Case No. HT-11-503

below. 2. CHRONOLOGY 2.1 The Royal Oak 4.For the best part of 20 years, until 2005, Mr Barber and Mrs Lawless ran a pub, known as The Royal Oak, at 170-172 High Street, Teddington. It was a traditional public house which did not serve much food. It is referred to at one place in the documentation as a ‘biker’s pub’. This reflected the previous experience of Mr Barber and Mrs Lawless, which was on the pub side of the business, rather than as restaurateurs. 5.Not all of the accounts prior to 2005 for the Royal Oak have been made available. By reference to those which have been disclosed, it appears that the annual turnover in 2001 was £313,529, with slightly lower figures for 2002 and 2003. Mr Barber confirmed that the figures in the withheld accounts for 2004 and 2005 would have been lower because the building and the business were run down for planning purposes. He also confirmed that the net profit for 2002 was £48,778 and, for 2003, £38,203. That was based on an average turnover of £5,300 per week. 2.2 The Development 6.Pursuant to a development agreement between Mr Barber and Mrs Lawless, BDW demolished the existing pub and constructed a new building on the site with flats above, and with a bar on the ground floor and a restaurant in the basement. Mr Barber and Mrs Lawless retained the ground floor and the basement, whilst the flats were sold off. The bar and restaurant were to be called The Oak. The restaurant was going to be very different from The Royal Oak, the aim being to create an up-market and expensive restaurant business on the site.7.The development works involved, amongst other things, the tanking of the basement and the construction of a concrete slab. The shell of the basement and ground floor was completed by May 2006. They were then handed over to Mr Barber and Mrs Lawless, in order that they could then carry out the fit-out works. It appears that these fit-out works commenced in about July 2006. 2.3 The Original Fit-Out Works 8.The original fit-out works were relevant to the issues in these proceedings because it was said that their cost demonstrated the unreasonable nature of the costs subsequently claimed for the reinstatement fit-out works, following the flooding. The original fit-out was not the subject of a fixed price contract. There was no specification and no bill of quantities. It was therefore not always easy to discern precisely what was carried out first time around. There was, however, a large lever arch file full of invoices rendered by a wide variety of sub-contractors and consultants. 9.Although he had no construction experience, Mr Barber was the project manager. However, day-to-day control of the work seems to have been in the hands of Mr Stuart Penny, trading as SP Contracts, who acted as a Clerk of Works and was apparently on site most days. He was, he said, responsible for scheduling the works, carrying out the quantity surveying work, the purchasing of materials, the engaging of labour, the co-ordination of the trades, as well as contractors and sub-contractors, overseeing the works, and checking on the quality of the works. In carrying out this wide-ranging role, Mr Penny kept no records, other than a diary, which he said he routinely destroyed after the job. The evidence demonstrates that, for carrying out this work, Mr Penny rendered two invoices that totalled around £12,242. 10.The total cost of the original fit-out works was the subject of some debate. The only detailed analysis was that rather belatedly carried out by the defendant’s expert, Mr Thomas. His updated schedule arrived at a figure of £279,229 for the original fit-out works in the ground floor of the basement. He arrived at this figure by totalling the invoices with which he had been provided by the claimants and deducting those which were palpably not connected with the original fit-out works. 11.The £279,229 figure referable to work over two floors, was significantly less than the £390,000 odd claimed by Brit Inns for the subsequent reinstatement fit-out works to the basement only. Thus Mr Thomas relied on his analysis of the original costs as one way of demonstrating that the claimed costs in these proceedings were simply too high. It therefore became necessary for Mr Plewman to cross-examine Mr Thomas on his exercise. Although he did so with considerable forensic skill, he was unable to mask the fact that such criticisms as could be made of Mr Thomas’ exercise all stemmed from a single source, namely that the bundle of invoices (which the claimants themselves had provided) in respect of the original fit-out works might not have been complete or comprehensive. That, of course, was hardly Mr Thomas’ fault. 12.During the cross-examination of Mr Thomas during the morning of Day 5 (20 June 2012) it was suggested that the claimants may not have provided all of the invoices relating to the costs of the original fit-out. However, it was difficult to form a concluded view about the degree of incompleteness. By way of example, Mr Thomas properly acknowledged that there were no invoices in the bundle from someone calling themselves a painter, but, as he correctly pointed out, painting could have been carried out by one of the other trades. The same was true for the tiling work. And, although he said that some of the invoices from particular contractors seemed to be stated on a percentage basis, and the invoices for part-payment did not always come to 100%, he thought that that could be explained by the fact that at least some of the works were never completed (a fact borne out by the evidence of Mr Barber, amongst others). 13.Accordingly, although Mr Thomas properly accepted that he could not say that his analysis was exhaustive, I find that it was as complete as it could be, based on the information with which he had been provided by the claimants. In those circumstances, I find that, on the balance of probabilities, the cost of the original fit-out works was not materially in excess of his figure of £279,229. Even giving the claimants the benefit of the doubt, arising from the points put by Mr Plewman, there is no evidence to suggest that these matters would have increased the original fit-out costs to anything over £300,000. 2.4 The First Inundation 14.By 10 December 2006, the fit-out works were largely completed, although there is no reliable evidence as to precisely what remained outstanding. Some important elements of the works had yet to be completed; according to Mr Barber, this included the extensive panelling in the bar and the oak flooring in the basement restaurant area. Although it was Mr Barber’s evidence that they intended to open just three days later, on 13 December 2006, it seems clear that, even then, this was not a definite date: it was, to use his word, an “assumption”. It does not appear that there was going to be any particular launch event to mark the planned opening on 13 December.15.The reason why the precise state of the fit-out works at this time is important is because, on 10/11 December, the basement was flooded due to the negligence of Thames Water, who failed properly to cap off the mains water supply whilst making the connection to the property. This failure was not, and was not alleged to be, the responsibility of the defendants. But it had an effect on the subsequent claim made against them arising out of the second inundation, in January 2007, which was their responsibility. That is because, following the flood on 10/11 December, there was some considerable stripping out works. These works, and their attendant costs, cannot in fact or law form part of the claim against the defendants. 16.The record of precisely what happened between 10/11 December and 15 January 2007 (when the second inundation occurred) is very sketchy. There are some general assertions in the witness statements, and some contemporaneous records, including photographs of the basement floor. Taken together, I find that these show extensive stripping out, with a good deal of remedial work still to be carried out by 15 January. That latter finding is borne out by the fact that, according to Mr Barber, it was thought in early January 2007 that the restaurant and bar could not open until a date in March. In other words, the first inundation created stripping out and reinstatement works that were going to take almost three months (10 December – 6 March) to complete.17.Mr Penny was engaged to carry out similar services in relation to the works necessitated by the first inundation in December 2006. Indeed, this was simply a continuation of that which he had been doing, because of course the original fit-out works had not been completed by 10/11 December. According to his invoices, Mr Penny charged £26,532.25 for his work in connection with the first inundation. This was twice what he had charged for the whole of his involvement with the original fit-out works, which had lasted 5 or 6 months, and taken place over two floors. It was impossible to see how the sum of £26,532.25 could be justified, in circumstances where the work necessitated by the first inundation came to an end on 15 January 2007, when the second inundation occurred. Although the relevant period was therefore just over one month, Mr Penny’s invoices worked out at a total of 132 man days. Mr Penny agreed that “there must be something adrift somewhere” but, beyond that, he was not able to explain what appeared to be a very large discrepancy. This was relevant to the issues which I have to decide because of the subsequent allegations of overcharging by Mr Penny in connection with the second inundation.18.Notwithstanding this apparent discrepancy, however, Mr Penny was paid the £26,532.25 in full by Brit Inns’ insurers, on the recommendation of their loss adjuster, Mr Jamie Greig. In fact, the insurers paid out a total of £205,546.93 to Brit Inns for the consequences of the first flood, on top of a sum of £50,000 paid directly by Thames Water. 2.5 The Second Inundation 19.The second inundation (as it was rather whimsically called in the documents) occurred, or was at the very least discovered, on 15 January 2007. It is common ground that this flooding was caused by the defendants’ defective workmanship in installing the damp-proof membrane during the original development works in 2006. Barnard Associates, the consulting engineers appointed by the defendants, accepted the defective workmanship and, in turn, the defendants accepted that it was liable to Brit Inns for loss and damage resulting from that defective work. 20.In general terms, what happened following the second inundation was this. Whilst the defendants and Barnard gave consideration as to the most effective form of remedial work, Brit Inns embarked on a second stripping-out exercise. Mr Penny talked about the stripping-out works being carried out over a fortnight, although it was unclear when precisely that was. There was also a suggestion that the stripping-out works were carried out in something of a rush. That was curious; no urgency was in fact required, because it was not until 12 April 2007 that final approval was given to Barnard’s recommended remedial solution. 21.That solution, which had first been proposed at the end of February 2007, involved the use of a Delta Drain. This consisted of both vertical and horizontal drains, in the form of an egg-box construction, which allowed the water to run down inside the floor and walls and then be pumped away. This obviated the need to dig out the entirety of the basement and to lay a second membrane, but it plainly gave rise to additional considerations once the drains had been installed. For example, false timber walls were necessitated, and the floor level was raised by 2 inches. 22.The installation of the Delta Drain, and the associated structural works to the basement, were carried out by the defendants at no cost to Brit Inns. On about 12 June 2007, the basement was then handed back to Brit Inns in order that the reinstatement of the fit-out works could commence. In many ways, what was handed back to Brit Inns in June 2007 – the concrete shell – was very similar to what they had been provided with in June 2006, save that, for the reasons noted above, the Delta Drain was going to require particular works around the walls, and a raised first floor level. 2.6 The Reinstatement Fit-Out Works 23.It is not clear what (if any) preparatory works were undertaken by Brit Inns prior to June 2007 in relation to the reinstatement fit-out works. Certainly, no schedule of the proposed fit-out works was prepared, either then or subsequently. It may be that this was because, to a very large extent, the reinstatement fit-out works were going to be a re-run of the original fit-out works, and were to be carried out by the same direct contractors. Whilst it is agreed in these proceedings that it was not unreasonable for Brit Inns to approach the reinstatement fit-out works on the same basis as the original, using what were called “direct appointments”, without a specification or detailed schedule of works, this was said to be because that was how the original fit-out works had been performed. What nobody seems to have thought about was the need to keep a record of the reinstatement fit-out works actually carried out. I consider this to be a surprising omission given that, because of the early insurance claim made by Brit Inns, the reinstatement fit-out works were very different from the original in one important respect: they were going to be ultimately paid for, not by Brit Inns, but by a third party.24.The absence of any proper record of the reinstatement fit-out works being carried out by the sub-contractors was exacerbated by the vague nature of the responsibilities of the relevant individuals, and the haphazard way in which they were carried out. Mr Barber was again the Project Manager but, as Mr Penny noted in his witness statement, Mr Barber “wasn’t really involved with the construction side of the fit-out…and didn’t come to the site regularly”. Mr Barber accepted that he did not go to the site regularly; that he was not involved in the detailed construction works; that he did not choose the sub-contractors; that he did not identify the scope of work or produce a specification; that he did not agree the rates payable to the sub-contractors and that he did not order the bulk of the materials. To the extent that these things were done at all, they were done by Mr Penny, although a number of these services (such as the production of any sort of record of the works being performed, or the provision of any real quantity surveying services) were notable by their absence. 25.One important matter flowing from the rather ad hoc way in which the reinstatement fit-out works were carried out relates to programming. The evidence was that, following the reinstatement fit-out works, Brit Inns hoped to reopen The Oak on about 15 October 2007. There was no evidence as to when that proposed date was first identified or how that date was arrived at. Mr Barber said that it was just an assumption. Given the absence of any schedule of work, this was unsurprising: how can you know when the work might finish when you don’t really know what work you are going to do?26.Mr Barber said that “one of the problems was because we didn’t know exactly what the opening date was, that is why we couldn’t do the marketing, and so on and so forth…at the end of the day, you have to have some sort of idea or guesstimate of when you are going to open”. For the reasons I have given, I find that that was, in reality, a criticism of Brit Inns’ own arrangements for the reinstatement fit-out works. Because they were never clear as to precisely what they were doing, they could not be clear as to when the works would be finished and when they might reopen. As Mr Barber confirmed, there was not a single piece of paper setting out a proposed or actual sequence of works. On the face of it, therefore, the uncertainties over the revised opening date were Brit Inns’ responsibility. 2.7 Payment for the Reinstatement Fit-Out Works 27.The evidence as to how payments for the reinstatement fit-out works were assessed and paid was also vague and, in some instances, contradictory. This also mattered for the issues that I have to decide, because the defendants complained repeatedly that there was almost nothing to say whether the invoices on which the claims were based had ever actually been paid at all.