was the Defendants' main source of anger and frustration. Three points arise for determination. First, a point is taken that this complaint, although plainly important in the contemporaneous correspondence, is not pleaded in the Defendants' defence and counterclaim. The second issue is whether, even if it is a point open to the Defendants, it was a justified complaint. Thirdly, even if it was a justified complaint, was it a breach of contract amounting to repudiation?

(b) It Is Pleaded?

83. At paragraphs 62 (f) and 62 (g) of the Defendants' defence and counterclaim, the Defendants allege that the Claimant failed to complete stage 2 of its works and /or failed to commence and/ or complete stage 3 of its works. It is plain that that pleading encompasses the allegation that, without justification, in late April 2006 the Claimant purported to stop work on the project, when stage 2 had not been completed and stage 3 had barely been started. In addition, paragraph 62 (k) is a complaint that the Claimant claimed for more hours than was reasonable in the provision of their services. It seems to me that that allegation is wide enough to include the complaint that the Claimant was seeking unreasonable sums for the continued provision of those services in April/May 2006.
84. Accordingly, I reject the suggestion that what I have described as the Defendants' principal complaint has not been pleaded. Furthermore, I note that Miss Lindsey properly conceded that she had prepared to deal with and rebut this criticism at the trial in any event. Thus, even if I was wrong on my analysis of the pleadings, there can be no possible prejudice to the Claimant if I deal with and decide this critical part of the case in any event. I therefore turn to the substance of the allegation.

(c) Is The Principal Complaint Justified And, If So, Did It Amount To Repudiation?

85. In the Claimant's e-mail of 20th April (paragraph 33 above), it is stated in unequivocal terms that the Claimant was stopping work on the project until various matters were resolved. At no time thereafter was it ever suggested to the Defendants that the Claimant had resumed work on the project. All of the exchanges in the first part of May 2006 are only consistent with the work having stopped, and the parties discussing ways in which that work might be restarted. Thus the Claimant's e-mail of the 4^th May (paragraph 35 above) in which the Claimant's 'bottom line' is set out, is plainly described as containing the Claimant's 'terms for continuing"'. It was these terms, and in particular the claim for £20,000 for project management, which led to the meeting on the 10^th May 2006 (paragraph 36 above), and the Claimant's subsequent e-mail of the same date which purported to increase the sum for project management to £30,000 odd.
86. It is trite law that a party to a contract for the provision of professional services cannot unilaterally decide to stop work. It is a fundamental obligation that both parties to such a contract must conduct themselves in a way that will facilitate the completion of the contract in question. Accordingly, I consider that the Claimant's decision to stop work unilaterally on 20^th April 2006 was unjustified and a breach of contract. And whilst I note that the Claimant now says that, despite the terms of its own email, it continued with some design work until 8^th May, that assertion can make no difference to my conclusion. There are two reasons for this: first, because at no time was that information passed on to the Defendants, who therefore reasonably assumed from April 20^th onwards that the Defendant had unilaterally stopped work; and secondly, because the only evidence for the continued work after 20^th April was the Claimant's own timesheet, which was not provided until months later, and which, for the detailed reasons given at paragraphs 159-172 below, I regard as a wholly unreliable document.
87. What about the terms of the Claimant's 'bottom line' e-mail and its subsequent e-mail of the 10^th May? Miss Lindsey endeavoured to categorise these e-mails as 'open offers' and maintained that they were reasonable attempts by the Claimant, in all the circumstances, to agree a way forward. She submitted that it would be quite wrong now to criticise the Claimant for the terms of these offers, or to rely on them as evidencing an intention on the part of the Claimant no longer to be bound by the terms of the existing contract.
88. I do not accept those submissions for two reasons. First, these 'offers' were being made at a time when the Claimant had announced that it had stopped work. They were setting out the terms and conditions which the Claimant wished to impose upon the Defendants in order to recommence work; work which, on my analysis, it should not have stopped (or even threatened to stop) in the first place. Thus, in my judgment, the Claimant should not have been purporting to dictate the terms of recommencement in any event. It is impossible not to read these e-mails without concluding that the Claimant was wrongfully seeking to re-negotiate the contract from a position of commercial strength, knowing that the Defendants were desperate for the project to continue.
89. Secondly, I consider that it is important to look closely at just what the Claimant was seeking to do. The e-mails of the 4^th and 10^th May were seeking to impose upon the Defendants a series of new payment obligations. It is worth noting that the cost of variations was then estimated by the Claimant at just £5,000, and was therefore not at the forefront of the new deal that was being suggested. Instead, the principal focus of the 4^th May e-mail was on the payment for Mr Witham's weekend time (£8,000) and, much more importantly, the fees for project management work. The original estimate for that in the e-mail of the 4^th May was £20,000 but this increased to £30,000 odd in the e-mail of the 10^th May (paragraph 36 above). It was that latter increase which shocked the First Defendant (paragraph 37 above) and triggered the termination process.
90. Given its importance, therefore, I will take the attempt to obtain a further £20,000-£30,000 in respect of project management work as the most telling example of the Claimant's conduct during this period. In my judgment, the Claimant had no right whatsoever even to suggest to the Defendants that they pay these additional sums for project management. The reason, of course, was that the second agreement stated that all the project management services which were to be provided by the Claimant were within the percentage fee. Again, therefore, these e-mails reveal an attempt by the Claimant to obtain from the Defendants payment twice over for the same work.
91. Then there is the question of when the Claimant's entitlement to these fees arose. It is, of course, common place for construction professionals to be paid fees calculated on a percentage basis by reference to the estimated or actual cost of the works. This can be a convenient way of fixing a fee and, although there can sometimes be problems (because the work actually done may bear little relationship to the fees charged), the percentage system is generally regarded as sensible and proportionate. But where, as here, the percentage fees are paid, not on the completion of particular stages of work, but by reference to a schedule of monthly invoices, with the dates fixed by reference to a proposed programme that became obsolete months before, real difficulties can arise.
92. In my experience, many of the problems that arose in this case occurred because the Claimant was being paid fees far in advance of the progress of the works on site. By April/May 2006, according to the programme that formed part of the second agreement, these building works should have been completed, and the project management services would all have been provided. In fact, the building work had not even started. And yet, save for the final installment that was not yet due, the Claimant had been paid (through the mechanism of the percentage fee), months and months in advance, for all the project management services that it was yet to perform.
93. This, of course, explains the Claimant's comment in the email of 17^th May (paragraph 38 above) that the Claimant was not prepared 'to work at a loss', but, in truth, it was not a loss at all: the Claimant had simply been paid in advance for a good deal of work that remained outstanding. In accordance with the contract, where payment of the Claimant's fees was tied to estimated (rather than actual) progress, the Claimant had already been paid almost all its fees, and now it faced the prospect of carrying out a considerable amount of work with little or no further income. On the face of the Claimant's e-mails, this was not something that the Claimant was prepared to accept: hence the statement that it would not work at a loss, and the seeking of additional sums in respect of project management.
94. For these reasons, I conclude that the Claimant was wholly unjustified, not only in stopping work, but in seeking to recommence work on the basis that it was paid additional sums for services that it had not yet provided but for which it had already been paid pursuant to the percentage fee arrangement. I consider that this conduct constituted clear evidence that the Claimant no longer intended to be bound by the terms of the second agreement. Indeed, such a conclusion is confirmed by the fact that what the Claimant was plainly seeking to do, on the face of these emails in late April/May 2006, was to negotiate an entirely new contract.
95. Accordingly, I consider that the Defendants' principal complaint against the Claimant is justified and that the Claimant's conduct, in all the circumstances set out above, amounted to a wrongful repudiation of the second agreement. The Defendants' letter of 21^st May accepted that wrongful repudiation and brought the second agreement to an end.

(d) The Other Complaints

96. In the light of my conclusions in respect of the principal complaint, it is unnecessary for me to spend too long dealing with the other complaints in the letter of 21^st May. I should say that I find some of these complaints unfounded: for example, I consider that the Claimant's communications were clear and jargon free and that Mr Witham dealt in a very human way with the Defendants. I also consider that at least some of the allegations as to delay are unjustified because of the significant increase in the Defendants' involvement in the detailed design process once the project resumed in January.
97. I also consider that some of the other criticisms of the Claimant can be justified. Whilst, as I have said, the delays that occurred can be partly ascribed to the 3 months' suspension, and partly ascribed to the Defendants' involvement in the detailed design process, I do not believe that these matters explain all of the delays that occurred. Furthermore, from the e-mails and, in particular, the i-chat records, I have formed the clear impression, that, by April, Mr Witham was beginning to lose interest in this project, partly because he was finding it more difficult to deal with the Defendants than he had anticipated (see paragraphs 29 and 30 above) and partly because a good deal of work remained to be done but, in Mr Witham's words to Mr Mistry, "we have had most of the money". I also find that Mr Witham was fed up with the project and he wanted a way out (paragraph 34 above).
98. The other complaint in the letter of 21^st May with which I ought to deal briefly is the complaint that the Claimant was not keeping the Defendants informed of the increases in his fees. I deal in greater detail with this allegation in section I below, because it is of particular relevance to the claim for variations, given that it is the Claimant's case that it spent a large amount of additional hours working on variations, but in respect of which it made no contemporaneous claim. At this stage, I should simply say that I consider that this complaint was justified. The vast majority of the variation claims made in these proceedings were never made by the Claimant at the time that the work was done; instead the vague threat that there might be large claims for variations was used by the Claimant to try and re-negotiate the terms of the second agreement. I consider that the Claimant was in default in respect of the communication of its claims for additional fees. I do not, however, need to decide if that default alone amounted to repudiation because I am clear that, for the reasons set out at paragraphs 85-95 above, the Claimant wrongfully repudiated the second agreement in any event.

(e) Conclusion

99. For the reasons set out in paragraphs 85-95 above, I am in no doubt that the Claimant wrongfully repudiated the contract. The Claimant was in breach of contract in stopping work unilaterally and then compounded that breach by seeking to impose upon the Defendants new terms which would have obliged the Defendants to pay twice over for the same services (being services for which the Defendants had already paid but which the Claimant had not yet carried out). As to the other complaints raised by the Defendants, I consider that some of them are unjustified and others, although justified, are not serious enough to evidence an intention no longer to be bound by the contract. I also regard the Claimant as being in default for failing to keep the Defendants notified of its claims for additional fees for variations.

F3. The Defendants' Secondary Case: Termination Under Clause 34.1

100. As a result of my finding of wrongful repudiation, it is unnecessary for me to deal in any detail with the Defendants' secondary case. However, given that the letter of 21^st May 2006 from the Defendants set out the numerous ways in which the Defendants contended that the Claimant was in breach of contract, there seems to me to be no reason in substance why the letter of 21^st May should not be taken as a notice under clause 34.1. Of course, the procedure under clause 34.1 required a process of rectification/explanation from the Claimant. The Claimant cannot argue that it was not given the opportunity to explain/rectify the matters complained of. Instead, the letter from the Claimant of 9^th June, and the letter from Justin Nelson that was enclosed with it, both avoided dealing in detail with the complaints made by the Defendants.
101. I also note that the Claimant's letter of 30^th May (paragraph 42 above) recorded in terms that the Claimant planned to treat the letter of 21^st May "as an attempt to terminate the contract under condition 34.1". Again, therefore, it seems to me to be artificial now to say that the letter was not a notice under clause 34.1 and/or that the Claimant would be prejudiced by such a categorisation.
102. The notice under clause 34.1 had to identify those matters which the Defendants reasonably considered amounted to breaches of contract on the part of the Claimant. I have already analysed the complaints at paragraphs 85-98 above and consider that a number of them, particularly the cessation of work and the attempt to impose more onerous terms upon the Defendants did, indeed, amount to a breach of contract. Accordingly, if I was wrong as to repudiation, I would accept the Defendants' secondary case as to termination under clause 34.1.

F4. The Claimant's Case: Termination Under Clause 35

103. In one sense it is unnecessary for me to deal with the Claimant's case at all, given my primary finding that the contract came to an end when the Defendants accepted the Claimant's wrongful repudiation of the contract by their letter of 21^st May 2006. However, since I have formed the view that the Claimant's case on termination is unarguable in any event, it is appropriate to set out briefly my reasons for that conclusion.
104. In these proceedings, it is the Claimant's claim that the Claimant terminated the contract by its letter of 30^th June 2006 to the Defendants' then solicitors, pursuant to clause 35.1 of the contract. The difficulty with that argument is that, although the letter of 30^th June does indeed invoke clause 35.1, it conspicuously fails to identify any ground under clause 35.1 that could justify termination. When I put that point to Miss Lindsey in opening, she confirmed that the ground of complaint was the non-payment of the Claimant's fees.
105. However, on analysis, that submission is unsustainable. By the time of the letter of 30^th June 2006, the only sum due to the Claimant which had not been paid was the very last monthly installment. In my judgment, however, the Defendants have a good argument to the effect that that final payment was not due on 1^st June, the date contended for by the Claimant. That is because, in the help sheet that contained the fee graph, the Claimant said in terms that "our fees are then divided into equal monthly instalments, the first payable when we start work and the last when the project is completed." Since the project was far from complete on 1^st June 2006, the final installment was not due – indeed, could not have been due - on 1^st June. There was therefore no final sum outstanding as at 30^th June, and therefore no ground on which the Claimant could terminate.
106. Further and in any event, Clause 35.1 of the Claimant's standard terms and conditions made plain that the Defendants were not obliged to make payment if they had provided notice in writing that they did not intend to pay, with reasons. The Defendants had done that pursuant to the terms of their letter of 21^st May 2006: that was, if nothing else, a clear and obvious withholding notice under clause 31. So if, contrary to my primary view, the final installment would otherwise have been due on 1^st June, that was subject to the provision by the Defendants of a withholding notice, which had been provided on 21^st May.
107. Thus, for these two reasons, the Claimant's case as to termination must fail. The attempted reliance upon clause 35.1 was unjustified, because, on any view, there was no sum by way of fees outstanding at that point. The notice under clause 35.1 was therefore invalid. In those circumstances, if (contrary to my primary findings set out above) the termination had not occurred prior to 30^th June 2006, it occurred thereafter when the Claimant ceased to be bound by the terms of the second agreement for reasons which were unjustified.

F5. Conclusions

108. For the reasons set out above, I consider that the Claimant wrongfully repudiated the contract, which repudiation the Defendants accepted by their letter of 21^st May 2006. I consider that the Claimant's alternative case on termination fails in any event. As a consequence of these findings, it means that the Claimant's percentage fee entitlement has to be calculated on the basis that the Claimant wrongfully repudiated the contract and/or that the termination happened in accordance with clause 34.1. In any event, termination did not occur pursuant to clause 35.1. These findings also mean, for the reasons briefly referred to at paragraph 59 above, that the Claimant is not entitled to any sums pursuant to the supplemental agreement.

HOW IS THE CLAIMANT'S PERCENTAGE ENTITLEMENT TO BE CALCULATED?

G1. The Relevant Parameters

109. Of course, the fact that I have found that the Claimant wrongfully repudiated the contract does not deprive the Claimant of its full entitlement to all those fees earned up to the time of the repudiation, and calculated on the percentage basis. How is the percentage fee to be calculated in such circumstances? Clause 34.1 is of little help because it simply referred to termination by paying to the Claimant "all sums due". However, clause 40 is of much greater assistance. That is set out at paragraph 18 above. The final part of the clause seems to me to apply directly to the present case and both parties operated on that basis. The clause stated that:

"If the project is not completed for whatever reason then the fee due will be calculated by reference to our standard fee scale and based on our most recent estimated budget" (my emphasis).

110. Accordingly, it seems to me that the percentage fee is to be calculated by reference to the graph that was attached to the second agreement. The percentage fee payable will be referable to what clause 40 calls "our most recent estimated budget". The first issue, therefore, is how that provision is to be construed.

G2 "Our Most Recent Estimated Budget"

111. There is no dispute between the parties that, on the evidence, the last set of budget figures produced by the Claimant for the Defendants were those produced for and after the meeting on 28^th September 2005. I have set out the evolution of those figures at paragraph 25 above. Thus the last budget estimate provided by the Claimant to the Defendants was in the sum of £671,344.35 including fees, or £616,634 without fees. It is that budget which the Defendants take as the starting point for their calculation of the percentage fee due.
112. The Claimant makes a very different submission. The Claimant does not attempt to rely on any of the budget estimates which it provided for the Defendants during the currency of the contract. Instead, the Claimant relies on an estimate prepared by fit-out contractors called Fileturn in July 2006, after the second agreement had been terminated. Apparently, although Fileturn did not visit the hotels, they spent two days with the documents and, entirely free of charge, provided to the Claimant an estimate of the works. That estimate was in the total sum of £723,994.68. The Claimant's claim for percentage fees in its Particulars of Claim is based on the Fileturn estimate.
113. As a matter of construction of clause 40, I am unable to see how or why the Fileturn estimate could be classified as "our most recent budget estimate". It was not even produced by the Claimant, so it could not properly be called 'ours'. By the time Fileturn became involved, the contract had been terminated by the Defendants and they had no involvement in or knowledge of the Fileturn exercise. The 'most recent' must mean the last budget figure produced by the Claimant and provided to the Defendants before the termination; it cannot mean an estimate produced some time after the contract had come to an end. The Fileturn estimate cannot, therefore, be categorised as the Claimant's most recent budget estimate for the purposes of clause 40.
114. Many of the clauses within the Claimant's standard terms and conditions, set out at paragraph 18 above, contained references to the Claimant's obligation to provide the Defendants with regular budget estimates. It, therefore, made sense for clause 40 to specify that the calculation of outstanding fees, in circumstances where the project did not go ahead, should also be by reference to the most recent of those budget estimates. That would mean that, in accordance with the contract, the Defendants would always have had some idea of the Claimant's estimated budget figures (and therefore the outstanding fees), before and at the time of termination: indeed, that could be information upon which the Claimant might rely when terminating the contract in the first place.
115. On the facts in this case, I find that the Claimant's most recent budget estimate was the last of those produced at the end of September/beginning of October 2005 (paragraph 25 above). That was the most up-to-date estimate provided by the Claimant to the Defendants prior to the termination of the contract in May 2006. I, therefore, consider that the starting point for the percentage assessment is the gross estimate of £671,344.35.
116. I should also say that I do not regard the Fileturn estimate as a reliable basis for calculating the project cost in any event. First, nobody from Fileturn has given any evidence to explain how the budget had been put together. There is no support for any of the round figures used. Furthermore, given that Mr Barrett said that, in order to produce a reliable estimate, an estimator would need to go to the hotels to see the buildings in situ, and there was no evidence that the Fileturn estimators did any such thing, it would appear that, even on the Claimant's own case, the Fileturn estimate is not a reliable document.
117. Miss Lindsey submitted that, if I was to conclude that the Claimant's most recent estimate was that produced at the end of September, then that would be artificial and unfair, because it would fix the Claimant's fee by reference to the latest budget figure that happened to be produced prior to termination. She claimed that that would be a very random way of arriving at the relevant fee.
118. I consider that there are three answers to that. First, as I have already noted, the Claimant's terms and conditions envisage that the Claimant would be providing regular budget estimates to the Defendants. If, as appeared to happen here, there was a long gap after September 2005 in which no estimate was provided, that does not seem to me to be anybody's responsibility but the Claimant's. I reject the suggestion (which was trailed in the closing submissions) that, in the emails, the Claimant was prevented from producing a later project budget estimate by the Defendants.
119. Secondly, I do not consider that there can be any substantive prejudice to the Claimant if an estimate which was produced some months before termination is used for the calculation of the Claimant's basic fee entitlement. Miss Lindsey said that it would mean that the subsequent changes to the scheme would not be reflected in the percentage fee but, as I pointed out in argument, that could hardly be a detriment to the Claimant because, if there were variations to the basic workscope, the Claimant was entitled to be paid additional fees, over and above the percentage entitlement, for all time spent working on variations.
120. Thirdly and finally, I consider that Miss Lindsey's submission was simply a reflection of the Claimant's case that the words "our most recent budget estimate" should be taken to read "the estimated budget cost of the scheme as it existed at termination". It is clear that there is no basis for rewriting the second agreement in that way. For all those reasons, therefore, I consider that the starting point must be the gross estimate of £671,344.35.

G3 Adjustments

121. On behalf of the Defendants, Miss Shaw submitted that the £671,344.35 was only a starting point and that, in particular, the fees within the estimate, which total some £90,000 odd, should be stripped out to arrive at the budget cost figure. Miss Lindsey disputed that and, in addition, submitted that if the budget of £671,344.35 was to be used as a starting point then further figures should be added back to it. I deal with these points below.
122. It is common ground between the parties that the following elements within this budget figure should be utilised to calculate the percentage fee:

(1) Preliminaries	£56,000
(2) Item (a) basement kitchen etc	£53,865
(3) Item (b) gym treatment room £53,400	£53,400
(5) Item (c) alterations at ground floor	£181,014
(6) Item (d) upgrade plumbing etc	£125,600
Total	£469,879

I consider that the leased items which appeared in the budget are not part of the project cost on which the Claimant's final fees are to be calculated.

123. I now turn to deal with the contested omissions and additions to this budget figure. I do so under three heads below: fees; additions; and contingency/omissions.

a) Fees

124. The Defendants seek to exclude from the budget estimate all the estimated professional fees. I do not believe that that is legitimate. As Miss Lindsey pointed out, the letter of 15^th March 2005, which was at the heart of the second agreement, made plain that the Claimant's fee entitlement was calculated on the basis of the total budget price and that that was consistent with the graph which talked of the fees as a percentage of "project cost". The budget price and the project cost would include at least some professional fees.
125. At the same time, in the letter of 15^th March, the Claimant made plain that it would be inappropriate to include within the budget cost the Claimant's own fees, presumably because then their percentage entitlement would be artificially increased by their own fees. That was dealt with in the letter of 15^th March in the manuscript amendments, which made plain that the price used to calculate the fees excluded those fees payable to the Claimant. However, at the same time, the letter also demonstrated that the budget cost did include those fees payable to other professionals, such as a structural designer, a party wall surveyor and the like. Thus, on a true construction of the contract, it seems to me that, for the purposes of the fixing of the budget cost on which the fees are to be calculated, the cost figure must exclude the fees payable to the Claimant, but must include those fees payable to other professionals. Furthermore, I consider that that is an entirely commonsense arrangement.
126. Looking at the last version of the budget of 28^th September, the fees referable to 'survey', 'architectural design', 'architectural design revisions', 'planning consultant', and 'planning fee' would all be fees payable to the Claimant and therefore excluded for the purposes of the percentage fee calculation.
127. In my judgment, all the other fees shown in that estimate would form part of the budget cost because they are fees payable to others. They are as follows:

(1) Structural design	£7,240
(2) Structural design site visits	£2,000
(3) Services design	£4,000
(4) Party wall surveyor	£9,650
(5) Building Regulations fee	£2,000
(6) Site investigation (soils)	£500
(7) Drains survey	£300
Total	£25,690

Therefore, this sum has to be added to the £469,879 identified above.

b) Additions

128. Miss Lindsey submitted that, in addition to adding back the fees (which submission I have, at least in part, accepted for the reasons set out above), two of the items that were omitted in the final budget should be added back in, namely £22,776 in respect of leased furniture items and £12,520 for the garden. She said that, in relation to the former, there was evidence that these items would still be needed. In relation to the latter, she submitted that the evidence was that the Claimant had carried out work in respect of the garden and should therefore be paid for it.
129. I do not believe that it is appropriate to add back either of these two items. First, for the reasons that I have already given, I have found that "our most recent estimate" is an estimate which excluded both these figures. It would not be appropriate to add back items from earlier, and superceded, budget estimates; that is not what the contract said. As to the point that the garden had been omitted from the project by the time of the last budget estimate, it seems to me that a remedy for that was provided in the second agreement itself: the Claimant's conditions make plain that, at the Claimant's discretion, charges could be made for work done on design items which were subsequently excluded. That is a fact of life for a professional when his fees are calculated by reference to an overall cost figure which may not reflect the fact that items of design work have been performed but were eventually excluded from the project that was built. Thus it was always open to the Claimant to charge for the garden as a variation in any event. But, since the Claimant has chosen not to do so, it cannot now seek to use the point to justify 'tinkering' with the most recent estimate provided to the Defendants.

(c) Contingency/Omissions

130. A contingency of 10% is included within the last budget estimate. There is also an additional item for omissions of 5% but, for reasons which are wholly unexplained, the omissions at 5% are added to the contingency, thereby producing an overall uplift of 15%. Miss Shaw submits that this was plainly an error and the omissions were intended to be a reduction of 5%, thereby leaving an overall contingency figure of 5%.
131. I consider that it is reasonable that the Claimant's fee is calculated by reference to a budget cost which included a contingency figure. I do not think that it is reasonable for omissions to be added to that contingency figure. I note that the original budget estimate that formed the basis of the fee calculation in the second agreement included a contingency at 10%. I consider that that is therefore a reasonable uplift to the figures to produce the budget cost estimate on which the fees are to be calculated.

G4. Calculation

(a) Budget Cost Figure

132. For the reasons set out above, the budget cost figure (on which the Claimant's fee percentage should be calculated) will be:

(1) Basic cost	£469,879
(2) Fees	£25,690
(3) 10% contingency	£49,556.90
Total	£545,125.90

(b) Appropriate Percentage

133. This calculation is, of course, a product of the graph included within the second agreement. With an estimated cost of £545,125.90, the relevant percentage would appear to be 8.8%. In those circumstances, the maximum percentage fee due to the Claimant, if the project had been completed, was £47,971.08.
134. It is worth making the point here that, in keeping with most graphs of this type, the percentage fee reduces, on a sliding scale, if the project costs are increased. If the project cost was £400,000, the percentage fee would be 10%; if it was £700,000 the percentage fee would be about 8.1%. Thus my decision to reject the Fileturn estimate, and to go with the final budget estimate produced by the Claimant as it was, without making the additions urged on me by Miss Lindsey, results in a percentage which is higher than it would have been if I had acceded to those parts of her submissions.

(c) What proportion of this fee is due?

135. The experts have agreed that the Claimant reached a stage on the project which entitled it to 71.7% of its fee, together with 0.31% of the contract value.
136. 71.7% of £47,971.08 is £34,395.26. The additional calculation involves the question as to what is meant by 'the contract value'. It seems to me that that must be £469,879, together with the leased items at £35,000. With a contingency of 10%, that produces a figure of £555,366.90. This calculation therefore excludes the fees which would not be part of the contract value. It would include the leased items. Thus, 0.31% of £555,366.90 is £1,721.64.
137. Accordingly the percentage fee due is £34,395.26 plus £1,721.64 = £36,116.90.

G5. Would The Calculation Be Any Different If The Calculation Was Done Under Clause 35.1?

138. For the reasons set out at section F4 (paragraphs 103-107above), I have rejected the Claimant's case that termination occurred under clause 35.1. However, let us assume that I am wrong about that and that the Claimant was right, and that termination did indeed occur under clause 35.1. Why might that matter? The Claimant maintained that it was important because, if termination had occurred under clause 35.1, it was entitled to be paid "all sums due under the contract as if the project had proceeded to a proper completion". It was the Claimant's case that this entitled the Claimant to 100% of the fees that would have been due if the project had gone on to a conclusion. In other words, on the Claimant's case, the step identified at paragraphs 135-137 above, whereby a reduction was made to reflect the fact that the work was only 71.7% completed, would not be appropriate.
139. I am in no doubt that, even if (contrary to my views) the Claimant had terminated the contract in accordance with clause 35.1, it would not be appropriate to award the Claimant the entire percentage fee due, without making an allowance for the fact that the Claimant had not performed the work (and incurred the costs) referable to 30% odd of the contract total. I consider that that interpretation is entirely in accordance with clause 35.1. That clause entitled the Claimant to be paid all sums "as if the project had proceeded to a proper completion". Although, if the project had proceeded to a proper completion, the Claimant would then have been entitled to 100% of its fees, the Claimant would have also spent time, incurred costs and engaged others to provide the services for which that 100% fee was then charged. Thus, even under clause 35.1, I consider that the sums due would have to reflect the Claimant's net position if the project had been completed, not its gross position. Thus, there would be no basis, even under clause 35.1, for looking at one side of the balance sheet and not at the other.
140. I do accept that, if the Claimant had been entitled to terminate under clause 35.1, it would have had a claim, not for the gross fees due, but for the lost profit element of the remaining fees. However, there was no claim for lost profit: as Miss Shaw has pointed out in another context, both Mr Witham and his accountant, Mr Kendrick, deliberately omitted to give any evidence in respect of the Claimant's actual or estimated profit. In those circumstances, I conclude that, even if the termination had occurred under clause 35.1, I would still have been obliged to calculate the Claimant's fee entitlement in precisely the same way as I have done under paragraphs 135-137 above.
141. Finally, on this topic, I should refer briefly to the argument that, if clause 35.1 meant what the Claimant said it did, it was unfair, and contrary to the Unfair Contract Terms Act 1977. Given that I have found that the termination did not occur under clause 35.1, and if it had done it was not to be construed in the way contended for by the Claimant, the issue is now of academic interest only. However, I should say that I was not persuaded by Miss Shaw that the provisions of UCTA applied to a clause which dealt with the consequences of the consumer's breach of contract (see Timeload Ltd v British Telecommunications PLC [1995] EMLR 459 CA).

G6. Conclusions

142. For the reasons set out above, I have concluded that the Claimant's 'most recent budget estimate' meant precisely what it said, and meant the last budget estimate provided by the Claimant to the Defendants prior to termination. It did not mean a post-termination estimate by a third party calculated by reference to the content of the project at termination. The most recent budget estimate was the last of those produced following the meeting on 28^th September. I have excluded from that estimate the Claimant's own fees (because the contract made plain that the percentage fee calculation should exclude those fees), but I have included the fees payable to other professionals. I have included a 10% contingency, again by reference to the contract. The calculations (in accordance with the experts' agreement as to the stage that the works had reached) produce a percentage fee entitlement of £36,116.90.

H. THE CLAIMANT'S CLAIM FOR THE COSTS OF PURSUING THE CLAIM

H1. Background

143. Attached to Miss Lindsey's helpful written opening was Appendix 2, which identified the issues between the parties and the sums claimed. The biggest single item in that Appendix was a claim for £75,626 said to represent fees/expenses incurred by the Claimant in pursuing this fee claim. However, in the text of her opening, this claim was dealt with very shortly, possibly because, at paragraph 107, it was conceded that the claim "potentially overlaps with costs". I took up this point with Miss Lindsey during the openings. Eventually, it was agreed that I would decide whether, as a matter of construction of the second agreement, the Claimant was entitled to claim these costs as fees pursuant to the contract. If I concluded that the Claimant was entitled to pursue costs pursuant to the contract then the precise level of costs recoverable would be a matter of assessment by a costs judge.

H2. Construction of Clause 30

144. As already noted, clause 30 is limited to claims for additional fees for extra work or if extra expenses were incurred. There is no mention of any entitlement to claim legal costs. On its true construction, therefore, I reject the contention that clause 30 allows for the recovery of legal costs. It is nothing like the clause at issue in Gomba Holdings Ltd v Minories Finance [1992] 3 WLR 723, on which the Claimant relied, and which expressly allowed the recovery of all "costs, charges and expenses incurred…including all costs of all proceedings…"
145. This conclusion is confirmed by a comparison with other standard forms of professional engagement, to which both parties referred. The RIBA Standard Form for the engagement of architects, for example, expressly allows the recovery of legal costs, but that entitlement is expressly spelled out in the contract terms and is, in any event, the subject of clear limitations. The relevant RIBA term provides as follows:

"The Client shall indemnify the Architect in respect of his legal and other costs in any action or proceedings, together with a reasonable sum in respect of his time spent in connection with such action or proceedings or any part thereof, if

(1) the Architect obtains a judgment of the court or an arbitrator's award in his favour for the recovery of fees and/or expenses under the agreement; or

(2) the Client fails to obtain a judgment of the court or an arbitrator's award in the Client's favour for any claim or any part of any claim against the Architect."

146. The comparison between the RIBA term and clause 30 in the second agreement is instructive. First, as I have already pointed out, there was no reference in clause 30 to legal and other costs, or the costs of proceedings. Secondly, there was no reference in clause 30 to the recovery being limited to an action where the Claimant's underlying fee claim is successful. Thus, on the Claimant's analysis, clause 30 entitles it to claim its costs, whether it wins or loses the proceedings in which those costs are incurred. Such a position only has to be stated for its absurdity to be revealed. Similarly, on the Claimant's case, if it was the successful party but its fees were palpably unreasonable, there would be no limitation on their recovery under clause 30. For these reasons, I am confident that clause 30 does not permit the recovery of legal costs.

H3 Termination

147. Furthermore, if I was wrong in my construction of clause 30, and it did somehow entitle the Claimant to make a claim for costs, it is difficult to see how such a claim could survive the Claimant's wrongful repudiation of the second agreement. In my judgment, that wrongful repudiation releases the Defendants from further performance of any future obligation to pay the Claimant for any sums which might be incurred by the Claimant by way of costs in pursuing a claim against the Defendants, which costs had not been incurred before termination: see paragraph 12-003 of Hudson's Building and Engineering Contracts, 11^th edition. Put another way, I do not see that any claim under clause 30 for the payment of legal and other claim-related costs could survive the termination of the second agreement on the facts as I have found them.

H4 The Three Phases

148. During her closing submissions Miss Lindsey identified three phases in which these costs would have been incurred. Phase 1 was between termination and the commencement of these proceedings, when the Claimant was representing itself. Phase 2 was from the commencement of these proceedings until 13^th December 06 when the Claimant instructed solicitors to act on its behalf. Phase 3 is from 13^th December 06 onwards.
149. It seems to me plain that any cost incurred in phases 2 and 3 would only be recoverable under the usual rules as to costs (namely whether the Claimant was the successful party; whether the costs incurred were reasonable and recoverable etc.) As to phase 1, whilst I can see that the Claimant might have a stronger argument that the costs incurred then were costs in the action, such a position does not change my view as to the proper interpretation of clause 30 and the effect of the Claimant's wrongful repudiation. Again, therefore, if the Claimant wishes to claim its costs for phase 1, then those costs could only be recoverable pursuant to the usual rules set out in the CPR.

H5 Conclusion

150. I reject the contention that clause 30 permits the Claimant to recover costs of these proceedings. On its proper construction, the clause does nothing of the sort. It is very far from being a 'recoverable costs' clause. In any event, if I am wrong about that and there was such an obligation under clause 30, I do not believe that it survived the Claimant's wrongful repudiation. The Claimant can of course seek its costs under the usual rules of the CPR but that would depend on the usual tests as to success, reasonableness and so on. Thus no part of the claim for £75,626 can form part of this Judgment.

I THE CLAIMANT'S CLAIM FOR VARIATIONS

I1 The Basis Of Claim

151. The Claimant seeks £61,745.50 in respect of variations. Subject to a condition precedent point, which I address below, the Defendants allow the sum of £16,468. There are 15 variation claims in total. As previously noted, the vast bulk of these claims were first intimated following termination, when the Claimant promptly issued proceedings for unpaid fees and included within its particulars a claim for the cost of numerous variations. That claim was calculated by reference to line items within the Claimant's timesheets which had been attributed by the Claimant to particular variations. Those line items which could not be attributed to variations became the suspension claim, which I have considered and rejected at section E above. Essentially, therefore, the claim for variations is part of the Claimant's global time claim, in which it seeks to recover every hour allegedly spent on this project from January 2006 onwards.
152. The Claimant has chosen to describe the variations in a particular way and has chosen to attribute particular entries on the timesheets to particular variations. It was, of course, entirely open to the Claimant to do so. But in view of the nature of the claim, and the fact that it has been set out as the Claimant has chosen, I do not accept the allegation of pedantry and unfairness that was levelled at the Defendants each time that they demonstrated that certain line items could not fall within the particular variation under which they had been claimed. It seems to me that that was an entirely legitimate point for the Defendants (and Mr Armes) to make. If the Claimant has been wrong to attribute a certain item to a particular variation, then, prima facie, that element of the variation should fail: it is simply not good enough for the Claimant to say that the item in question might be recoverable somewhere else, without specifying how and why.
153. There are three general matters with which I need to deal before analysing each of the variation claims individually. They are: whether a claim for a variation can be made in circumstances where no warning had been given of such a claim by the Claimant (section I2 below); the reliability or otherwise of the timesheets (section I3 below); and the nature and scope of the expert evidence (section I4 below).

I2 Condition Precedent

154. On behalf of the Defendants, Miss Shaw submitted that, of the 15 variations, only V2 and V8 were the subject of any warning from the Claimant to the Defendants that additional fees were being incurred in consequence of these changes. Mr Witham accepted in cross-examination that "I did not provide specific written warnings other than in respect of V2 and V8", and although in re-examination Mr Witham was shown two emails which talked in general terms about wasting time and money, and late changes potentially leading to additional expense, I find that they fell far short of the specific notification of extra work and charges required by the second agreement. Accordingly, Miss Shaw submitted that the only claims which should be permitted are those in respect of V2 and V8 and that, in respect of all the other variation claims, the Claimant had not complied with the contract and was therefore unable to recover.
155. Clause 7 of the Claimant's terms and conditions promised that the Claimant would provide services in accordance with "the normal standards of the Chartered Designers' profession". The Chartered Society of Designers' Code of Conduct, at section 4.2, provides that, before undertaking any work, members shall:

"… inform the client in writing of the work to be carried out and the fees and/or charges to be paid or the basis on which they will be calculated [and will] obtain the agreement of the client to pay such fees and/or charges as shall be agreed or on such basis as shall be agreed."

Further, the relevant help sheets provided with the Second Agreement, which I have found were contract documents, included the Claimant's promise to "provide written proposals and obtain your agreement before carrying out any chargeable work for you" (see paragraph 21 above).

156. In the light of those terms, I find that, in carrying out extra work without proper warning as to extra costs, on V1, V3-V7, and V9-V15, the Claimant was in breach of its obligations under the second agreement. However, I do not believe that it can be said that this breach operated as a complete bar to the making of such a claim now. I do not consider that the terms of the contract summarised in the preceding paragraph are expressed to be (or could be construed as being) a condition precedent that would operate to bar a claim for additional fees in its entirety if there was no prior warning or notice of claim.
157. Furthermore, I consider that it is important to have regard to the reality of this project, particularly in the months following the resumption of work in January 2006. The Claimant was obliged by the Defendants to consider and reconsider a number of different aspects of his design. A good deal was happening in a very short space of time. In such circumstances it would, I think, be wrong to penalise the Claimant and to prevent him from claiming for work which was truly additional simply because, in amongst the flurry and bustle of the exchanges, he forgot to point out what was, in certain circumstances, blindingly obvious, namely that the work that he was doing was outside the basic work scope, and would therefore attract a claim for additional fees.
158. For those reasons, therefore, I reject the Defendants' case that the absence of a warning or claim operates as a bar in law to the claims for variations. On the other hand, I do accept that the absence of any claims or warnings is a matter which I can take into account when considering whether the work in question really was a variation and, if so, what sort of extra work it might have entailed. Much of the communication interchange was concerned with V8, which was an obvious variation and which the Claimant warned the Defendants about on more than one occasion. However, in respect of those alleged variations which were not the subject of a claim or warning, and which are now contested by the Defendants, the absence of any claim or warning from the Claimant might be a factor to indicate that, at the time that the work was carried out, the Claimant did not in truth believe, either that the item in question was varied work, or, even if it was, that it had caused any significant amounts of extra work.

I3 Reliability Of Timesheets

(a) Introduction

159. Cases in the Technology and Construction Court are, perhaps, peculiarly vulnerable to cross-examination and subsequent submissions about the unreliability of timesheets and similar records. In my experience, it is often the case that those challenging the timesheets embark upon a detailed analysis which is long, time-consuming and largely fruitless, giving rise, at best, to the identification of minor clerical errors. Such an exercise can also backfire on the party performing it and make them appear to the Court unnecessarily nit-picking, devoid of any substantive defence to the claims which rely upon the timesheets.
160. Accordingly, in the rare (not to say exceptional) case where the cross-examination on the timesheets is clear, cogent and highly relevant, the judge is duty bound to acknowledge it. In my judgment, in this case, Miss Shaw's cross-examination and subsequent submissions on the reliability of the Claimant's timesheets was precisely that. My brief analysis of those documents in this part of the Judgment is based on her cross-examination. It has led me to conclude that the Claimant's time sheets are inherently unreliable.

(b) The Available Records

161. Although there are a number of timesheets attached to the Claimant's Particulars of Claim, the timesheet that lies at the heart of this case is the document entitled "Original Timesheet from the 3^rd October 2005 to 8^th May 2006". This document, which I shall call "the claim timesheet", formed Appendix 1.3 of the Claimant's pleading. It recorded hours worked by Mr Witham and his staff on a daily basis. It is the information that is then used in Appendix 2, which purports to ascribe these hours to particular variations. There were no documents that supported the claim timesheet or the individual entries theron, so the credibility of such an in-house record was an important matter. The Claimant's amended Particulars of Claim stated that the Appendix 1.3 "contemporaneously recorded all hours worked". The suggestion was that the claim timesheet was kept on the Claimant's server and updated almost every day. In addition, Mr Witham said that his employees in the UK, and those, like Mr Mistry in India, to whom he sub-contracted much of the drawing work, also entered their own hours worked onto the claim timesheet on the server 4 or 5 times a week. There was nothing, either in the pleadings or in Mr Witham's witness statement, to suggest that this timesheet had ever been amended or altered in any way.
162. However, on the evidence, it seems clear to me that this timesheet was not kept updated contemporaneously and was added to and amended by Mr Witham for his own purposes. As a result, I do not consider that the timesheet can be taken as a reliable basis for the variations claim. My reasons are set out below.

(c) Is The Timesheet Contemporaneous?

163. I do not believe that this timesheet was kept updated during the relevant period. It was therefore not contemporaneous. There are numerous references in the documents to Mr Witham saying (whether to the Defendants or to his own his staff) that, for a claim to be made in relation to a particular element of work, a timesheet would have to be prepared. In other words, Mr Witham's own documents plainly suggest that a contemporaneous timesheet was not in existence and would have to be prepared specifically for the purposes of the particular claim under consideration. Thus, for example, in his email to the First Defendant of the 21^st April 2006, he referred to a claim for additional time spent on variations, and said that the extra hours would have to be "added up …. from my diary notes". That plainly suggested that there was no contemporaneous timesheet already recording that information.
164. Similarly, in his i-chat records, Mr Witham made a number of references which were wholly inconsistent with the claim timesheet being already in existence. For example:

a) On the 25^th April 2006, when Mr Witham was beginning to realise that he needed to make a full claim for additional fees, of the sort that he had not yet made, he said to Mr Mistry that he would need to calculate "a full timesheet for the work we have all done this year". Such a timesheet would simply not have been necessary if, as he had claimed, the claim timesheet had in fact been prepared and updated contemporaneously.

b) There are also earlier references in the i-chat records to other members of staff being required to prepare timesheets for particular claims. So, for example, the i-chat record of 18^th August 2005 shows Mr Witham alerting Mr Mistry to the possibility of charging revision fees, "so please keep time sheets". A month later, on 20^th September 2005, Mr Witham stated that he wants to "build up time sheet to support an invoice for this extra work".

c) There are also references to the difficulties created by Adam Rose, who, according to the i-chat record for 25^th January 2006, may not have filled out any timesheets for months, if not years.

None of these comments would have been necessary if the Claimant had kept an overall timesheet on its server that was updated regularly, as Mr Witham maintained. In fact, for the period between March and August 2005, no timesheets have been disclosed by the Claimant at all.

165. In addition, in his email of 4^th May 2006, referred to at paragraph 35 above, Mr Witham calculated a rough cost of weekend work at 8 days at £1,000 per day. The claim timesheet indicates that the hours worked at weekends by Mr Witham over this same period were about half that. That strongly suggests that the claim timesheet was not available to the Claimant when Mr Witham sent his email on 4^th May.
166. The evidence of Mr Mistry also suggested that the claim timesheet was not contemporaneous and not kept updated. For example, Mr Mistry said that he kept 'billing timesheets' in which he recorded the hours that he had worked on behalf of the Claimant, attributing the hours to the different projects on which he was working. Those billing timesheets have never been provided to the Defendants or the court. Those, so it seems to me, would have been contemporaneous, because they were enclosed with Mr Mistry's monthly invoice to the Claimant. It seems to me inherently unlikely that Mr Mistry was also creating, or adding to, the claim timesheet on the server. He would have had no need to; that would have been for Mr Witham to prepare, once he had received Mr Mistry's billing timesheets.
167. For all these reasons, I consider that, on the evidence, the claim timesheet relied on is not an 'original' document, in that it was not produced (or updated) contemporaneously. It clearly post-dates the events that it records. There is therefore nothing which independently verifies the accuracy of its entries.

(d) Alterations

168. I have already said that Mr Witham did not suggest in his written evidence that the timesheet was anything other than an original and contemporaneous record of the hours worked. However, in cross-examination, Mr Witham admitted that, even on his own case, many of the entries in the claim timesheet were not contemporaneous but had been added later. He was quite unable to say when or from what information these alterations had been made, despite the fact that his cross-examination demonstrated that the timesheet had been through a number of earlier versions. I regard that as an important point. It meant that a document which was said to be both original and contemporaneous had been, unknown to the Defendants, subsequently altered by Mr Witham. It was wholly unclear why he felt justified in altering the document in that way. All he could say was that they were added "when I reviewed the file". At one point, he suggested that the amendments were designed "to help" the Defendants, although every one of the important alterations that we looked at during his cross-examination had the effect of increasing the Claimant's overall claim.
169. Accordingly, the subsequent alterations to the claim timesheet, and the wholly unknown basis on which they were made, further strengthen my conviction that the timesheet incorporated in the Claimant's particulars of claim is inherently unreliable. However, the most critical evidence that confirmed this view came by reference to what was known as the 'March 2006' spreadsheet.

(e) The March 2006 Spreadsheet

170. One of the difficulties for clients in the position of the Defendants, who are suspicious of claims based on timesheets produced in-house and after the event by the professional, without warning or previous invoices, and without any supporting information, is the absence of any material against which the reliability of the timesheet can be tested. In this case, however, there was such a document. For the purposes of a meeting between the parties in about March 2006, the Claimant had provided to the Defendants a spreadsheet which was designed to identify additional time spent by the Claimant on the project since its resumption in early January 2006. The spreadsheet was in a very similar form to the claim timesheet, and contained a number of the same items. However, when the comparison was put to Mr Witham in cross-examination, it became apparent that Mr Witham had subsequently added items to the claim timesheet, which were not in the March spreadsheet at all. He had also amended other items that were included there. Both the additions and the amendments served only to increase the sums now being claimed.
171. It was unfortunate that, once again, Mr Witham could not remember when or how he had come to make either the additional entries, or the amendments to the existing entries, although he accepted that he must have been responsible for both. In addition, during his cross-examination, Mr Witham was obliged to accept that very many of his subsequent additions and amendments were erroneous, and that the claim timesheet had, for example, been altered to suggest that certain drawings had been prepared by him personally (at a rate of £120 per hour) when the March spreadsheet demonstrated that they had in fact been prepared by one of his associates at a much lower hourly rate. Mr Witham's ready acceptance of these 'errors' during his cross-examination cannot detract from their impact on the credibility of the timesheet relied on so heavily in the Claimant's variations claim.
172. For all these reasons, I consider that the so-called 'original' timesheet on which all these variation claims are based is improperly described. It was not contemporaneously prepared; it was 'reviewed' and amended in circumstances that were not explained; and it was demonstrated, by comparison with a genuinely contemporaneous document, to be riddled with errors. Thus I am obliged to conclude that the claim timesheet is a wholly unreliable basis for these variation claims.

I4: Expert Evidence

173. The expert evidence in relation to the valuation of variations was rather less helpful than it might have been. The reasons for this are set out briefly below.
174. On 10^th October 2007, the experts produced a joint statement dealing, amongst other things, with the variations. The problem with that document from my point of view was that every single variation was noted as being disputed. The joint statement demonstrated that Mr Armes, the Defendants' expert, had produced a valuation for each variation, and that that valuation was, in places, very different from the one relied on by the Claimant. However, Mr Barrett, the expert instructed on behalf of the Claimant, had not done a similar exercise. He accepted in cross-examination that, by the time of the joint statement, he had simply not had time to undertake any sort of valuation of the variations and so was in no position to either agree (or disagree) the valuation of each variation. Thus he simply maintained a blanket disagreement to each figure put forward by Mr Armes. That was an unhelpful and inappropriate stance for an expert to adopt.
175. These difficulties were compounded by the expert's reports themselves. Much of Mr Armes' report was given over to a careful analysis of the true valuation of each variation, and an explanation as to why particular items claimed as variations were, in Mr Armes' view, no such thing. By comparison, Mr Barrett's report dealt in desperately general terms with the variations, and included no detailed valuation at all. Instead, at paragraph 45 of his report, Mr Barrett simply said this:

"The Defendants' expert has put definite prices against the variation orders and against the times provided for the drawing details. Whilst this may be possible in a very small number of items, there is usually insufficient detail in the description of work done with each item to say exactly how much time can be or should be attributed to each item."

In other words, Mr Barrett was still unable to say whether or not the figures claimed were justified and, if not, what the right figure might be.

176. I accept the point made by Miss Lindsey that Mr Armes' report was provided late, and that the Claimant has had limited time to deal with it. But that lateness has already cost the Defendants dear, because it was the principal reason why I deleted from Mr Armes' report the attempted reliance upon a separate Quantity Surveyor's report to deal with the Defendants' cross-claim based on the Claimant's allegedly unreliable cost estimates. In turn that was, of course, the main reason why that element of the cross-claim was ultimately abandoned by the Defendants. Further, despite the delay in the service of Mr Armes' report, Miss Lindsey accepted at the outset of the trial that she could deal fully with the disputes about the variations and their valuation. Moreover, I would have expected nothing less, given that, on the figures, apart from the costs claim, the variations were the biggest single item of the Claimant's own claim. The very least that was required was a careful analysis on the Claimant's side of its own variations claim, with detailed input from Mr Barrett.
177. The problem was that neither the Claimant nor Mr Barrett produced any such exercise. Ironically, the closest that they came was by reference to a schedule which, some time earlier, Mr Armes had produced as part of the discussions between the experts. The schedule justified the reductions which he sought to make in respect of each variation, on an item by item basis. Mr Barrett had subsequently added two columns to this schedule, setting out (for some items, but by no means all) his own valuation and assessment of the items making up each variation. This document formed no part of his expert's report. However, on the first day of trial, I allowed an application by the Claimant that Mr Barrett be allowed to rely on these two columns in the schedule as part of his expert evidence.
178. Unfortunately, on analysis, Mr Barrett's two columns, whilst an improvement of sorts, fell someway short of the full exercise done by Mr Armes. The figures in Mr Barrett's columns were often exactly the amount which had been claimed, and he accepted in cross-examination that, for these numerous items, he had not done his own valuation. Furthermore, in the assessment column, Mr Barrett often pointed out that he had no information which would allow him to produce any sort of valuation for the item in question. In those instances, he had, however, allowed the item of claim in question in full each time. He properly conceded in cross-examination that he had no business in advocating the full sum claimed by the Claimant when he could not say if it was justified or not.
179. Accordingly, I am in the unsatisfactory position of having to deal with disputed variations which the Defendants' expert has fully analysed and valued, but which the Claimant's expert has dealt with in a very general and unspecific fashion, and which he has repeatedly said he cannot deal with in the same level of detail. Inevitably, therefore, where there is a dispute between the two experts, my starting point has to be the detailed valuation prepared by Mr Armes, and not the uncritical endorsement of the Claimant's figures so often advocated by Mr Barrett.
180. Accordingly, I now turn to deal with each of the variations. I do so in the light of:

(a) My finding as to the inherent unreliability of the timesheet which formed the basis of this head of claim;

(b) The Claimant's failure to make contemporaneous claims in respect of most of the variations and the modest figure (£5,000) ascribed to the value of these variations in the Claimant's own email of 4^th May;

(c) The detailed analysis and valuation prepared by Mr Armes on behalf of the Defendants and the lack of any corresponding analysis and valuation on behalf of the Claimant.

The effect of these findings is that, wherever a variation is disputed, I have no sensible option but to take, at least as my starting-point, the valuation produced by Mr Armes and then, if necessary, to make additions to it, to arrive at a fair valuation. These findings mean that it would be generally inappropriate for any assessment to start from the pleaded claim so uncritically endorsed by Mr Barrett.

I5: V1: Mechanical Services

181. The parties are agreed that this is a variation. The Claimant claims £5,820. The Defendants allow £1,155.
182. The dispute concerns the extent of fees claimed in relation to changes in the services in the basement. At paragraphs 5.1–5.16 of his report, Mr Armes explains in some detail how and why at least some of the upgrading to the heating and hot water systems in the ground floor and basement would have been envisaged in the original scope of works and would have been included therefore in the percentage fee. I accept these paragraphs of Mr Armes' report.
183. Two of Mr Armes' reasons for reducing this claim are set out in the experts' agreement, and are noted as being agreed by Mr Barrett.^[3] In the round, therefore, I find that there is little reason to query Mr Armes' valuation of this variation. However, I consider that Miss Lindsey is right to point out that, because some changes to the basement and ground floor were made by the Defendants themselves, and such changes would have affected the heating and hot water system, Mr Armes has been slightly too parsimonious in his analysis of the individual items making up this claim. Thus I would make an additional allowance of £200 in respect of the updating plans on the 8^th August 2005; another allowance of £200 in respect of the updating work on the following day, the 9^th August 2005; and a small allowance of £100 in respect of the general updating on the 24^th August. That therefore increases the correct allowance in respect of V1 to £1,655.

I6: V2: Licensing

184. Although there was a certain amount of cross-examination on this item by the Defendants, Mr Armes accepts that it is a variation, and I see no reason to go behind his report. The sum originally claimed was £1,500. However, this is one of the items which Mr Barrett has expressly reduced, for the reasons set out in the last column to the schedule. Thus, on Mr Barrett's evidence, this claim is worth £980. Mr Armes has done a calculation which produces a figure of £900. It seems a great pity that the experts could not have agreed this item at £940. That is the amount I propose to award.

I7: V3: Fire Services

185. This has been agreed in the sum of £160.

I8: V4: Revise Scheme

186. This item has been agreed in the sum of £2,060.

I9: V5: Omission of Basement Laundry and Shower Room

187. The Defendants deny that this was a variation and claimed that it was simply part of design development. The Claimant has not separately particularised a claim under V5 and the experts have agreed that no sum should be awarded under it.

I10: V6: Addition Of Nail Bar and Omission Of A Shower and Addition Of A Door

188. Again, this is not accepted by the Defendants as being a variation but since no separate sum is claimed in respect of it, it is unnecessary for me to consider it further.

I11: V7: Artists' Impressions

189. This is a claim for £1,950. However, Mr Barrett has reduced the claim to £1,440. The Defendants deny that all of the items that make up this claim are recoverable because they contend that at least some of it was always required under the contract. Mr Armes has calculated a figure of £720 in respect of this variation.
190. At the meeting on the 3^rd February 2006, the Defendant sought artists' impressions of the spa area. They were entitled to do so: according to the letter of 15^th March 2005, stage 1 included an obligation by the Claimant to "prepare fresh perspectives artist impression drawings to show all customer areas." Moreover, the earlier drawings that were provided of the gym area were plainly incomplete because, although they included artists' impressions of some parts, they expressly stated that artists' impressions of other parts of the spa area would to be supplied subsequently.
191. On the evidence, I find that the requests in respect of artists' impressions for the foot spa and relaxation room, which were new and had not been part of the original scheme, constituted a variation. Other artists' impressions of aspects of the original design were still outstanding at this date, so the request for those impressions did not constitute a variation. This appears to be precisely the basis on which Mr Armes has assessed V7, in the sum of £720. Accordingly, I consider that Mr Armes' valuation is correct.

I12: V8: Re-planned Spa

192. It is agreed that some of the work done in relation to this item was a variation. However, it is said by the Defendants that some of the work was not a variation and that in any event the claim is excessive. The original pleaded claim was £24,421. However, following the evidence of Mr Barrett, the Claimant now limits its claim to £19,768. Mr Armes' valuation produces a figure of £7,248.
193. In my view, a part of this work was properly additional. An important exception was the work necessitated by the spa plant room, in respect of which the experts have agreed that any changes were the consequences of the equipment necessary, and were not instructed by the Defendants. The experts have agreed that this constituted design development and was not chargeable additional work^[4].
194. As to the allegedly excessive sums claimed, the Defendants point out that the Claimant originally said that this work would cost about £5,000 (or 4–5 days work) and that, in those circumstances, it is wrong and unfair for the Claimants to claim to be entitled to sums in excess of that figure. I have already dealt with the condition precedent point above. It seems to me that it would be wrong to penalise the Claimant merely because, when the timesheets and other work were analysed, the total claim was in excess of the £5,000 estimated. However, the qualification to that approach must be this: if the sum claimed is vastly in excess of the £5,000 quoted (which it would appear to be) then that may well cast doubt on the reliability of the sum claimed.
195. Mr Armes has carefully analysed the detail of V8 at paragraphs 12.1–12.22 of his report. In his schedule he has then gone through the numerous items making up V8 to explain, in each case, how and why he has made a reduction. That analysis itself fills seven pages of the schedule. There is no detailed analysis the other way from Mr Barrett, who accepts that he has allowed numerous items in full despite being wholly unable to say whether or not they are justified; furthermore, other than the original timesheet, there is no supporting material from the Claimant which contradicts Mr Armes' careful approach. I also agree that the Claimant's claim is manifestly excessive, partly because it seeks to claim additional sums for detailing work that I find was always required.
196. However, I do accept Miss Lindsey's criticisms of Mr Armes that he has made rather too many reductions on the incorrect assumption that the change to the plant room was the principal change required in this area. In my view, a further allowance of £2,500 needs to be added to Mr Armes' valuation of £7,248 to reflect my finding that a number of other design changes stemmed from the Defendants' own changes of mind, and were therefore chargeable. That would produce an overall valuation in respect of V8 of £9,748.

I13: V9: Teak Daybeds

197. The dispute in relation to this item is over £60. The Defendants allege that it is not a variation. Based on the evidence of the First Defendant, who agreed that daybeds were introduced by the addition of the relaxation room, I am confident that this was a variation. The Claimant is therefore entitled to the £60 claimed.

I14: V10: Doors

198. The Claimant claims £240 in respect of this item. The Defendants allow £60. The question is whether the change from white doors to timber finished doors was a variation. This change was apparently instructed at the meeting on the 17^th March 2007. I believe that it was a change because the earlier drawings identified the doors in white. I therefore consider that this claim should be allowed in full in the sum of £240.

I15: V11: Artist's Impressions

199. This is essentially a carry-over of V7, although this time it is linked to the instructions given at the meeting on the 21^st March 2006. However the claim here is considerably greater than for the previous variation, being an astonishing £18,570.50. Against that, the Defendants allow just £925.
200. I repeat the points made at paragraphs 189-191 above. It seems to me that some artists' impressions were additional but that others were required by reference to the Claimant's contractual obligations and had not been previously supplied. Furthermore, this is such a significant claim (the second-largest single variation) that I am concerned that such a claim has been advanced in circumstances where no warning of its size and scope was ever given by the Claimant to the Defendants. It seems to me that the Defendants are entitled to be cynical about an alleged variation which was not claimed at the time, but which now is said to be worth half of the total percentage fee which I have calculated as due to the Claimant for the entirety of its work under the second agreement.
201. Mr Armes' report contains a careful analysis of this claim at paragraphs 11 and 15 and there is a detailed approach to valuation set out in his schedule. Again, for the reasons which I have already given, it seems to me that I should accept that analysis. However, I accept one criticism of Mr Armes' approach advanced by Miss Lindsey, namely that it appears to overlook the request for impressions of the bar area which I consider was plainly an additional request and therefore a variation.
202. I should also say that the Claimant's pleaded claim is twice Mr Barrett's valuation in the sum of £9,074. That is, I think, a further indication of its unreasonableness. In addition, it should be noted that the experts are agreed that not all of the costs included in the timesheet can be properly recovered under V11 in any event^[5].
203. Accordingly, doing my best on the information before me, I take as my start point Mr Armes' calculation of £925. However, I conclude that I should add a significant sum to that to reflect the Defendants' requests for artists' impressions in respect of the bar and one or two of the areas in the spa/gym in respect of which artists' impressions had already been provided.
204. I consider that the sum of £5,000 should be added to reflect these factors, which would increase the value of V11 to £5,925. That of course goes some way towards Mr Barrett's calculation of £9,074 as the overall figure for V11. For completeness, I should say that I accept Miss Shaw's points at paragraph 116 of her closing submissions to the effect that Mr Barratt's valuation of this variation was over-stated, for the reasons which she there sets out. That then becomes another reason why I consider that a total figure of £5,925 is reasonable in all the circumstances.

I16: V12: Lighting

205. The original claim was for £1,574. That has been reduced to £1,104. However, the Defendants dispute that this was a variation at all and say that it was simply a matter of consultation as to the light fittings.
206. On the basis of the evidence, I consider that the emails relied upon by the Claimant as evidencing a variation do no such thing. The emails demonstrate that, in March 2006, the precise nature of the light fittings was a matter being discussed by the Claimant and the Defendants with emails to and fro. Mr Witham himself states that he had not settled on certain of the light fittings. It seems to me that this sort of exchange is precisely the sort of thing that is covered by the basic workscope: it is a mixture of design development and the seeking of client's instructions on proposals being made by the designer. It is not a variation.
207. For these reasons, I allow nothing in respect of V12.

I17:V13:Kitchen

208. The Defendants deny that this is a variation. No amount is allowed for it, however, by Mr Barrett in his schedule and no claim is now made. I do not need to deal with this item further.

I18: V14: Listed Building Variation

209. This is a claim for £2,080, although Mr Barrett has reduced it to £1,120. The Defendants deny that it was a variation.
210. The work involved in relation to this item was a fire shutter. Mr Barrett accepted that an appropriate fire shutter and enclosure had to be identified and designed in any event as a result of building regulations. I do not, therefore, accept that this was additional work or a variation.
211. Further confirmation for that view can be found in the pleaded basis of this item of claim. It appears to be the Claimant's case that it is entitled to be paid for this work pursuant to the express term of the contract which excluded from the percentage fee work relating to the listed building application. However, I accept Miss Shaw's submission that this item cannot be claimed under that exclusion, because this was not design work connected to the application at all. This was design work caused by the fact that the property was listed and, in the circumstances set out above, it can not be recovered as an additional fee.

I19: V15: Minor and Sundry Variations

212. This claim is based on a large number of what are called minor and sundry variations. The pleaded claim amounted to £10,423. Mr Barratt allowed £6,437. Mr Armes allowed £3,240.
213. The only detailed analysis is that produced by Mr Armes which arrives at the figure of £3,240. Some of his reductions are agreed by Mr Barrett^[6]. Separately, Mr Barrett has made other reductions from the Claimant's pleaded claim, although he has allowed other items in circumstances where, as he accepted in cross-examination, he had no way of knowing whether the item was justified or not. I also accept the criticism of Mr Barrett that, although he endeavoured to ignore the agreed joint statement and rely on the changes to the bar seating to justify some of these claims, the evidence was that, whilst the request for artists' impressions of the bar area was an extra (and I have so found it at paragraph 203 above), there was nothing to suggest that any of the working drawings for the bar area were changed at all.
214. It seems to me, therefore, that it would be appropriate in this instance for me to utilise the figure carefully calculated by Mr Armes of £3,240 without adjustments.

I20: Conclusions

215. For the reasons set out above, I allow the following in respect of variations:

V	£
V1	£1,655
V2	£940
V3	£160
V4	£2,060
V7	£720
V8	£9,748
V9	£60
V10	£240
V11	£5,925
V15	£3,240
Total	£24,748

216. Accordingly, I allow the sum of £24,748 in respect of the Claimant's claim for variations. I note that that is over half the Claimant's total percentage fee entitlement at the time of termination. It is also five times as much as the Claimant itself ascribed to variations in its 'bottom line' email of 4^th May (paragraph 35 above). I believe that, in all the circumstances, such an assessment reasonably compensates the Claimant for the increased amount of work that was being performed in the early months of 2006.

J: MISCELLANEOUS ITEMS

J1: Listed Building Consent Application

217. The Claimant's claim is for £2,380. It appears that the Defendants allow £2,080 in relation to this item, although paragraph 121 of Miss Shaw's closing submissions admits the full sum. It is unclear to me on what basis, if at all, the £300 reduction is made. I do not consider that, for this variation, any deduction is appropriate. Accordingly, I allow this head of claim in full in the sum of £2,380.

J2: Error on Timesheet

218. There is a claim by the Claimant in respect of an error on a timesheet which has led to an under-claim of £480. Not unreasonably, perhaps, the Defendants say, that given the unreliability of the timesheets generally, this claim should not be allowed. But I consider that would doubly penalise the Claimant. For the reasons which I have set out above, I have been obliged to make a number of significant reductions in the Claimant's claim as a result of the inherent unreliability of the timesheets. In other words, the errors have already counted against the Claimant. In those circumstances, this error, which is plain and obvious, should be adjusted in the Claimant's favour. Accordingly, I allow the sum of £480 in relation to this claim.

J3: Crystallised Interest

219. There is a claim for crystallised interest in the sum of £1,153.17 and an administration fee of £589. These sums are claimed on the same basis, namely that the Defendants did not make payment precisely in accordance with the schedule of payments that was agreed as part of the second agreement.
220. Clause 33 entitled the Claimant to be paid interest and an administration fee if payment was late. However, no claim under this clause was made at the time and the belated claim now made was plainly a product of the termination and the breakdown of the relationship between the parties. On the evidence, it was clear that Mr Witham indicated to the Defendants that he was quite happy to pick up the monthly cheque at their next meeting and so on, and, therefore, was not concerned about the payments being a few days late. In respect of the payments that were late, even as against the contract schedule, Miss Shaw has calculated that only the sum of £11.36 (interest) and £155 (administration fee) were due.
221. In general, it seems to me that it would be wrong to allow the Claimant to make this claim: to the extent that any payments were late, the lateness was, with one exception, very small and the Claimant's relaxed attitude to payment amounted, in all the circumstances, to a waiver of his right to be paid on the first of each month. I also have to reflect the fact that these payments were being made for services some time in advance of their actual performance.
222. I consider that the exception to this is the payment that was due on 1^st December 2005. There, payment was late and the Claimant was obliged to chase that payment in the emails, thereby demonstrating that, at least on this occasion, the interest claim was not being waived. It seems to me that there was a delay in payment of 33 days, from 1^st December to 4^th January 2006, with chasers during the period and an apology from the First Defendant. I find that, in those circumstances, interest was payable for this period. The total paid late was £4,050.87. I calculate interest at the contractual rate for this period at £7.26. An administration fee for December would also be due in the sum of £31, giving a total of £38.26.
223. Accordingly, I dismiss the crystallised interest and administration fee claim, save in respect of the sum of £38.26.

RECONCILIATION

224. For the reasons set out above, I have assessed the gross value of the Claimant's claim and the Defendants' defence and cross-claim as follows:

1. Amount due/paid under original agreement	£3,390
2. Sum due under supplementary agreement	£0
3. Sums due to suspension	£0
4. Claimant's percentage fee entitlement	£36,116.90
5. Claimant's claim for legal costs pursuant to the contract	£0
6. Variations	£24,748
7. Listed building application	£2,380
8. Error on time sheet	£480
9. Crystallised interest and administration fee	£38.26
Less
(1) Counterclaim re listing	£1,000
(2) Amount already paid (excluding VAT)	£67,473.24
Final reconciliation	£ 1,320.08 due from the Claimant to the Defendants

225. Accordingly, for the reasons set out above, I hereby give judgment for the Defendants in the sum of £1,320.08. I will deal separately with all outstanding questions as to VAT, interest and costs.

Note 1   Subsequently, this was altered to the first of each subsequent month, an agreed amendment of 1 day.    [Back]

Note 2   See Tullett Prebon Group v Jevin Davis [2007] EWHC 2739, at paragraphs 28-32.    [Back]

Note 3   See page 7 of 23 of the experts’ agreement dated 10th October 2007.    [Back]

Note 4   See page 12 of 23 of the experts’ joint statement dated 10th October 2007.    [Back]

Note 5   See page 15 of 23 of the experts’ agreement dated 10th October 2007.    [Back]

Note 6   See pages 18 and 20 of the experts’ agreement dated 10th October 2007.    [Back]