National Grid Electricity Transmission Plc v McKenzie Harbour Management Resources Ltd & Anor (Rev 1)

This case is about the allegedly corrupt practices of an employee of National Grid and of a professional retained by it. I have found some of those corrupt practices proven. I have decided to grant the following relief:-

a)

An order that Mr McKenzie account for bribes in the sum of £161,403

b)

In the alternative to (a) damages in the sum of £404,000 in respect of overcharges on the Squire’s and Grimston labour contracts (and that Mr Read be jointly liable for £153,000 of that);

c)

An order that Mr McKenzie pay damages in the sum of £86,605 in respect of wrongfully allowed fuel charges (and that Mr Read be jointly liable for £58,000 of that).

d)

An order that Mr McKenzie pay £90,000 in respect of the profits made by the joint venture relating to the culvert in Devon (and that Mr Read is jointly liable for that).

e)

An order that each of Mr McKenzie and Mr Read pay £185,000 in respect of his anticipated share of the South Wales profits.

f)

An order that Mr McKenzie pay damages in the sum of £16,250 in respect of some laptops and £49.480 in respect of three vehicles wrongly procured at Shelford (and that Mr Read account for that sum but less the expenses of providing those vehicles).

g)

An order that Mr McKenzie pay damages in the sum of £46,800 in respect of a Land Rover Freelander wrongly procured for Ms Bishop, £79,600 in respect of ATVs wrongly ordered and £90,850 in respect of two Nissans.

h)

Mr McKenzie must make a payment of £575,000 in respect of the costs of investigation (and Mr Read is jointly liable for that).

i)

Interest will be payable at retail bank base rate plus 1% calculated on a simple basis for damages claims and on a compound basis with yearly rests for account-based payments.

The judgment that follows is “fact heavy”: that is because over 26 days there has been a minute examination of the dealings of Mr McKenzie and of Mr Read/HMR, based substantially on hearsay evidence contained in documents, which Mr McKenzie has fought tooth and nail, and in support of claims which took every point against Mr McKenzie. I must explain why I have found in favour of National Grid (but not to the extent they sought).

I handed down this judgment in final form but subject to editorial corrections: and I invited further submissions on particular points. This judgment now incorporates editorial corrections and the results of further rulings.

The Claimant (Footnote: ¹ ) (“National Grid”) operates the high voltage electricity transmission system in England and Wales, including approximately 4500 miles of overhead line carried upon towers. The lines and towers require constant specialist maintenance and occasional diversion. This work is undertaken by approved contractors and each individual maintenance or diversion scheme is overseen by a National Grid Project Engineer.

On 6^th March 2000 the First Defendant (“Mr McKenzie”) was appointed as a Project Engineer within the Project Management team of National Grid. Between 2002 and 2006 amongst the schemes for which Mr McKenzie was responsible were a diversion over the A130 at Rayleigh, a diversion on line 4VN at Mannington in Dorset, refurbishment on line 4YE to 4YF between Exeter and Indian Queens in Devon and Cornwall, refurbishment of the 4YV and 4YW lines between Swansea North and Pembroke, and a diversion on line ZV at Shelford Quarry in Kent.

National Grid say that Mr. McKenzie acted corruptly and dishonestly in relation to the material schemes; that he did so in conspiracy with the Fifth Defendant (“Mr Read”) and Mr Read's company, Harbour Management Resources Ltd (“HMR”), the Fourth Defendant; and also with the Third Defendant (“Mr Good”) and Mr Good’s company, Rigout Erection Services Ltd (“Rigout”), the Second Defendant; and also with the Sixth Defendant (“Mr Squires”) and his company, Grimston Trading Limited (“Grimston”), the Ninth Defendant, and its employee, the 10th Defendant Rebecca Squires-Bull; and finally also with the 11th Defendant, Interserve Industrial Services Ltd (“Interserve”).

National Grid commenced proceedings in May 2006 which have been the subject of substantial amendment, re-amendment and elaboration so that the Particulars of Claim now extend to 137 pages. On 29^th October 2007 National Grid agreed terms with Interserve. The agreement expressly provided that the settlement was not an admission of liability or wrongdoing on the part of either party or any other person or entity. Interserve agreed to pay National Grid £450,000 of which £306,000 was attributable to National Grid's claims against InterServe and £144,000 attributable to National Grid's legal costs of the action.

Immediately before trial National Grid agreed terms with Mr. Good and with Rigout. They together paid National Grid £200,000 in respect of its claim and made a £200,000 contribution to National Grid’s costs of the action. At that time National Grid also agreed terms with Mr. Squires and Grimston (and its employee). They paid a total of £342,000, being £171,234 in respect of the claims and the balance as a contribution to the costs of the proceedings. A consideration in the negotiation of these terms was the warranted assets of Mr Good and Mr Squires.

At the trial (which lasted 26 days) National Grid appeared by Mr Stephen Phillips QC leading Ms Laura John and Mr Richard Hanke, supported by a team of solicitors from Dorsey & Whitney (led by Mr Burkill). I most readily acknowledge that their convenient presentation of the 16,000 case documents (and their familiarity with them) was of considerable assistance both to me and to Mr McKenzie and Mr Read. Staggeringly huge resources appear to have been devoted to the prosecution of this case. Mr McKenzie has throughout conducted his case as a litigant in person, and he did so at trial. He rapidly acquired forensic skills (but suffered a distinct disadvantage from having key witnesses called by National Grid at an early stage in his legal education). He was able to take advantage of a thorough skeleton argument that had been prepared by Ms Camille Slow and Mr Zulfikar Khayum for Mr Squires and Grimston. Mr. Read (to whom I gave permission to represent HMR) was simply overwhelmed, to the extent that in the end he did not even give evidence in his own behalf because he felt he had “nothing to contribute to the discussion”.

At trial National Grid sought from Mr McKenzie, Mr Read and HMR recoveries in the sum of £5.267 million (plus interest) together with costs (which I was told exceeded £6 million). That is a sum vastly in excess of those which National Grid accepted from Mr McKenzie’s and Mr Read’s alleged co-conspirators (who had the benefit of legal representation). It is a sum far beyond the likely means of an employee remunerated at the rate of £38,600 per annum (or £450 per hour, part time); and it was, even on National Grid’s own case, a sum far beyond what Mr McKenzie and Mr Read/HMR had themselves allegedly received (and the proceeds of which they might have retained). Moreover, this compensation was sought to be recovered on every conceivably relevant basis – bribery, fraud, breach of fiduciary duty, breach of contract, deceit, dishonest assistance in breaches of fiduciary duty, “unlawful means” conspiracy, procuring a breach of contract – each with its different constituent elements and different remedy but substantial overlap, and on all of which I of course heard argument on one side only (for the law was simply beyond Mr McKenzie and Mr Read). I intend no criticism of those who conducted the trial: they did so properly and skilfully. But only a multi-national company like National Grid could contemplate embarking on such a profligate course: and I formed the view that the case was more about the relentless pursuit of Mr McKenzie and of Mr Read (in order to make examples of them in case others with whom National Grid dealt might be similarly tempted to do what was alleged) and about the vindication of National Grid’s management team than it was about the recovery of compensation for alleged wrongs.

All this made the trial difficult to conduct in accordance with the overriding objective: and if this judgment does not deal with every cause of action and every remedy in relation to every one of the multifarious complaints made against these defendants it is because I have not thought it essential in the discharge of my duty and in the interests of justice to do so. It is not necessary to look under every stone from every angle to achieve an outcome that is fair. But I should emphasise that it was possible (with the co-operation of Mr Phillip QC) to conduct the trial in a manner that mitigated (if it did not eliminate) the disparity in resources: and neither Mr McKenzie nor Mr Read should think that the ultimate outcome would have been different if only they had had equivalent legal resources.

It is in the nature of cases concerning allegations of fraud and corruption that significant reliance must be placed upon documents. National Grid has deployed to the full the means afforded to search for and to recover documents, and through document management has been able to establish chronology and connection between various events. Key decisions that I have had to make have turned upon documents.

The many trial bundles produced for the hearing were not agreed by Mr McKenzie or Mr Read. But there was no challenge to the authenticity of any of them (so that CPR part 32.19 applies). Authenticity is, of course, a separate question from whether the documents prove the truth of their contents. I have treated the documents as amounting to hearsay evidence of the truth of their contents. Strictly, if National Grid intended to rely on that hearsay evidence it should have served a hearsay notice. Mr McKenzie and Mr Read would then have known what key facts it was intended to wring from the 60+ lever arch files of material. But the failure to serve a hearsay notice goes only to weight not admissibility. Whenever a hearsay statement was adduced in evidence i.e tendered as evidence of the fact stated, I have endeavoured to ask myself what weight may be fairly attached to it having regard to what challenges Mr McKenzie or Mr Read might have made to it.

The chief function of the oral evidence has principally been to put the documents in context, to seek to establish what the usual procedure might be, to tell me (with the benefit of hindsight) what the witness might have done if only he had known a particular fact, and to explain why the witness sanctioned the various transactions of which complaint is now made. There was a “whistleblower” (Ms Bishop with whom Mr McKenzie had had an affair, and who reported him immediately after the end of the affair). But she was not called as a witness and no hearsay statement was put in from her. Instead, a transcript of an interview was included in the trial bundle, and used as a basis for putting questions to Mr McKenzie. I have not accorded any weight to Ms Bishop's allegations.

As to the other National Grid witnesses, they did not come to lie. Some of them continued to work together in a team, and their evidence had an air of corporate carefulness about it, uniform and reconciled and lacking any sense of individuality. For instance, those who dealt with the subject all made the same mistake about whether a particular scheme constituted capital or operational expenditure, and all overlooked the same document. This alerted me to the possibility (particularly in relation to policies and their implementation) that I may be being given the “corporate view”, and that in practice things might have been different. (This is particularly relevant to issues such as the engagement of subcontractors or the supply of vehicles). I considered Michelle Clark (an asset strategy manager for National Grid), Martin Wilson (a development engineer for National Grid), David Maddocks (of Babcock Networks Ltd) and Iain Lamont (a divisional director of Interserve) to be impressive witnesses. I considered Mr Inglehearn and Mr Bryant to be the least satisfactory of National Grid's witnesses. The former (who was Mr McKenzie's line manager) was defensive, self protective and all too ready to deny awareness of e-mails, minutes of meetings, and other means of knowledge, and determined to rest upon the statement “I trusted Mr McKenzie”. The latter was plainly hostile to Mr McKenzie, but to his credit sought to control his antipathy. The remainder of the witnesses called by National Grid were perfectly adequate.

Mr McKenzie did come to lie to me, and he did so. He was plainly a highly competent and hard-working engineer. By common consent he carried a workload of 120% and delivered all his projects within budget and to time. I had a real sense that he was perhaps not exacting in his adherence to every corporate policy and procedure: but he achieved results. His intimate knowledge of the projects on which he was engaged was impressive. It is not possible to say that because he lied to me on certain issues his word simply cannot be taken on any issue. Mr McKenzie is much more complex than that.

National Grid describes its claims against Mr McKenzie as founded upon fraud (bribery), breach of fiduciary duty, breach of contract, deceit and “unlawful means” conspiracy. The first of those is a label applied to various claims which may be brought at common law or in equity. The second is an equitable claim. The remainder are claims which may be brought at common law and are dependent upon proof of loss. It might be thought that the burden of proof on each element of these claims lay squarely upon National Grid. But in its Particulars of Claim National Grid claimed the entirety of all payments made by it “pursuant to the frauds perpetrated by Mr McKenzie and one or more of the other defendants” but “less any amounts for which it is proved by the defendants that National Grid must give credit”. Accordingly National Grid asserts that the burden lies upon Mr McKenzie to prove that it did not suffer some of the losses it claims. I have not approached the evidence in this way. I have taken the view that at common law the burden lies upon National Grid to prove its loss: and that in equity the burden lies upon National Grid to prove a breach of equitable duty and the circumstances which entitle it to request an order for an account. If an account is ordered then there may well be a burden upon the accounting party to justify deductions.

National Grid described its claims against Mr. Read and HMR as founded upon fraud and bribery breach of fiduciary duty, breach of contract, procuring Mr. McKenzie's breach of contract, dishonest assistance in Mr. McKenzie's breaches of fiduciary duty and “unlawful means” conspiracy. National Grid again asserts that a burden lies upon Mr. Read to prove that it did not suffer some of the losses it claims from him. I have approached the claims by National Grid against Mr Read on the footing that the burden of proof lies on National Grid.

The case made by National Grid against Mr. McKenzie and Mr Read proceeds on the footing (whether or not a necessary element of the precise cause of action) that they have been guilty of seriously dishonest conduct. In assessing the evidence I have reminded myself of what was said by Lord Hoffmann in Re B [2008] UKHL 35 about the degree of persuasion which the court must feel before it decides that a fact in issue did happen, and in particular about the suggestion that the standard of proof may vary with the gravity of the misconduct alleged. I have sought to apply the principle that there is only one civil standard of proof, and that, when assessing the probabilities, I must have in mind as a factor (to the extent only that is appropriate in this particular case) that in general, the more serious the allegation, the less likely it is that the event occurred, and so the stronger should be the evidence before I conclude that the allegation was established on the balance of probability: but that the evidence on each issue has to be assessed within the setting of the entire evidence.

On 6 March 2000 Mr Mckenzie was engaged as a Project Engineer within the Project Management Team of National Grid at a starting salary of £27,500. My attention was not drawn to any job description for or statement of duties of a Project Engineer. However in his evidence Mr Inglehearn described the role in these terms:-

“It was their job to identify the scope of work required on each scheme and to ensure that the tender documents identified accurately what the contractors were required to deliver. They were also responsible for liaising with prospective tenderers and worked closely with the Project Team Leader to assess the tenders received and, ultimately, to identify the successful tenderer. Once work had started on a scheme, [National Grid] relied on its project engineers to identify whether the work for which a contractor was seeking additional payment fell within the definite work or was to be met out of the provisional sums allocated to the scheme (in which case the project engineer was responsible for arranging for payment to the contractor, usually by way of a Variation Order). It was also their responsibility to review all invoices and quotations received from contractors or sub-contractors to ensure that [National Grid] was at all times receiving value for money”.

Mr Inglehearn was the first witness whom Mr Mckenzie cross examined. Mr Mckenzie did not challenge this description of his duties. I accept it as broadly accurate though, consistently with my view of Mr Inglehearn as a witness, I consider that it probably understates Mr Inglehearn’s responsibility as Project Team Leader. Thus, for example, this description fails to record that no Variation Order could be made by Mr McKenzie without it having been considered by Mr Inglehearn, who had to sign the Variation Order itself to show that he had approved it.

The description also fails to relate the role of the Project Engineer to that of the Procurement Team Leader (in relation to the material schemes, Mr Gary Hill). The role of the Procurement Team was to provide commercial support, to assist with preliminary estimates and to evaluate different procurement options, determining the most appropriate contract strategy for a given project. Once the strategy had been determined and the contract let then issues might arise whether a particular item of work fell within the “definitive works” as identified in the contract, or constituted additional work to be paid for out of disclosed or undisclosed provisional sums. The evidence of Mr Hill was that National Grid relied on its project engineers to ensure that contractors met the costs of all works falling within the scope of the definitive works: and that current and likely future utilisation of provisional sums were the subject of monthly meetings between a scheme’s Project Engineer and its allocated Project Accountant, with any anticipated additional expenditure identified in these monthly meetings being communicated by the Project Accountant both to the Procurement Team (Mr Hill) and the Project Team Leader (Mr Inglehearn). Indeed, the Procurement Team had to countersign every purchase order that was requisitioned by the Project Engineer and, as Mr Hill was frank enough to accept in cross-examination, there was a very close relationship between procurement officer and project engineer. Mr McKenzie put to Mr Hill that Mr Hill had not been influenced by him in any contract awarded by National Grid to which Mr Hill responded:-

“My Lord, we had to work together to make these decisions and to reach a satisfactory conclusion. It is without doubt…likely that I influenced him in some of those decisions and he influenced me. This was a joint approach looking at the selection of the tenderers in order to reach the right solution…Mr McKenzie did not influence me, My Lord, but – how can I put it? We did have a shared view in many cases”.

This is a much fairer view of the role of a project engineer than Mr Inglehearn’s slanted and self-protective account.

Having considered the job Mr McKenzie was engaged to do, I turn to consider his contractual obligations. Mr McKenzie’s letter of engagement incorporated National Grid’s Employee Rules. These were not in evidence. A version dating from 2004 was in the trial bundle and Mr Inglehearn said he believed that a similar version was in force before. I accept that evidence. These Employee Rules required Mr McKenzie:-

(a)

By Rule A.4. to maintain the highest standards of conduct in line with National Grid’s Code of Conduct;

(b)

By Rule E(h) not to attempt to commit fraud against National Grid, including dishonesty in such matters as completing time sheets, or expense forms;

(c)

By Rule E(n) not to accept gifts or other benefits from those with whom National Grid did business or from any individual hoping to further their interest with National Grid, except those of a token nature and insignificant in value;

(d)

By Rule E(o) to declare to the appropriate officer of National Grid any financial interest in matters of official business (including any transaction or contract) which might affect his impartiality of judgment in carrying out his responsibilities to National Grid.

The Employee Rules refer to a Code of Conduct. The evidence established the version of this that existed in April 2004 (but not any earlier version) and that in April 2004 Mr McKenzie had attended a course drawing the Code to his attention. The Code of Conduct made clear:-

(a)

That a conflict of interest would arise whenever Mr McKenzie’s personal interests affected his ability to make objective decisions on behalf of National Grid (and advised him to seek advice if in doubt);

(b)

That he must be careful not to allow the financial or other interests of close family or friends to compromise the impartiality of the decisions he might make for National Grid in relation to a company with which National Grid had a business relationship, and advised him to tell his manager as soon as he became aware of them;

(c)

That he must declare any commercial or personal interests in writing to his manager if he carried out any procurement activity on behalf of National Grid;

(d)

That benefits such as gifts and gratuities worth over about £50 should not be accepted without the written agreement of his manager (if possible prior to their acceptance), and that lesser gifts should be noted in a diary or file that the line manager could see if necessary.

26.

Sometimes these principles where rigorously adhered to. Thus in December 2005 an e-mail was circulated amongst project engineers reminding them that at that time of year they would be offered gifts in the form of bottles of wine or spirits from contractors or suppliers, and advising them that they should decline to accept them in line with company policy. Sometimes they were not. Mr Inglehearn (Mr McKenzie's line manager and the second witness called in the pursuit of the corruption case against him) took a holiday in Cornwall, to which he travelled by train. During that holiday he accepted the use of a 4x4 vehicle provided by Mr Squires (then a supplier of labour to National Grid), a benefit which Mr Inglehearn described without apparent embarrassment as “a generous and unsolicited gift”.

27.

In addition to these expressed terms of Mr McKenzie’s contract National Grid alleged that further terms were to be implied: or alternatively, that Mr McKenzie owed fiduciary duties “by reason of his position within National Grid and the responsibilities entrusted to him”. National Grid’s statement of case went so far as to allege that Mr McKenzie was a trustee of “National Grid’s money or other property in his hands or under his control”. Although National Grid’s pleading (in its re-amended form) ran to some 117 pages in length (and a further 13 schedules) no clear factual basis was pleaded for the implication of further contractual terms or for the imposition of non-contractual fiduciary duties.

28.

Great care needs to be taken with the attachment of fiduciary duties to a contract of employment, especially where the employment contract itself is so comprehensive: see Nottingham University v Fischel [2000] ICR 1461. I will without hesitation accept that an employee of Mr McKenzie’s rank owed a duty to act honestly and faithfully (“in good faith”) towards National Grid in the performance of his principal contractual duties, a duty not to place himself in a position in which his personal interests conflicted with the contractual and “good faith” duties that he owed to National Grid, and a duty not to make any secret profit by virtue of his position. These duties arose not from the mere fact of his employment, but from the context in which certain of his duties (in particular the negotiation of contracts for services to be rendered to National Grid and the approval of charges made) as employee fell to be discharged. The correct description of Mr McKenzie is that he was an employee who (in certain limited respects) owed fiduciary duties: it is a mis-description to call him “a fiduciary” and an error to treat him as a trustee.

In April 2002 Mr Squires was engaged by Mr McKenzie to undertake work for National Grid as a site supervisor on the Rayleigh diversion. Mr Squires made his services available through Grimston. I find that this company was Mr Squires’ alter ego. Grimston was an Isle of Man registered company which used banking facilities with HSBC in Jersey. National Grid adopted the practice of engaging all non-permanent staff through a single employment agency called Spring Technology Staffing Services Limited (otherwise SpringConnect Limited) (“Spring”). Spring would not deal with off-shore companies. Accordingly Rigout (an English company) was inserted into the contractual chain as a middleman. The formal contractual chain to secure the services of Mr Squires was therefore National Grid - Spring - Rigout - Grimston - Mr Squires.

Following this initial arrangement Mr Squires was engaged by Mr McKenzie to work on the material schemes (and others which it is unnecessary to detail) as a site supervisor, a linesman, a surveyor and a job “specifier”, so that he was providing virtually continuous services until late 2005.

On 26^th February 2004 (some two years after he was first engaged) Mr Squires wrote a cheque for £5000 on his personal Jersey account in favour of Mr McKenzie, who paid it into a joint account he held with his wife at HSBC Lincoln. When National Grid discovered the existence of this cheque relatively late in the proceedings and challenged him about it, Mr McKenzie said that this was a loan to help him discharge a tax bill. As will appear, I regard the explanation as legally irrelevant: but I do not in any event accept this evidence. Mr McKenzie would, at this stage and for some three years past, have been on PAYE. He did not disclose and was unable to produce the relevant tax bill (although it had been formally requested in December 2007 and a further opportunity to produce it arose in the course of the trial) or to explain how the liability arose. It can be demonstrated that he did not in fact use the £5000 to pay any tax bill; and also that he did not repay any “loan”. I find that this was a gift by Grimston/Mr Squires (the two are indistinguishable) to Mr McKenzie.

On 23^rd March 2004 Grimston transferred £15,000 from its Jersey Bank account to a new account that Mr McKenzie had himself set up with HSBC Jersey in February 2004: and on 26^th May 2004 it transferred a further £20,000. Mr McKenzie said that these were loans to help him purchase his house. As will appear, I regard this as legally irrelevant. But I do not in any event accept the evidence.

When first responding to this evidence (in an affidavit sworn on 5^th June 2006) Mr McKenzie said that these payments were loans which were the subject of written agreements. By the time of his witness statement in April 2008 he said that they were loans agreed orally to enable him to purchase a new house and “in return, under very loose terms, [Mr McKenzie] would reserve the land at the rear [for a joint venture between himself and Mr Squires] on a first refusal basis for any potential future development”. By the time he gave oral evidence Mr McKenzie said that the payments were loans made without any specific agreement as to how the money was to be used, and that it was in fact used in general expenses (including on fees and furnishings related to the move). I note however that on 26^th May 2004 (the date of the second Grimston payment) Mr McKenzie wrote a cheque in the sum of £18,500 which he told me (and I believe) went to his solicitors in connection with the house purchase (which completed in June 2004).

What is to account for these changes in recollection? Mr McKenzie explained to me that in May 2004 he was drinking to excess and that his recollection was therefore hazy; but that the proceedings had been a great “wake-up call” to him so that he had sat down and tried to piece together the relevant events (though without the benefit of many documents). I am sure that there is a measure of truth in this. But these changes all occurred after the “wake up call”: and whilst the evidence concerning these two Grimston payments was been given I formed a strong impression that the changes in story arose not from a varying authentic recollection but rather by way of reconstruction in response to emerging material, and as such the evidence given by Mr McKenzie was not reliable. I do not accept that these payments were either loans or a “down payment” on a loose arrangement to share development profits. I find that the payments were gifts by Grimston/Mr Squires to Mr McKenzie.

I have not been assisted in reaching this conclusion by National Grid’s assertion that because the payments were made by Grimston to a newly opened Jersey account in Mr McKenzie’s name, this of itself demonstrates some dishonest or wrongful conduct. There are perfectly legitimate reasons for opening an off-shore account. Mr McKenzie’s was that as Grimston received its funds off-shore it preferred to make its payments offshore: and it did so in relation to all its employees. In opening his own Jersey account he responded to a request from Grimston at the time when it was going to make payments connected to his house purchase: and he made no attempt to conceal the account opening. The documents bore this out. Thus Mr McKenzie received details of the account from HSBC by means of a message to his National Grid e-mail address: and he used the account to pay another National Grid employee for a car. This plainly does not demonstrate that Mr McKenzie drew to the attention of his employers that he had opened an off-shore account or that they must be taken to have known that he had: but it does negative the suggestion by National Grid that it was “secret” and that such secrecy was a badge of impropriety. (This is one of the many examples that occurred in the course of the trial where National Grid laboured to extract every possible adverse inference out every event or statement, and which contributed to Mr McKenzie’s cross-examination lasting 9 days).

On the 9^th August 2004 Grimston transferred £10,000 to Mr McKenzie's Jersey account. This was followed by a further payment of £20,000 on 16^th December 2004, another £20,000 on 11^th July 2005 and a final transfer of £30,000 on the 27^th September 2005. Mr McKenzie did not (and could not) deny receipt of these sums. He said they were consultancy payments for the development of two projects in which he was involved with Grimston. If there existed a genuine separate commercial arrangement between Mr McKenzie and Grimston under which sums were transferred a different light might be cast upon the payments, and National Grid’s claim would have to be put upon some footing other than mere fact of payment. But I do not accept this evidence.

Before linesmen are permitted to work upon towers and lines a “fall arrest system” must be installed. That utilised by National Grid had been developed by Rapid Rail International. Mr McKenzie’s skills (developed throughout his working career and not simply from his three years employment with National Grid) told him that a system based on a top anchor at the apex of a pylon, and which facilitated “free climbing”, would be preferable. In the third quarter of 2004 he therefore approached Mr Squires and Mr Good of Rigout with a design idea. Mr Good suggested that the design should adapt components already manufactured by another fall arrest company called “Uniline”; and on 23 August 2004 Mr Good sought initial pricing information. Thus in outline the “Rigout Uniline FAS” joint-venture was established with (broadly speaking) a three way profit split between the participants.

The proposals were discussed with Uniline in September 2004 with a view to Uniline producing initial ideas in relation to the top anchor and other parts. The product development required the erection of a test pylon on Uniline’s premises: but this was not completed until July 2005. Meanwhile the terms of Uniline’s participation were discussed (the broad outlines of which were only agreed in November 2004) , and the project proceeded on a very general (and deliberately non-client-specific) basis. By January 2005 fairly fundamental design parameters (whether particular brackets were intended to be load bearing) remained to be set in order to enable Uniline to proceed with design concepts and prototypes. Mr McKenzie’s role in the work being undertaken by Uniline (or more accurately, designers retained by Uniline) seems to me to have been to highlight the practical problems with the existing Rapid Rail system and to provide constructive feedback on Uniline’s proposed solutions at a couple of meetings. The project ground to a halt in 2006 when National Grid could not commit to further development, and the arrangements between Uniline and Rigout were formally terminated in April 2007.

For three reasons I do not accept Mr McKenzie’s case that this context is relevant to the payments received by him. First, Mr McKenzie's initial evidence was that the August 2004 payment received from Mr Squires was made because it was apparent that the fall arrest system could achieve a large market with a considerable profit margin. I do not find that credible having regard to the date on which the payment was made and the stage at which the Rigout Uniline FAS joint venture then was. Mr McKenzie changed this evidence at trial to say that the payment (and the later ones) was for development and was not a profit share from a developed product. I accept that it was not an advance on profit share but I do not otherwise accept this alternative analysis. (Save for the July 2005 payment, which coincides with the erection of the test tower) I cannot satisfactorily relate the timing and nature of the payments to Mr McKenzie with the timing and nature of his contributions to the development process. What he was paid is not explained by what he was doing. Second, it is not clear why Grimston (as opposed to Rigout) should pay Mr McKenzie for what he was doing for Uniline. The only pattern that emerges is that when Mr McKenzie had spent one tranche of money given to him by Mr Squires he then received another. Third, according to a document produced by Rigout in mid-2005 if the Rigout Uniline FAS system was fully developed and achieved sales of 1000 systems Mr McKenzie would only have been entitled to £50,000 in respect of the “concept” (as opposed to installation). I cannot see why Mr McKenzie should receive a sum exceeding his anticipated profit share before development was completed, manufacture undertaken or a single sale made. I find that the payments totalling £80,000 to which I have referred were straightforward payments by Grimston to Mr McKenzie, not made under any commercial arrangement relating to the Uniline project.

A separate explanation was given by Mr McKenzie for the final payment of £30,000 on 27 September 2005. This was that (quite apart from his input to the FAS system) he had invented a noncorrosive “step bolt”. A step bolt is a bolt with an extended shank which is attached to the tower leg on alternate faces, so that the leg and extended shanks together constitute a form of ladder used by a linesman to access the tower. A pylon or tower has an anticipated life of 80 years, during which the step bolts will corrode several times over. Mr McKenzie had the idea of replacing the metal bolts with plastic of sufficient strength. Although it was his idea the prototypes were developed by a specialist manufacturer. Mr McKenzie said that Mr Squires had agreed to pay him £30,000 for “consultancy services” in connection with this project. I accept that Mr McKenzie had such an idea (though it is impossible to assess its originality) and I accept that preliminary steps were taken to identify a potential prototype manufacturer. But the arrangement to pay £30,000 for this “idea” in September 2005 rests entirely upon Mr McKenzie's unsupported word: and given that his other explanations concerning the true nature of the payments made to him by Mr Squires/Grimston have not, in my judgment, withstood scrutiny I do not feel able to accept such evidence. (In saying that the arrangement to pay £30,000 rests upon Mr McKenzie's unsupported word I have not overlooked the fact that there exists a consultancy agreement dated 15^th July 2005 under the terms of which Mr McKenzie apparently agreed to provide consultancy services to Grimston as from 30 August 2005. But (in an echo of Mr Inglehearn’s and Mr Hill’s evidence) it was Mr McKenzie's case that he simply signed this document without reading it because he trusted Mr Squires who said that Grimston's bankers required such a document to be signed by everyone who received a payment from Grimston: and the document itself appears to relate to the provision of services for microwave projects rather than electricity transmission. So it does not appear to relate to the payment of £30,000 for step bolts. I have, therefore, as previously indicated, treated this simply as a direct payment by Mr Squires/Grimston to Mr McKenzie.

At the end of February 2005 Mr McKenzie became the registered keeper of a new top of the range Audi A4 Diesel Saloon which cost £34,495 (a sum that was then just short of his annual salary). The car was bought for cash, and was paid for by Mr Squires by means of a cheque drawn on Grimston’s Isle of Man account. The order for the car specified that it must be “debadged”. These facts could not be disputed.

From the outset National Grid asserted that this was an improper gift by Mr Squires/Grimston to Mr McKenzie. It was their case that the debadging of the car was evidence of dishonest concealment. It was the evidence of Mr Inglehearn that he had made enquiry of Mr McKenzie about his fine car and had been told by Mr McKenzie that it was being provided (on a rental basis) by Mr McKenzie’s father.

Mr McKenzie did not in his evidence deal with the circumstances of the acquisition of the Audi (or with Mr Inglehearn’s assertions): but he had in his Defence asserted that he received only the use of the Audi. In oral evidence he explained that he had decided to leave the National Grid car scheme (and instead take a monthly allowance) because he covered high mileage and felt that he needed a better car. He identified an Audi A4 1.9 Diesel as meeting his needs: but Mr Squires told him of the availability of an Audi A4 3 litre Diesel Quattro at a dealership in Poole, which he offered to acquire and to let Mr McKenzie use in return for the monthly allowance (though in the end Mr Squires never sought and Mr McKenzie never offered such monthly payment). The result was that whilst McKenzie had the use of the car and was its registered keeper the “financial interest” belonged to Mr Squires/Grimston.

I do not accept this explanation. First, I consider it inherently more probable (having regard to the other outright gifts made by Mr Squires/Grimston and having regard to the fact that Mr McKenzie was the registered keeper of the Audi and insured it in his own name) that an outright gift rather than a loan of the car was intended. Second, when (in consequence of a Freezing Order obtained by National Grid) Mr McKenzie was required to state his assets he included the Audi, swearing that he owned the vehicle and that there was no outstanding finance. I have reached my conclusion without reliance on the fact that the car was “debadged” or Mr Inglehearn’s recollection. Debadging a car of course indicates a desire to conceal its specification, but says nothing about the motive for concealment (which I decline to infer must be dishonest). In Mr Inglehearn’s evident desire to exculpate himself I do not feel able to rely on his recollection.

In September 2004 a Dell computer was supplied to and installed at Mr McKenzie’s house at Goole at a total cost of £1,708. The costs of supply and installation were initially borne by Rigout, but in their defence Rigout and Mr Good asserted that that cost was reimbursed by Mr Squires/Grimston. Mr Good did not, of course, give evidence at trial: but Mr McKenzie told me that the Rigout Defence was accurate. He said that the computer had been supplied for his children by Mr Squires, and that he did not regret accepting the gift (although he now acknowledged that he ought to have disclosed it to his line managers). I find that Mr Squires/Grimston effectively gave £1,708 to Mr McKenzie in September 2004.

In August and September 2005 Mr McKenzie had a patio (including a gazebo) built at his Goole house at a total cost of £23,000. It was National Grid’s case that this constituted another corrupt payment to McKenzie. It was common ground between National Grid and Mr McKenzie that the builder who undertook the work had been introduced to him by Ivan Stewart, an employee of Interserve. National Grid asserted that there was an agreement between Mr Stewart and Mr McKenzie that the cost of plant and materials for carrying out the building of the patio at Mr McKenzie’s home should be covertly charged to National Grid under the guise of variations on the project at Shelford Quarry. The basis for this was two e-mails sent by Mr Stewart internally within Interserve saying that certain costs “plus all plant and materials at [Mr McKenzie’s] house” should be included in variations on the Shelford Quarry project.

Mr McKenzie’s case and evidence (before and at trial) was that he had paid the builder in cash for the work undertaken in August and September on Friday on a weekly basis: and he identified the relevant cash withdrawals. This was eventually accepted by National Grid to be the case. But the documents disclosed that certain machinery and materials had been supplied by Interserve ie by someone other than the builder paid in cash. Mr McKenzie’s evidence was that he knew that one lorry load of sub-base material had been supplied by Interserve, because it was redundant material of which he took advantage in exchange for some topsoil from his garden. But he denied knowing anything about the provision of plant or other materials, saying that he thought he was paying the builder in cash for that plus his labour (though he now accepted that matters were not as he thought at the time).

National Grid sought to discredit this evidence by establishing a close connection between Mr Stewart and Mr McKenzie, including an allegation that Mr McKenzie had forged the signature of a purported employee of Mr Stewart’s private company. The purpose of this was to invite me to infer that everything that Mr Stewart did, Mr McKenzie must have known.

In my judgment the case about the patio is the product of suspicion and assertion. There is no evidence of genuine quality to found a finding that Mr McKenzie knowingly received from Interserve the benefit of the supply of plant and materials for the building of his patio (apart from his admitted knowledge of the receipt of a lorry load of sub-base material in exchange for a lorry load of top soil). This claim for £7,688 fails.

National Grid contended that Mr Squires had paid for the flight and hotel expenses of Mr McKenzie and his family for Christmas holidays in 2004 and 2005. Mr McKenzie accepted that Mr Squires had initially paid for the flights for the 2004 holiday but alleged that he had repaid a total sum of £5,200 in two batches of payments in February 2005 and August 2005. Neither in his Defence nor in his witness statement did he address the 2004 hotel payments. Both in his Defence and in his witness statement Mr McKenzie alleged that he paid for all costs associated with the holiday at Christmas 2005.

National Grid did not have to prove that the 2004 flights were paid for by Mr Squires because Mr McKenzie accepted that this was so. I do not accept Mr McKenzie’s evidence that he reimbursed this expense. Reliable documents establish that the holiday lasted from 15 December 2004 until 4 January 2005. The flights would therefore have been booked by Mr Squires shortly before 15 December 2004. On 16 December 2004 Mr Squires/Grimston paid into Mr McKenzie’s Jersey account £20,000. I regard it as inherently improbable that Mr Squires should purchase air tickets on the basis that Mr McKenzie would reimburse him for them and then within a matter of days make a gift of £20,000. Nor do I accept that the two batches of payments in 2005 which constitute the alleged reimbursement are any such thing. They are simply round sum cash withdrawals (in fact made out of further gifts made by Mr Squires/Grimston and credited to Mr McKenzie’s Jersey account). I again regard as inherently improbable the idea that Mr Squires/Grimston should make large cash gifts which were to be utilised in part by repaying in dribs and drabs the cost of air tickets purchased months earlier. Mr McKenzie proffered no convincing explanation. I find that McKenzie received from Mr Squires £5,200 in respect of flights to Thailand at Christmas 2004.

National Grid led no credible evidence that Mr Squires in addition paid any hotel expenses in 2004. What National Grid did was to put to Mr McKenzie the accusations of Ms Bishop (the whistle blower whom they did not call) as to what she had been told. Mr McKenzie’s denial is the only proper evidence before me: and I accept it.

It was common ground before me that the cost of the flights for the Christmas 2005 holiday totalled £5,308 and was paid out of the joint bank account of Mr McKenzie and his wife in October 2005. It was National Grid’s case that this debit was covered by a credit made on 7 December 2005 from Mr Squires. This case is founded upon suspicion and assertion, but not on evidence (even if the suspicion is described as “inference”). There is no reason to connect the October debit with the December credit in an active current account. An examination of the bank statements suggests that the only sound inference is that the £5,000 credit was used in part to transfer £4,000 to a credit card (whether to reduce an outstanding debit balance on the credit card or to pre-load it with a credit for holiday expenses being a matter of pure speculation). The £5,000 credit to Mr McKenzie’s account cannot in fact be matched to any debit in Mr Squires/Grimston’s disclosed banking documents. Mr McKenzie’s surprising inability to remember the source of so large a payment from a third party is not itself evidence that it came from Mr Squires.

I therefore find only that Mr Squires paid Mr McKenzie £5,200 towards the expenses of the holiday in Thailand in 2004.

I therefore find that Mr McKenzie has received from Grimston payments totalling £126,908 and a car costing £34,495.. These payments were received by virtue of his employment but in dereliction of his duty. I hold that these secret payments were bribes paid by Mr Squires/Grimston (then a supplier of labour used on National Grid projects under Mr McKenzie's supervision as project engineer) to Mr McKenzie (the employee and agent of National Grid and undoubtedly a fiduciary in the loose or comprehensive sense that that word is used in connection with bribery): see Boston Deep Sea Fishing v Ansell (1888) 29 ChD 339 at 357 per Cotton LJ and Anangel v IHHI [1990] 1 Ll Rep 167 at 171. There is no doubt that National Grid is entitled to claim from Mr McKenzie the amount of the bribes (Reading v Attorney General [1951] AC 507). It is not suggested that in this case it is necessary to examine whether that recovery is by way of damages for presumed loss in tort (Hovenden v Millhoff (1900) 83 LT 41) or equitable compensation for breach of fiduciary duty or by way of restitutionary claim (Virgo “Restitution” 2^nd ed. ch.18) or by way of constructive trust (A-G of Hong Kong v Reid [1994] 1AC 324).

But there is equally no doubt that as an alternative National Grid may proceed against Mr Mackenzie and seek to recover damages for fraud in respect of the actual loss which they sustained: Mahesan v Malaysia Housing Society [1979] AC 374. Such an election does not have to be made until after judgement has been delivered; but National Grid at trial indicated that this was the course it intended to pursue. It is therefore necessary to examine in connection with what contracts the payments by Grimston were made and to assess the losses which National Grid has suffered by reason of acts in connection with which the payments were made.

I find that the payments were probably made in connection with contracts for the provision of labour by Mr Squires and by other Grimston personnel.

It is common ground that between May 2002 and February 2006 Mr Squires was paid by National Grid as a sub-contracted operative. The means by which this was achieved is also not in dispute. The actual supplier to National Grid was Spring Connect Ltd (National Grid’s nominated personnel provider, with whom it had established invoicing and billing procedures). Spring did not contract directly with Mr Squires. Mr Squires’s labour was provided through Grimston (as his services company) to Rigout, and Rigout contracted for the supply of those services with Spring. The complete contractual chain was thus: Mr Squires - Grimston – Rigout – Spring – National Grid. It is also common ground that Rigout rendered invoices to the value of £506,141.50 to Spring in respect of services allegedly provided by Mr Squires, which invoices were supported by time sheets. The case advanced in the pleadings was that these time sheets were grossly inflated. The nature of the case advanced in support of the allegation of gross inflation was (a) that for any given period the number of hours worked was improbably large; (b) that he had charged for days worked when it could be demonstrated that he was outside the United Kingdom; (c) that Rigout had charged both National Grid and Rapid Rail for the same days worked by Mr Squires. But at trial a rather more radical case was advanced. This was that from the outset the whole employment of Mr Squires was improper and was in effect a scheme by Mr McKenzie to pay his close friend Mr Squires for doing nothing. Since the material deployed in pursuing this more radical case has an impact upon the assessment of the pleaded case I will begin by addressing these more fundamental questions.

First, it was suggested that there was no need for Mr McKenzie to engage Mr Squires to work for National Grid at all, and that the whole arrangement was simply a favour for a friend. The twin bases of this argument were (a) a submission that there was unchallenged evidence from Mr Bryant that any work should have been done by internal National Grid employees and (b) Mr McKenzie’s acknowledgment that the arrangement came about because of “nepotism”. Neither is a proper foundation for the argument. Mr Bryant’s evidence appeared to be directed to one particular task which Mr Squires undertook. The established arrangements with Spring demonstrate that operational (as opposed to administrative) staff were regularly recruited on sub-contract basis, and examples of this emerged (often in other contexts) during the course of the trial. One example was Mr Turner, a former employee of Interserve who performed the role of a project engineer for National Grid on a sub-contract basis through Spring: likewise a Mr John Eaton, who appeared to discharge the role of site engineer. So also supervisors and linesmen (to whom I will refer later). The suggestion that National Grid did not need to engage people like Mr Squires on a sub-contract basis does not withstand scrutiny. Indeed, Mr Hill acknowledged in an e-mail to Mr Inglehearn in 2007 (after this action had commenced) that he was aware that Mr Squires had been engaged to sort out problems relating to Rapid Rail contracts in South Wales where the sheer volume of work and difficulties occasioned by the engagement of two contractors to deal with the supplier had necessitated additional skilled help.

Nor does the suggestion that the arrangement owes everything to “nepotism”. Mr McKenzie explained (and I accept) that he did not mean by this that he was doing favours for anyone: only that within the industry there were strong family and gang working connections. Mr Bryant (on whom National Grid principally relied) did exactly the same. There was disclosed (though not originally included in the trial bundle) an e-mail from Bill Wrigley in Australia to Mr Bryant in February 2005 in which Mr Wrigley said:-

“I have started to think about what I need to do re work and besides my contract which I assume you are looking at you need to let me know how you want to play it…I think it would be politic to talk to [Mr McKenzie] as it is his contract and also we need to talk as from your last e-mail the scope of my job is widening…”.

National Grid do not say that Mr Bryant’s engagement of Mr Wrigley was a cosy arrangement between friends to provide employment for an out of work engineer returning to this country, which work was not really needed: they call him as witness to say how improperly Mr McKenzie acted. I see what Mr Bryant was doing in relation to Mr Wrigley as an example of the way site engineers or project engineers recruited skilled labour when required from sources known to them. And I view Mr McKenzie’s engagement of Mr Squires in the same light.

It was next suggested that Mr Squires had done no real work for National Grid. Recognising the difficulties which face a party who seeks to establish a negative, it is nonetheless my judgment that this submission cannot be made out. First, during the course of Mr Squires’s engagement his presence was known to and discussed by senior team members such as Mr Inglehearn and Mr Hill. Mr Bryant’s evidence on behalf of National Grid was that he had discussed Mr Squires with Mr Inglehearn on several occasions (which neither he nor Mr Inglehearn could identify). From the tenor of Mr Bryant’s evidence it may be assumed that the subject of discussion was what Mr Squires was doing (and whether that task could be undertaken by Engineering Services within National Grid). It seems inconceivable that, the issue having been directly raised, Mr Squires could continue to be engaged if he was in fact doing nothing. Moreover Mr McKenzie said in evidence (and it was not demonstrated that he was wrong) that there were no less than 47 e-mails passing between Mr Hill (the Procurement Officer) and Rigout and Spring concerning Mr Squires’s engagement: it seems inconceivable that with that degree of correspondence Mr Squires could in fact be engaged to do nothing.

The original and the continued engagement of Mr Squires was not a secret deal between Mr McKenzie and Mr Squires. The original proposal was (in March 2002) the subject of analysis and negotiation by Mr Hill with Spring. It led to a purchase order for the provision of Mr Squires’s services on the A130 Rayleigh bypass (where the project manager was Mr Mercer, where the project manager’s authority to countersign the purchase order was exercised by Mr Bryant, where the purchase order was countersigned by the requisite finance officer and the purchase order itself approved by Mr Hill (following his discussions with Spring)). The purpose of the engagement was stated to be “the provision of the services of Mr Mick Squires as site supervisor from 8 April until 30 June 2002”. Mr Mercer would not have authorised signature of the purchase order if those services were not required. The finance officer would not have countersigned the purchase order if the costs could not be accommodated within the project budget. Mr Hill would not have countersigned the order unless he was satisfied that its terms could be justified. The A130 site was difficult. The site was shared with another contractor (the one building the bypass). The circuit on which the work was being done was on which there could only be limited “outage” because of the impact on Bradwell nuclear power station of de-energising the circuit. I see no reason to reject Mr McKenzie’s evidence that these factors meant that additional site supervision and emergency response oversight was required. I do not accept that all the National Grid departments that processed the purchase order were duped into engaging Mr Squires for a job that did not exist.

That initial purchase order appears to have been extended whilst the work on the A130 continued, Mr Hill being directly consulted in relation to the invoices for June and July 2002. (In fact documents produced by Rigout on disclosure and referred to at the trial before me suggest that the contract was for six months).

The next contract that I can identify is one for a further six months from February 2003. This was the subject of an e-mail from Mr McKenzie to Mr Hill containing the assertion that the contract had been approved by Mr Bryant. In his evidence Mr Bryant had no recollection of having given such approval: but I consider that the e-mail probably represents the truth since it would have been a high risk strategy for Mr McKenzie to make a false statement that could be so readily checked. Moreover Mr Bryant told me that he discussed Mr Squires’s employment with Mr Inglehearn: and Mr Inglehearn told me that he had a recollection of having approved the engagement of Mr Squires to do wayleave work on the Indian Queens line in March 2003. So I would again find that this was not a cosy arrangement to engage Mr Squires to do a job that did not exist.

It is not possible to scrutinise in the same way each purchase order for each period of Mr Squires’s engagement. But to his Defence Mr McKenzie annexed a schedule which he described as a “high level diary” identifying the projects on which Mr Squires was engaged and describing in general terms his role in each. There is force in Mr Phillips QC’s submission that the descriptions are somewhat vague, and he was able to demonstrate in his cross examination of Mr McKenzie could not in every case remember exactly what it was that Mr Squires was doing at any particular location. But Mr McKenzie had been careful to include on his schedule contact details for the main contractor on each site and for National Grid’s site representative at each site. National Grid therefore had full opportunity, if they wished to advance an affirmative case that Mr Squires did no work, to investigate and adduce evidence in support of such a case. No such evidence was adduced. Indeed of the identified site managers who were called to give evidence Mr Griggs confirmed that Mr Squires worked on the Mannington line: and it was the evidence of Mr Bryant that Mr Squires was present on the projects for which he was responsible, and that he objected and succeeded in having Mr Squires removed temporarily.

On this material I reject National Grid’s case that the engagement of Mr Squires was wrongful from the outset, resulted purely from arrangements made between Mr McKenzie and Mr Squires, that Mr Squires did no real work and that what he did do could and should have been done by National Grid employees so that the whole of the £506,000 that has been paid to him was paid for nothing. But this was a late way of putting the case. The case as pleaded was that the £506,000 included grossly inflated charges. In my judgment that case substantially succeeds.

It is not possible for National Grid to criticise the essential terms of Mr Squires’s engagement. The job for which he was originally engaged was identified and the amounts that National Grid was prepared to pay (as to basic rate, benefits and allowances) were the subject of specific negotiation by Mr Hill with Spring on initial engagement, and subjected to further consideration on first renewal). But two specific terms require further comment.

First, holiday entitlement. When Rigout offered Mr Squires to Spring their quoted rate was £36.50 per hour “which shall include holiday entitlement of two paid weeks per year”. After negotiation by Mr Hill National Grid’s purchase order specified a rate of £36.50 per hour and noted:-

“This rate includes administration fee and two weeks holiday entitlement”.

As I have indicated the initial contract period is not entirely clear: some documents suggest that it was from April 2002 until the completion of the A130 Bypass project: others that it may have been a six month contract. For present purposes the difference is immaterial: the key point is that the contract was not for a year. In that context there was a dispute at trial between National Grid and Mr McKenzie as to what the holiday entitlement provision meant. Mr McKenzie says that the arrangement was that Mick Squires could take two weeks holiday per year for which he would be paid at the specified rate (even though he was not working). Mr Phillips QC argued that an hourly rate which was stated to include two weeks holiday entitlement meant that the rate that National Grid was paying Spring was at such a level that it enabled Spring or its supplier to afford the operative two weeks paid holiday ie during which he would continue to be paid by Spring even though Spring was not rendering invoices to National Grid because the operative was not working. I accept the construction put forward by Mr Phillips. The consequence is that if Mr Squires was on holiday (and not on site for National Grid) Spring could not invoice National Grid. On the contractual chain I have described, Spring was simply an administrator of the personnel supply contract: so it may be taken that the same term was incorporated into Rigout’s supply contract. The short point is that Mr Squires was not entitled to claim that National Grid should pay him whilst he was on holiday.

The second point concerns overnight allowances. In his quotation for the supply of Mr Squires’s services Rigout had specified:-

“He shall receive overnight lodge allowance of £50 per night or £350 per week”.

When (after negotiation) Mr Hill signed off the purchase order he approved payment of (overnight allowance £50 per night). An allowance is generally a fixed periodic payment against a known variable expense. If an employee is entitled to a car allowance of £100 per month it is not normally contemplated that he must produce vouchers to support expenditure in that sum for that month, and that if he produces vouchers for £50 in April that is all he receives, and that if he spends £150 in May he only receives £100. But the term “allowance” might in some contexts mean “expenses up to [the stated amount]”. On the purchase order requisition signed by Mr Hill the £50 per night appears simply as an “allowance”. But on the purchase order itself (also signed by him) it appears as:-

“Overnight allowance…subject to expense receipts”.

The confusion was identified by the beginning of July 2002 when Rigout submitted invoices with unsubstantiated claims for £50 per night allowance whereas Mr Hill was expecting the invoiced claim reimbursement of expenses. The solution reached was that until the end of June 2002 Mr Squires should be entitled to claim a £50 per night allowance, but from the beginning of July he would have to claim expenses supported by receipts up to a maximum of £50 per night. The was confirmed in an e-mail from Mr Hill to Spring that was copied to Mr McKenzie. Mr McKenzie suggested that he may not have been aware of the contents of this e-mail because he “spammed” copy e-mails. But I reject this explanation (a) because Mr Phillips QC’s cross examination demonstrated that Mr McKenzie did not routinely “spam” copy e-mails: and (b) it is apparent that Rigout was informed by Spring of the new arrangements and immediately contacted Mr McKenzie with a request that Spring should be reminded of the original arrangement. I therefore find that from the beginning of July 2002 Mr Squires was only entitled to vouched expenses and that Mr McKenzie knew this to be the case.

The third matter relates to vehicle allowance. Rigout’s original quotation had provided for the payment of £300 per week as a vehicle allowance to cover Mr Squires using his own 4x4 vehicle as a site vehicle. The purchase order requisition signed by Mr Hill authorised the payment of £300 per week in respect of the provision of a 4x4 site vehicle. The purchase order delivered to Spring ordered the provision of a 4x4 site vehicle for £300 per week. It is in my judgment clear that that allowance was only to be paid for weeks during which Mr Squires worked: that is plainly the context in which the payment was sought by Rigout: and it is a fair reading of the purchase order itself. Mr McKenzie was disposed to argue that the £300 per week could be claimed by Mr Squires for every week during his period of engagement (whether he actually worked it or not) because he needed to maintain and fund the depreciation of his vehicle whether he worked or not: but in my judgment that is not what the agreement between National Grid and Spring (or between Spring and Rigout) provided for.

Having disposed of those three issues I can turn to the heart of the debate. Each request for payment directed to Spring by Rigout had to be supported by a time sheet showing the number of hours worked by Mr Squires. Those time sheets were signed off by Mr McKenzie as the project engineer. Mr McKenzie accepted in cross examination that it was his duty as project engineer (a) to ensure that Mr Squires’s employment was for the benefit of National Grid; (b) to satisfy himself that the time sheet accurately recorded the number of hours Mr Squires worked; and (c) that Mr Squires was only paid for the hours he did work. Mr McKenzie was not brow beaten into making these acknowledgments: and I accept them as an accurate summary of his duty.

National Grid then sought to establish that Mr Squires’s time sheets as signed off by Mr McKenzie were from April 2002 works of pure fiction. There were two prongs to the attack. The first was that Mr McKenzie had admitted to creating time sheets: the second was that the time sheets were on their face (having regard to the daily hours worked and the periods for which those daily hours were maintained) wholly incredible.

I was not assisted by pursuit of the case that Mr McKenzie admitted fictionalising time sheets. It was yet another example of National Grid’s endeavour to extract every adverse interpretation out of every event or statement (however minor). On 16 May 2005 Mr Read (then engaged on behalf of National Grid to scrutinise costs being incurred in South Wales) e-mailed Mr McKenzie to alert him to a potential overcharge by the main contractor in relation to design costs. In passing he said:-

“They will no doubt produce time sheets to justify the times, but we’ve experienced the creative accounting of [design office] time sheets in the past from the other side of the fence”.

That was a reference to a time when both Mr Read and Mr McKenzie had worked for that main contractor. In those days if their manager had asked them to produce a time sheet showing design costs valued at £60,000 then, Mr McKenzie said, that is what you did: and he acknowledged that in one sense that was fraudulent. (He wanted to qualify that answer when he came to re-examine himself: though he in fact forgot to do so). This passing reference in an e-mail (and the incident to which it refers) will not bear the weight put upon it by National Grid. Just because Mr McKenzie did what he was told as an employee does not mean that as a project engineer he will embark on the creation of fictionalised time sheets.

Nor do I consider it possible to conclude that the daily hours worked and the periods for which they were worked themselves demonstrate that the time sheets are fictionalised. I will have cause to examine this argument in another context, and will then examine the relevant material. For the present I record that that material persuades me to the same conclusion in relation to Mr Squires’s time sheets.

I therefore do not approach Mr Squires’s time sheets on the footing that they are admitted fabrications so that there is simply no record of the hours actually worked by Mr Squires (if he worked any) – the approach I was invited to adopt by National Grid. I approach the time sheets on the footing that they probably contain a kernel of truth (since the contracts themselves were openly entered into and the presence of Mr Squires was common knowledge within the management team from Mr Inglehearn downwards): but that given Mr McKenzie’s admittedly central role in the verification of the time sheets and the fact that at this time Mr Squires/Grimston were making generous gifts to Mr McKenzie, there is a very real possibility that they are in some respects falsified. That, in fact, is what Mr Phillips QC has succeeded in establishing.

The methodology employed was to take each time sheet for Mr Squires that had been signed off by Mr McKenzie, and then to cross reference the data for each day with material available in the disclosure of other parties, and from that comparison to draw inferences as to the reliability of the entries on the time sheet. The thoroughness with which the task was undertaken means that I can express my findings quite shortly. Of necessity this process involved putting to Mr McKenzie isolated facts drawn from documents scattered amongst the sixty plus trial bundles, facts in respect of which no coherent hearsay notice had been given. I kept under constant review whether this process was fair to Mr McKenzie – for example, whether it unfairly deprived him of the opportunity to challenge inferences that I was being invited to draw. For example, on 6 and 7 June 2002 the time sheets for Mr Squires claimed that he worked eight hours on each day. But his bank statements appear to show that he made on-board ferry purchases on 6 and 12 June (but no English transactions). I was invited to conclude that Mr Squires could not have been both working at Rayleigh and on a ferry bound for Belgium (where he had a house). Such a conclusion assumes that Mr Squires had only one card that could operate his bank account, and that it was he who made the on board purchases. But I am satisfied that National Grid’s case had been pleaded with sufficient particularity (see paragraph 28B of and schedule 2 to the Particulars of Claim) to enable Mr McKenzie to know in advance the material that would be deployed and to prepare to answer it. It remained open to him at trial to call Mr Squires. I am therefore satisfied that I can fairly reach the following conclusions.

First, Mr McKenzie routinely (and by arrangement with Mr Squires) overcharged Spring (and ultimately National Grid) by two hours per day from the beginning of July 2002. He admitted doing so. His justification was that he considered it wrong that Mr Hill should deprive Mr Squires of his £50 per night “allowance” by requiring the production of receipts (which would always be difficult to obtain and sometimes impossible – if, for example, Mr Squires informally moved in with somebody). This does not provide a justification in law for the deliberate and deceitful overcharge of two hours per day. Mr McKenzie submitted that if I was to award damages because he had added an extra two hours per day then I ought to reduce those damages to take into account the likelihood of Mr Squires claiming his £50 per day overnight expenses allowance and justifying it by the production of receipts. This submission sits uneasily for the supposed justification for the arrangement itself (namely the difficulty of producing receipts). Mr McKenzie adduced no evidence as to how, in fact, the nightly allowance might have been claimed and he did not direct my attention to any material in the trial bundle to demonstrate that anyone had, in fact, successfully claimed expenses. In the circumstances I am satisfied that National Grid has established, on the balance of probabilities, that it suffered a loss (caused by Mr McKenzie’s breach of contract or deceit) of £73 for each day that Mr Squires may properly be regarded as having worked.

Second, I find that the time sheets record Mr Squires as having worked on days upon which, on the balance of probabilities, he cannot have been available to work for National Grid.

(a)

It was proved to my satisfaction that there were 16 days (totalling 171 hours) in 2002 where Mr Squires was probably outside the UK. This was demonstrated by travel related purchases and a break in Mr Squires’s almost invariable pattern of making daily cash withdrawals from ATMs in this country. No specific answer was proffered by Mr McKenzie in his Defence: but in his evidence he treated this period as covered by his general explanation that Mr Squires was entitled to paid holiday. It was unclear from Mr McKenzie’s evidence whether he was thereby acknowledging that the entries were specifically approved by him notwithstanding that he knew of Mr Squires’s absence: or whether he was saying that he was ignorant of Mr Squires’s absence but that Mr Squires was in any event justified in submitting the time sheet. Mr McKenzie’s evidence was that Mr Squires reported to him on a regular basis, the frequency depending on site activities: so that sometime there would be several telephone conversations in a day and at other times conversations every two or three days. I regard it as unlikely that Mr Squires’s absence would have gone un-remarked in course of such frequent contact: and I consider it probable that at the time when Mr McKenzie signed off the relevant time sheets he knew that they included an arbitrary number of hours which Mr Squires had not worked.

(b)

I am satisfied that in the first half of 2003 Mr Squires claimed for 28 days (a total of 310 hours). This included a period of a week during which Mr Squires was in South Africa (where he had a house). For reasons previously given I consider it likely that Mr McKenzie was aware of this absence at the time when he signed off the relevant time sheet. Mr McKenzie suggested that the period in South Africa represented Mr Squires’s holiday entitlement. I have held that upon the true construction of the contracts between Rigout and Spring and between Spring and National Grid Rigout was not entitled to charge National Grid for holidays taken by Mr Squires. That cost fell to be absorbed by Rigout (whose hourly rate charged to Spring was meant to take account of that liability). I have carefully considered whether it might be the case that Mr McKenzie genuinely misunderstood the contractual provision. I have reached the clear view that such a finding would not be justified by the evidence. First, if a notional charge is being made for a day on which Mr Squires was on holiday one would expect that daily charge to be standard throughout the holiday period. On the time sheets they actually vary. Second, if the charge is a notional one it is to be expected that it would not include the two hours “overnight allowance” (for the overnight allowance would be unnecessary when Mr Squires was on holiday). On the relevant time sheets the additional two hours is plainly charged. I consider Mr McKenzie knew exactly what he was doing. He was enabling Rigout to charge Spring (and Spring to charge National Grid) in respect of hours which Mr Squires did not work.

(c)

In the second half of 2003 and into January 2004 there are 78 days (totalling 704 hours) ( in two blocks of 35 and 43 days respectively) when Mr Squires was in South Africa. The time sheets are generally completed in the handwriting of Mr McKenzie (and, interestingly, include a charge for 10 hours on 31 November). Some of the time sheets are standardised (in that they claim a constant number of hours per day). Some of them do not charge for weekend work (but others do). It is plain that McKenzie must have been aware of the absence of Mr Squires for such extended periods. It is plain that Mr McKenzie must have known exactly what he was doing when he completed the number of hours on each time sheet and signed it off. Mr McKenzie offered two explanations for his conduct. First, in his Defence Mr McKenzie asserted that “an agreement was made that allowed Mr Squires to take extended leave in lieu of paid holiday entitlement for the previous year and for the following year due to an unexpected delay in the contract work”. So far as I could gather, the “unexpected delay” was a reference to the period when Mr Bryant had objected to the presence of Mr Squires on those projects that were being managed by Mr Bryant: and the “agreement” was one made between Mr McKenzie and Mr Squires, though Mr McKenzie’s authority to vary a subsisting contract in this way was never established. Secondly, in oral evidence Mr McKenzie said that he had, in the light of Mr Bryant’s objections to Mr Squires, agreed with Mr Inglehearn to put Mr Squires on “standby” in a “low key” way. It was objected that this suggestion had not been put to Mr Inglehearn: I have sympathy with Mr McKenzie’s response that it was pointless because Mr Inglehearn professed to remember nothing. Nonetheless I do not think either explanation withstands scrutiny. The whole point of employing staff through Spring was that it facilitated a flexible labour force who could be laid off and brought on stream as the workload required. The idea that Mr McKenzie had authority to arrange (or that Mr Inglehearn permitted) the retention of Mr Squires on full pay (including, amazingly, overtime) for an extended period when his services were not required defies belief. Again I consider Mr McKenzie knew exactly what he was doing.

(d)

In 2004 (and into early 2005) there were a further 27 days (327 hours) of absences demonstrable in the same way, in respect of which the same justifications were advanced, and of which I take the same view.

(e)

In the remainder of 2005 (up to August) there were a further 25 days (250 hours) of similar absences. Some of these instances were not directly put to Mr McKenzie in cross examination, but I do not think it unfair to reach conclusions upon them since, having considered them, there are in all material respects identical to those instances that were put. I would make the same finding upon them.

It is therefore proved by detailed evidence that there is an overcharge of at least 1,822 hours in respect of occasions when Mr Squires was outside the UK. This included extended periods of absence during which the £300 per week vehicle allowance was being charged. Looking at the matter most favourably to Mr McKenzie there are, I think, at least 21 occasions when such a charge was made without justification.

Not content with this National Grid embarked upon a similar exercise in an endeavour to demonstrate that there were occasions where Mr Squires could not have been at the site referred to in Mr McKenzie’s high level diary because he was recorded as attending a meeting (or conducting a banking transaction) somewhere else in the country. The inferences here, however, were weaker and Mr McKenzie’s evidence carried greater conviction. So, for example, although Mr Squires’s engagement might have been on the Mannington line, Mr Squires might have had to travel to Yorkshire to collect drawings or to a National Grid depot to collect parts. Moreover, some of the material on which National Grid relied for its criticism was less secure than, for example, Mr Squires’s passport entries. Thus, there was extensive debate about the precise weekend on which a test tower for the Rigout Uniline FAS system was erected, and whether Mr Squires had purported to charge National Grid for the time spent: a debate to which seemed to me inconclusive. Without shirking the burden of deciding sundry detailed issues in this category I consider that a fair disposal can be achieved by finding (as I do) that it is likely that the approach which Mr Squires and Mr McKenzie adopted in relation to absences abroad will have infected the assessment of time spent within England and Wales, and that this likelihood is best reflected by adjusting the charge made for days actually worked: for roughly one in seven (say 15%) were spent otherwise than on work properly chargeable to National Grid.

To that overall approach I would make one further adjustment. From March 2005 until October 2005 Rigout rendered invoices totalling £118,320 in respect of Mr Squires’s services. (I would ignore, as over refinement in the assessment process, the fact that these invoices include an additional two hours per day). My 15% adjustment for this period would reduce the chargeable invoices by £18,000. But it is demonstrable that for this period Rigout (whist charging National Grid for Mr Squires’s services) was also charging Rapid Rail for Mr Squires’s services, total invoices of approximately £28,000 being rendered. Mr McKenzie attempted to persuade me that Mr Squires could faithfully discharge his duties to both employers and give each full value. He said that the work for Rapid Rail was probably “specifying”, a desk job done on the drawings. But the invoices were rendered for “surveying installations” that had been completed by other gangs. This is not a desk job done in his own time, but a job that overlapped with what he was doing for National Grid. He obviously spent time worth £28,000 doing work for Rapid Rail and that time was being paid for by National Grid. So I would add an additional £10,000 to the allowance of 15%.

82.

On this evidence I hold that in breach of his contractual obligation to act competently and honestly in the approval of the time sheets presented by Rigout in respect of work done by Mr Squires, Mr McKenzie approved time sheets for hours worked and allowances claimed which were not properly chargeable by Rigout. I hold that he did so deceitfully, because he knew that the time sheets were not accurate. I do not consider that in the approach to assessing damages there are, on the facts found, any significant difference in outcome by applying the differing rules on causation, remoteness or measure of damage in contract and deceit. In a case such as this precision is impossible. National Grid must prove its loss, but must do so against someone who by definition has not acted openly. It would therefore be unfair to be over exacting in examining the extent to which that burden has been discharged. On the other hand, the damages are compensatory, and the object of their award is not to punish Mr McKenzie. I consider that damages in the sum £182,500 fairly represents that part of the total charges of £506,000 rendered to National Grid for the services of Mr Squires which were wrongfully charged. Whilst I award the figure as an entire sum I have reached it having regard to the following general assessments. A sum of £50,000 in respect of the two hour overcharge for each day actually worked. A sum of £66,500 in respect of days charged where it is demonstrable that Mr Squires was outside the UK. A sum of £7,500 in respect of overcharged vehicle allowances for weeks when Mr Squires did not work. A sum of £57,500 in respect of the hours (reduced by the deduction for overnight allowance) actually worked (taking into account of absences abroad) when Mr Squires was about his own business or not attending on site. A sum of £10,000 for that period when National Grid was charged for Mr Squires’s attention to the business of Rapid Rail.

The Grimston contracts

83.

In May 2003 National Grid began to engage other Grimston employees in the same manner as they engaged Mr Squires. The basic arrangements were not in dispute: I will not therefore recount them but will focus on the areas of contention. The same case was advanced in relation to the Grimston personnel as was advanced in relation to Mr Squires namely that the amount invoiced by Rigout to Spring (and paid by National Grid) totalling £1,101,650 was “grossly inflated”. This general charge broke down into a number of separate arguments.

84.

First, it was alleged that one of the seven employees (Dave Mansfield) was entirely fictitious, and a phantom employee. The evidence relied on in support of this allegation was (a) that all of Mr Mansfield’s time sheets were completed by Mr McKenzie (who then signed them off): and (b) that there was no evidence in the Grimston bank account of any payment to a D. Mansfield out of the sums paid by Rigout (deriving from National Grid through Spring) to Grimston in respect of the provision of its personnel. From this I was invited to draw the inference that Dave Mansfield did not exist. The evidence in answer was the bare assertion by Mr McKenzie that Dave Mansfield did exist, that the reason why the time sheets were in Mr McKenzie’s hand was because Mr McKenzie had begun helping Mr Mansfield with paperwork and had simply carried on doing so, and that the probable explanation for the absence of payments to Mr Mansfield from Grimston’s bank account is that he was paid in cash or from another account. Quite apart from calling Dave Mansfield himself, Mr McKenzie could have supported his evidence by calling Mr John Hancock (in respect of whose evidence he had served a witness summary) with whom Mr McKenzie said he had conversations about Dave Mansfield’s hours. As it was, the only support for Mr McKenzie’s oral testimony was to be found in a statement in Mr Squires’s Defence in which he asserted that Dave Mansfield had been paid in cash. (Mr Squires, of course, did not attend trial to verify this statement, having settled with National Grid). On this state of the evidence I consider that the inferences I am invited to draw from the documents (supported by the adverse inference which it is proper to draw from the failure to call Mr Hancock and, to a lesser extent, Mr Squires) are more compelling and more reliable than the direct testimony of Mr McKenzie (whom I have found has lied to me when it suits his purposes). I therefore find that the Grimston personnel invoices were inflated by the sums charged in respect of Dave Mansfield. I assess these in the sum of £39,000. (I note that the commencement of Dave Mansfield’s “engagement” coincides with the payment of regular bribes to Mr McKenzie by Mr Squires/Grimston).

85.

Second, it was argued that the sheer number of hours worked (and the restricted period within in which they were worked) of itself demonstrates that the time sheets must be fraudulent. I do not accept this submission for the following reasons:-

(a)

It was accepted by National Grid that (and it cross examined Mr McKenzie on the footing that) linesmen worked very intensively for a period and then took a holiday break: that concession reflects the picture painted in other evidence. (Of course National Grid argued that the time sheets showed that the Grimston personnel worked too intensively for too long).

(b)

National Grid particularised its pleaded case by reference to a schedule of continuous periods of work for “various Rigout employees” (meaning the Grimston personnel). One of the otherwise unremarkable lines on the schedule related to Alan Aldous. Alan Aldous was a tower painting contractor provided by Rigout to Eve (not National Grid). His time sheets would therefore have been approved by Eve staff (not Mr McKenzie). But the approved hours appear to be the same (which suggests that those submitted to National Grid were not obviously excessive).

(c)

In November 2004 the senior human resources business partner of National Grid considered an entirely open request by Mr McKenzie to increase the hourly rate paid to the Grimston personnel and to provide additional benefits. Mr McKenzie made no secret of the hours that the Grimston personnel were booking. Her enquiry was dealt with by Mr Mercer within National Grid. He considered the work they were undertaking and the rates they were charging. He considered the increased rates would be “in line with rates offered to other agency staff working on [overhead lines] and which procurement have reviewed”. He made absolutely no suggestion that the hours worked were excessive (and the HR Department must have satisfied itself that National Grid was not causing a breach of the working time directive).

(d)

On 6 February 2004 RJC (UK) Limited sent a quotation for the supply of painting supervisors in the Weymouth area; there is no evidence to suggest that this company was in league with Mr McKenzie. The offer was to supply painters “for £34 per man hour based on a minimum ten hour working day” with travel days charged for at £300 per man day. A ten hour day cannot therefore of itself be regarded as suspicious. (Incidentally, the offer required National Grid to supply vehicles and fuel cards to the workers engaged).

Third, National Grid submitted that I must regard the Grimston personnel time sheets as entirely unreliable because of the disparity between the amount that Rigout billed for the Grimston personnel (over one million pounds) and the amount it actually paid the Grimston personnel (some £600,000). It was argued that the fact that Rigout charged £405,000 more than the Grimston personnel received demonstrated that Rigout was charging for more hours than the Grimston personnel were expecting to be paid for. I also reject this submission. When labour is outsourced the provider obviously charges the client more than he pays the employee. I have no material upon which to assess whether the profit margin achieved by Grimston was so excessive as properly to found the inference that its achievement must involve some impropriety (such as charging unworked hours). This is particularly so when there is material which suggests that Grimston personnel were paid cash sums in addition to the amounts passing through Grimston’s cash account. (a) Mr McKenzie gave evidence that Mr Squires would fund the living expenses of Grimston personnel by cash payments whist they were on the job: and National Grid relies (for other purposes) on daily cash withdrawals by Mr Squires of significant sums. This evidence seemed to me entirely credible. (b) In another context entirely application of monies received by Grimston fell to be examined by Mr Greg Izatt of Rigout: he alludes to the possibility that Mr Squires is paying a cash bonus to the Grimston personnel. In these circumstances the disparity between receipts booked in and disbursements booked out does not of itself support the inference of wrongdoing as suggested. I approach the Grimston personnel time sheets on the footing that (Dave Mansfield’s entries apart) they are essentially correct, but alert to the possibility (based on Mr McKenzie’s behaviour in relation to Mr Squires’s time sheets and to significant payments by Mr Squires/Grimston) that the sheets have been falsified in particular respects.

Fourth, National Grid secured from Mr McKenzie the admission in cross examination that the daily charge for Grimston personnel includes two hours in respect of “overnight allowance”. It also secured the acknowledgment that the time sheets allow a travelling day at the beginning of each working spell. The contract under which Rigout supplied the Grimston personnel to Spring for use on National Grid projects was governed by Spring’s standard terms and conditions. These provided that travel time was the responsibility of Rigout (ie was not chargeable to Spring for transmission to National Grid). They also provided that expenses incurred were the responsibility of Rigout in the absence of any other provision. So far as I can ascertain each individual contract relating to each of the Grimston personnel provided that expenses claims had to be submitted and approved each week on the time sheets. It was not suggested by Mr McKenzie that the National Grid purchase order which produced those contracts contained terms to any different effect. Accordingly Rigout could not claim in respect of any of the Grimston personnel any travelling time: nor could Rigout claim to charge for overnight subsistence save by way of an expenses claim on the relevant time sheet. Mr McKenzie circumvented these restrictions by converting the claims into claims for hours worked. He did so on his own authority and without drawing it to the attention of Mr Hill. This was on its face a breach of his contractual duty only to approve time sheets which he believed to be accurate: and the fact that he knowingly approved inaccurate time sheets means that he did so deceitfully. I suspect that he did so not only to benefit Mr Squires, but partly because he knew that he was in practice necessary to fall in with the arrangement in order to get the job done. He told me that he knowingly charged more than the hours worked in winter because the winter working conditions on the exposed towers were so horrific that the men told him they would not do the job if their hours were cut. The terms on which RJC (UK) Limited was prepared to offer painters in February 2004 lends credibility to this evidence (though it falls short of establishing that this was the industry norm). Mr McKenzie could have run the argument (and adduced evidence to support it) that if he had in fact done what he ought to have done (and drawn to the attention of Mr Hill that he was circumventing the terms of the labour supply contract) that Mr Hill would have been driven to concede that some allowance had to be made. But this case was not put to National Grid: and the underlying material (Mr McKenzie’s direct evidence and a single quotation from another supplier) is not so strong that I think National Grid would be bound to concede it. I must decide the issue on the evidence actually adduced and the arguments actually canvassed. On that basis I am bound to find and hold that Mr McKenzie’s approval of these extra charges was wrongful, and that on the balance of probabilities National Grid has in consequence suffered the loss by being overcharged by that equivalent amount (without any reduction).

National Grid persisted in claiming the whole of the one million pounds paid to Grimston in respect of the Grimston personnel. This is not maintainable on the facts. The calculation of the true overcharge was not the subject of examination at trial: but early in the proceedings I required National Grid to state (for the benefit of Mr McKenzie and Mr Read) what, in pounds and pence, each of the plethora of claims advanced actually amounted to. In that statement National Grid valued the “overcharge” at £182,500. This seems to me to be broadly right and I assess damages in that sum.

Having undertaken the process of assessing the damages payable by Mr McKenzie I have tried to stand back and ask myself two questions. First, would I award a significantly different sum if I were to analyse the facts in terms of the manifold other causes of action advanced by National Grid (in particular, in terms of an “unlawful means conspiracy” where damages would be at large). I have concluded that I would not. It seems to me that the same fundamental principle of trying to compensate National Grid for the amount that they were wrongly charged by Rigout because of Mr McKenzie’s actions would still underlie the process of assessment: and I have not felt constricted by rules relating to causation, remoteness or measure of damages in the process of assessment such that I feel that there is some loss which the mainstream rules do not enable me to compensate National Grid for. I would hope that those having to plead and argue cases will resist the temptation to advance multiple analysis of the same facts in terms of differing causes of action unless it is anticipated to produce a significantly different outcome. Hearings will become unwieldy, judgments interminable and costs wholly disproportionate unless such a discipline is observed.

The second question I have asked is whether the damages look about right when compared with the amount of the connected bribes: and whilst the judgment cannot be anything other than purely subjective, I think they probably do.

A third question arises, to which it is not possible to give an answer without further submissions. That question is: how is the award of damages payable by Mr McKenzie to be related to the agreed settlement sums paid by Mr Squires/Grimston and by Rigout in respect of causes of action pursued against Mr McKenzie jointly with either or both of those paying parties? If the recoverable loss in respect of the Squires time sheets was £182,500 it would be wrong to order Mr McKenzie to pay that if Mr Squires has already paid it as part of the settlement. Equally it would be wrong to appropriate for this head of claim £182,500 of the Squires settlement figure if that settlement figure also related to a number of other heads of claim. This question was argued when I handed down judgement, and argued in the context of all heads of claim. The conclusion at which I arrived was that it would be right to attribute the sums paid by Squires/Grimston and by Good/Rigout to one particular large claim (that to account for significant secret profits earned on contracts in South Wales, on which compound interest was running) and to ignore it in relation to all other heads of claim: that greatly simplifies the position.

National Grid made a further and separate allegation of wrongful conduct on the part of Mr McKenzie in relation to Mr Squires and the Grimston personnel (along with others). In connection with the RJC (UK) Limited quotation I drew attention to the fact that the labour provider was expecting National Grid to provide vehicle and fuel cards for his painting contractors. That is what Mr McKenzie arranged for Mr Squires and the Grimston personnel and National Grid now complain that he did so fraudulently.

The essential facts may be shortly stated. Rigout provided fuel cards to Mr McKenzie, Mr Squires, certain of the Grimston personnel, to the users of the two vehicles rented to National Grid (under arrangements to which I must come) and to an employee of Rigout. From 1 April 2004 to the end of October 2005 fuel to the value of approximately £42,000 was charged to these cards and paid for by Rigout. Rigout then invoiced Eve (the main contractor on the Mannington project for which Mr McKenzie was the project engineer) the enhanced sum of £86,605 for this fuel. There was a dispute as to whether Eve absorbed this cost or whether it passed it directly on to National Grid (its employer). Although the documentary trail could not be followed, Mr Neil Durant (a director of the Transmission Division of Babcock Networks Limited, which trades as Eve) gave evidence that the fuel payments were billed to National Grid as part of the normal monthly invoicing procedure. This evidence was not shaken.

Rigout continued to send fuel card invoices to Eve notwithstanding the end of the Mannington project: but Eve rejected them (probably precisely because it was a cost that was ordinarily passed on to National Grid and not routinely borne by Eve). When that occurred the invoices were credited back to Eve and Rigout were left unpaid invoices of £22,364. Rigout then informed Mr McKenzie that it would “regenerate new Rigout invoices…and send to your nominated payee”. In other words Mr McKenzie had to find some way of covering the fuel cost which Rigout did not itself intend to bear. Mr Read and Mr McKenzie arranged for the charge to be picked up by Interserve (though in the event I do not think any invoice was rendered to Interserve and instead Rigout absorbed the fuel charges in its contract costs rather than treating it as a separate recoverable expense).

For Mr Squires and the Grimston personnel the order placed by National Grid with Spring (and then by Spring with Rigout) provided for a £300 per week vehicle allowance. The additional provision of a fuel card would in effect have provided double recovery of fuel costs. There is no basis upon which Mr McKenzie could properly have thought that Mr Squires or the Grimston personnel should be reimbursed their fuel costs by means of a fuel card as well as collecting a weekly vehicle allowance: and I am satisfied that he did not think there was. This was a simple, straight forward scam. Equally there was no proper basis of which he could have thought (and he did not in fact think) that he could legitimately have a fuel card, since he received a vehicle allowance from National Grid and was accordingly reimbursed twice over. Nor was there any basis upon which Mr McKenzie could contrive to charge National Grid for fuel consumed by Rigout employees.

In short, I find and hold that the £86,605 charged to National Grid in respect of fuel consumed on these fuel cards was procured by the breach of contract and deceit of Mr McKenzie and that he is liable in damages in that sum.

On 31 March 2006 Mr Squires instructed Grimston’s bankers to pay £19,000 to Mr McKenzie “for consultancy fee and expenses”. The payment was made on 3 April 2006. On 12 April 2006 Mr McKenzie paid £15,490 for a Mini for his wife. The garage’s sale document was amongst the shredded documents recovered when Mr McKenzie’s home was raided pursuant to a Search Order in May 2006. The balance of the £19,000 was absorbed in general expenditure.

No-one suggests that the reason given by Mr Squires for the payment was true. Mr McKenzie’s evidence was that the payment was a gift by Mr Squires to Mr McKenzie’s wife on the occasion of their 10^th wedding anniversary. This prompted National Grid to embark upon an investigation into Mr McKenzie’s divorce in an endeavour to demonstrate that April 2006 was not his 10^th wedding anniversary. (This must rank (alongside the instruction of Thai solicitors to investigate Mr McKenzie’s holiday dates in Bangkok in 2004) amongst the more immoderate pieces of expenditure in this litigation). The attempt failed. Mr McKenzie gave a coherent and convincing explanation of his marriage in a Thai village on 11 April 1996, of the birth of his first child in 1997, and of the need to undergo a formal marriage ceremony (in the presence of his employer’s driver and accountant) in an office adjacent to the British Embassy in Bangkok in order to obtain a certificate that would support the grant of an entry visa for his wife on a visit to the UK in December 1998. But the fundamental question remaining after this wasteful skirmish was whether the wedding anniversary had anything to do with the £19,000 payment. Mr Phillips QC invited Mr McKenzie to look me in the eye and to tell me that the £19,000 was a 10^th wedding anniversary gift to his wife. He did so. He was lying. In my judgment the £19,000 was Mr McKenzie’s share of the sums earned by Rigout and Grimston out of a sub contract awarded in respect of the reconstruction of a culvert on the Exeter-Landulph-Indian Queen’s overhead line.

The relevant facts are these. The insulators and fittings on the Exeter- Indian Queens routes were suffering very advanced deterioration and there was severe corrosion on the route. In 2003 capital expenditure of £13.9 million pounds was sanctioned for the refurbishment of the line. The contract was let before National Grid’s “framework rate” system was fully implemented, and was competitively tendered. The contract was awarded to AMEC. They were also invited to tender for the refitting of step bolts and the installation of the Rapid Rail safety system on the same route: but this contract was eventually let to Interserve. The object was for AMEC to complete the work in October 2005. In July 2005 a culvert adjacent to tower 91 was identified as near to collapse. Rebuilding it would involve the construction of an access road. AMEC was invited to submit costs for carrying out a feasibility study for submission to Steve Turner (who was National Grid’s project engineer). The project delivery manager was Mr Bryant. Mr McKenzie knew of the problem because he was copied in on the minutes of the contract meeting as a member of National Grid’s network strategy construction team.

By August 2005 AMEC had submitted a feasibility study and costs for carrying out the relevant work. AMEC’s costings were based on the engagement of a local sub contractor to undertake the work on AMEC’s behalf. It included the construction of a permanent access track three metres in width. There is nothing to suggest that this quotation is anything other than entirely genuine. To the basic quotation AMEC would have been entitled to add a sum for profit and overheads: and they included a contingency of £10,000 because (as they explained in their letter of 10 August 2005 to Mr Turner) the proximity of the culvert to tower 91 suggested that an intrusive inspection needed to be carried out in order to establish the precise details of the tower foundations. So the quotation of £158,000 represented a cost to National Grid of the order of £200,000.

Mr. Read, Mr McKenzie and Mr Squires decided that they could earn for themselves the profit to be derived from carrying out this work: this is the clear inference to be drawn from an entry in Mr McKenzie's workbook which (from its placing in the volume) would have been made in August. The calculation suggests that if the job cost £80,000 to do then, if the price quoted was £193,000 (Mr McKenzie miscalculated it as £183,000) Mr Squires could take £25,000, Mr McKenzie could take £20,000, Mr Read could take £25,000, and a further £25,000 could be split between Ms Bishop (who became the whistleblower) and an employee of Interserve. I consider that Mr McKenzie intended the sub-contract to be routed through Interserve (who were already an approved contractor and who were already on site in connection with Rapid Rail installation). To that end Mr Read or Mr Squires prepared a quotation in the sum of £183,000 (reflecting Mr McKenzie's mistake) by their company Grid Line Services Ltd for the consideration of Interserve. The work quoted for was to a higher specification than that in the AMEC quote. It was approved by Mr McKenzie (as a joint venture member and not as an employee National Grid). This quotation was subject to further revision and was eventually sent to Interserve at the beginning October 2005. By that time it had been reduced to £135,000.

103.

The reason for this was that a local contractor (Roy Davey) had been found who would do the work for £45,000, within the tight timescale required (because closure of the window within which working close to the adjacent badger sett was permitted). But there was a difficulty in the way of Interserve letting the sub contract to Grid Line Services Ltd (to enable Grid Line to engage Davey on a sub-sub contract). This was that Grid Line was not an approved subcontractor and could not produce the requisite certificates. The solution was to route the transaction through Rigout, though that had impact upon the proposed distribution of profits. That decision had been taken by the beginning of October 2005. None of the relevant bits of paper was in place by the time Roy Davey in fact began construction, also at the beginning of October.

104.

Notwithstanding the actual commencement of work and the absence of any supporting documentation, at the contract meeting on 11 October 2005, which was attended by Mr Turner (National Grid’s project engineer) and all the relevant AMEC site staff and managers, and the minutes of which were circulated to Mr Bryant (National Grid’s project delivery manager), it was simply reported that costs for carrying out the culvert works had been submitted to National Grid. Against the minute is marked “Complete” suggesting that no further action is required. Neither Mr McKenzie nor Mr Read attended this meeting, nor did they receive minutes of it. They cannot have been the source of the report. Thereafter the matter is dropped as an agenda item. It seems to me inconceivable that National Grid staff did not know that what had been regarded as a serious problem was even then actually being addressed on the ground. It seems to me likely that no one was too troubled as to how the problem was solved, provided that it was solved.

105.

There is no doubt that the work was done, and was done well. Interserve charged National Grid a total of £185,000 for work. Mr Phillips QC described the additional £50,000 as Interserve's “cut”: Mr McKenzie described it as Interserve’s payment for assuming primary liability. The sum obviously included a profit margin for Interserve. But I do not accept Mr Phillips QC’s pejorative description. He established in his re-examination of National Grid’s witness Mr Lamont (the relevant Divisional Director of Interserve) that an Interserve engineer had gone down to the culvert to conduct a price evaluation and Interserve made its contractual arrangements on that basis. So I do not think that National Grid can suggest that Interserve’s pricing was irregular in some way. It charged £50,000 for its contractual responsibility and its profit margin.

106.

The £185,000 was not, however, paid out of the sanctioned capital expenditure for this project. It was paid out of the amount sanctioned for the Shelford Quarry project (in respect of which Mr McKenzie was the project engineer and Mr Read was engaged to provide cost control services).

107.

I was taken with meticulous care through every twist and turn of the means by which this was achieved: but that it was achieved has not been in dispute and I will therefore confine my account to those matters that bear on the questions I must decide:-

(a)

On 7 October Mr McKenzie sent an e-mail to Mark Jones at Interserve with suggestions for “variations” to the Shelford Quarry project (relating to “tree cutting”, “archaeology”, “third party liaison” “additional scaffold access” and the like) which totalled £230,000. There is no doubt that particular entries totalling £185,000 were fictitious and were designed to achieve recovery of the £185,000 contract costs relating to the culvert. The curiosity deserves underlining that Mr McKenzie (a National Grid employee) is advising National Grid's main contractor what additional sums it ought to claim from National Grid, which sums would in due course be considered for rejection or approval by National Grid’s project engineer (namely, Mr McKenzie) possibly with the assistance of the National Grid quantity surveyor (Mr Read).

(b)

An application for payment (by Interserve to National Grid) was prepared on the Shelford Quarry project in respect of the period ending 30 September 2005 (which included this £185,000) with the evident object of securing payment by the time Roy Davey had completed the culvert works (due mid-October). It was supported by a “Variation Build-up Sheet” which totalled £371,970.

(c)

This was possible because as at September 2005 the Shelford Quarry project was significantly underspent and carried unallocated funding for anticipated expenditure of £1.1 million. The nature of the project was the diversion of an overhead line: it was therefore originally “operational expenditure” and any unspent funding would enhance the profit line. Underspending would therefore be regarded as beneficial. But the scheme had been re-sanctioned as “capital expenditure” (as the National Grid witnesses were eventually forced to concede) and this funding represented money to be spent somewhere. (Indeed Mr Hill told me that it was rare for there to be re-sanctioning if a capital scheme was underspent, and at the project team would seek to deliver the project within the sanctioned range i.e they would spend the money somehow).

(d)

By contrast the Exeter-Indian Queen's project (an asset replacement, and therefore capital expenditure, scheme) was significantly overspent: it had to find additional funding, and was eventually re-sanctioned in April 2006 at a much higher figure. Including the culvert in the Shelford Quarry scheme therefore relieved the shortfall on the Indian Queen's project (where incidentally overspends were likely to be scrutinised) and absorbed some of the excess on the Shelford Quarry project. This was contrary to National Grid's accounting procedures, and although Mr McKenzie said that he specifically mentioned to the Shelford Quarry project accountant (and also Mr Inglehearn) the idea of putting “extra work” through the scheme I am not satisfied that this method of funding the culvert was ever sanctioned.

(e)

The variations amounting to £371,970 were approved by Mr Kitchin of the National Grid procurement department and authorised by Mr Inglehearn as the Project Manager on 20 October 2005. The papers do not disclose either exercised any independent judgment in the matter in discharging their duties of approval and authorisation.

(f)

Interserve then produced a sub-contract purchase order addressed to Rigout for £135,000 which was in the remarkable terms:-

“ Site: Shelford Quarry Canterbury

Description of work: construction of a new access track and culvert at Ivybridge Devon”

(g)

The intended payment due to Interserve under the variation order did not in fact come through in time so that Rigout had to pay Roy Davey’s bill (which it did on 31 October 2005). Payment of the Interserve invoice occurred shortly afterwards. Interserve then paid Rigout’s invoice for £135,000 in January 2006; and Rigout then paid Grimston in February 2006.

108.

What is of significance is how the £90,000 difference between the amount received from Interserve and the amount paid to Roy Davey was dealt with. I am in no doubt that this profit was treated as a pool divisible between the various participants in the arrangement, subject to the direction of Mr McKenzie. Key insights are provided by the following documents:

(a)

Mr McKenzie's workbook, which from August had disclosed an intention to earn a substantial profit to be divided amongst participants in a project.

(b)

On 5 November 2005 Mr Good of Rigout wrote to Grimston a letter under the title “New Joint Venture Eve and Interserve site projects”. Amongst the enclosures was a copy invoice for job number 25786 covering “latest site works in joint-venture”. This was Rigout’s contract reference for work relating to the culvert. Rigout had at that date just paid Roy Davey. Mr Good stated his belief that the profits from the joint-venture were to be divided as to 25% to Mr Squires, 25% Mr McKenzie, 25% to Mr Read and 25% to Rigout.

(c)

On 7 January 2006 Mr Read sent an e-mail to Rigout containing his “assessment of surplus funds”. He explained that he was proposing to give Rigout 10% of the profit and then arrange to distribute the balance “among the remaining ... recipients according to Andrew's instructions”. He suggested that the e-mail be deleted from the recipient’s inbox once actioned as he himself intended to do “just to be on the safe side”.

(d)

The proposal was questioned by Rigout: but Mr Read responded that “the split was organised and still is by Andrew and the disbursements were not equally split: he will still determine final outcome”.

(e)

At about the same time Mr Squires caused Grimston to present an invoice to Rigout in respect of the culvert in the sum of £135,000 (but giving credit for a payment of £15,000 which Rigout had made to Mr Read for project management services under an invoice rendered by HMR). This document read together with the e-mail exchanges demonstrates the involvement of Mr McKenzie, Mr Read, Rigout and Mr Squires/Grimston in the division of the fund. The document itself is headed “Joint Venture Eve and Interserve site projects”.

(f)

On 28 March 2006 Mr Read produced a spreadsheet (recovered by National Grid from his computer shortly before trial) entitled “Grimston Reconciliation”. It contained an entry for the culvert: it showed a value of £135,000, a cost of £45,000 and a balance of £90,000. Of this “balance” it showed £13,500 due to Rigout, £23,750 due to Mr Squires, £23,750 due to Mr Read (in respect of which he had already been paid £25,000) and (crucially for present purposes) £19,000 due to Mr McKenzie.

(g)

On 31 March 2006 Mr Squires gave instructions for Mr McKenzie to receive £19,000. Mr McKenzie did so on 3 April 2006. It was plainly not a wedding anniversary gift. It was a share of the profit from the joint-venture

109.

I turn to consider the legal relevance of these findings.

110.

First, I find that the arrangements relating to the culvert occasioned no actual loss to National Grid. It was not submitted that the mere fact that the project had been funded through Shelford Quarry rather than through the sanctioned expenditure on Indian Queens of itself occasioned any damage: and I find that it did not. In the end National Grid simply paid for the work: and the route by which it did so was immaterial. Further, it cannot be submitted that the work was unnecessary: the minutes of the contract meetings are entirely genuine when they identify the problem and seek a solution. What was argued was that the work was overcharged.

111.

On the evidence before me I find and hold that National Grid has not established that it could in reality have obtained the work for anything less than it actually paid. The specification for the work exists, and it was not suggested that the culvert and access road and fencing could not be inspected: but National Grid adduced no expert evidence to prove what reconstructing the culvert ought to have cost. National Grid did not call Mr Turner (to whom AMEC’s quote had been directed) or put in evidence his response to it; nor did it disclose any actual response to the AMEC quote. Mr Hill (who is not a construction engineer or quantity surveyor) simply expressed the view that he thought that AMEC had priced the job on the footing that they did not want it (as illustrated by what he regarded as their excessive contract management period); but he could not recall a single instance during the two-year period that AMEC was engaged on the project when he had queried a quote from them. He acknowledged, as did Mr Inglehearn, and that (had National Grid known that a local agricultural contractor would do the work for £45,000) it would not have adopted the exceptional course of contracting directly with him, but would (in implementation of its policy to lay off all risk) have insisted upon contracting through a main contractor who would assume liability. National Grid cannot therefore create a loss by valuing the project on some sort of “cost plus” basis related to the amount paid to Roy Davey.

112.

Second, it follows that whatever Mr McKenzie's breach of contract or deceit in bringing about the construction of the culvert (by his use of fictitious variations in the Shelford Quarry project) prima facie no damages fall to be awarded because National Grid suffered no actual loss. Likewise, whatever Mr McKenzie, Mr Read, Rigout and Grimston may have agreed together (even if that agreement is labelled as “a conspiracy”) it was not an agreement which involved causing loss to National Grid: it was an agreement which involved taking for themselves a profit that would otherwise be earned by somebody else. The availability of “damages at large” in conspiracy does not prima facie lead to an award. “Damages at large” for conspiracy would, in any event, I think be no different from damages for deceit: GE Commercial Finance v Gee [2005] EWHC 2056.

113.

. Third, the £19,000 received by Mr McKenzie might be regarded as a bribe paid by Grimston. Mr Phillips QC argued that the promise of receiving a commission is a bribe: and the receipt of the promised commission ought also be regarded as a bribe. If it may be regarded in that way, then (he submitted) there is an irrebuttable presumption that the briber (Grimston) has inflated the price by the amount of the bribe: see Hovenden v Millhoff (1900) 83 LT 41. Accordingly there is a presumed loss equal to the amount of the bribe. In the instant case of course Grimston's price was charged to Rigout, and Rigout’s price was charged to Interserve, and only then was Interserve's price charged to National Grid. So there have to be a number of sequential irrebuttable presumptions which would lead to an award of damages at common law of a sum equal to the amount of the bribe. I do not like the artificiality of this argument. Nor do I see the necessity for it. If the £19,000 is a bribe (which is where the argument begins) then Reading v Attorney General [1951] AC 507 demonstrates that the recipient of the bribe is to be treated as a fiduciary (in a very loose or comprehensive sense) liable personally to account for its receipt to the person whose relationship with him enabled the recipient to secure payment of the bribe from the briber. I consider that this analysis has overtaken and displaced that of the irrebuttably presumed loss.

114.

Fourth, there is no doubt that Mr McKenzie (along with others) wanted to make a profit from dealing (through Interserve as a main contractor) with National Grid: and that he wished the making of this profit to be kept secret. That does not of itself make the profit “a secret profit” for the purposes of applying equitable rules. But the fact of secrecy suggests a consciousness of improper dealing. That is understandable because it was Mr McKenzie's position as project engineer (able to seek approval for purchase orders in respect of variations to the contract for the Shelford Quarry project) that facilitated the payment of the £135,000 to Rigout that was ultimately divided between the joint venturers. I would hold that the £19,000 is a secret profit earned by an employee by reason of his having acted dishonestly in the discharge of his employment duties (the duty as project engineer to scrutinise expenditure on Shelford Quarry), irrespective of whether National Grid suffered loss or not.

115.

Fifth, the question arises whether I should go further. Mr McKenzie made a secret profit by breaching his particular fiduciary obligation as an employee: is Mr McKenzie liable to account, as if he were a constructive trustee, not only for what he received but also for the share of the profit taken by other participants? I put it that way because this is not a case that can be analysed in terms of whether Mr McKenzie can be made liable as a dishonest assistant in the breach of fiduciary duties by others. Grimston and Rigout do not stand in a fiduciary relationship to National Grid as regards making profits out of sub-contracts. I am compelled to the conclusion that Mr McKenzie is liable to pay National Grid for secret profits that he himself did not receive but which were received by his co-venturers.

116.

There is a clear principle that if a fiduciary is able to make a secret profit and diverts it to or channels it through a partnership then he can be made liable not only for what he actually received but also for what he would have received but for the diversion. In Imperial Mercantile Credit Association v Coleman (1873) LR 6 HL 189 a director (C) in breach of fiduciary duty made a secret profit by placing some stock. He passed the transaction through a partnership (C&K) of which he was a member. He argued that he should be liable only for the half share of the profit which he actually received, and should not be liable for the other half taken by his partner (K). the House held that

“ ..the liability of partners who are implicated in a breach of trust… has been held to be joint and several. It would be a strange conclusion that [C] who was the active agent in diverting the money …to the partnership funds should not be answerable for the whole whether his co-partner [K] was liable or not for any part of it”.

117.

In CMS Dolphin Ltd v Simonet [2001] BCLC 704 a director in breach of fiduciary duty diverted part of the company's business and some of its business opportunities to himself and to his partnership. In so acting he was regarded as appropriating company property. Lawrence Collins J held that he was liable to account for the profits whether he exploited the opportunity personally or through a partnership. The learned judge held (at paragraph 99)

“Where a director puts the contract into a partnership, he is fully accountable even if his partners are entitled to part of the profit and are ignorant of his breach of fiduciary duty”.

He held the same rule applied if the secret profit was earned by a company controlled by the director. In Ultraframe (supra) Lewison J disagreed with this last conclusion, which he considered inconsistent with the decision in Regal Hastings v Gulliver [1967] 2AC 134: and I would respectfully align myself with Lewison J.

118.

But that does not address the position of a partnership. Whilst cases in this area are very fact sensitive I cannot with a good conscience distinguish the joint venture relating to the culvert from the arrangement for the collection of commission in Imperial Mercantile Credit. In each case a commercial opportunity is exploited in breach of fiduciary duty by using a partnership of which the fiduciary is a member: and for this purpose I do not distinguish between a formal partnership and a joint-venture. In the instant case the joint venture was formed with the very object of exploiting the opportunity: in Imperial the partnership already existed and carried on a legitimate business. That would seem to make the present case an a fortiori one. I feel bound to follow Imperial Mercantile Credit. I accordingly hold Mr McKenzie is liable for the £90,000 profit distributed amongst the consortium members.

South Wales.

119.

When 5 November 2005 Mr Goode of Rigout wrote to Grimston about the “New Joint Venture Eve and Interserve site projects” his letter plainly referred to something other than Shelford Quarry. Eve was involved neither on the line containing the culvert nor at Shelford Quarry. Eve was involved on projects in South Wales: and so were Rigout and Grimston. Two of the invoices mentioned in the letter of 5 November 2005 referred to work being done for Eve in South Wales. It is necessary to examine these additional aspects of the joint-venture.

120.

In South Wales are two parallel overhead lines running from Pembroke to Swansea North. In 2004 a process of refurbishment began on the lines and the towers. The work was divided between Balfour Beatty and Eve. The refurbishment involved work on the towers themselves and work on the foundations of the towers. It constituted a huge volume of work to be conducted over a wide area and within a short time frame, and imposed considerable pressure.

121.

The work on the towers themselves was at trial described as “ancillary works”. It involved preparing the towers for the linesmen to work on them, by installing step bolts, the fall arrest safety system provided by Rapid Rail, signage and safety devices (generally called “tower furniture”) and anti-climb devices (“ACDs”).

122.

The work on the foundations was called “muffing”. At the foot of each leg of the tower is a concrete pad, which provides its foundation. The depth of each pad will of course depend on the lie of the land and the nature of the soil. Sometimes the design of the tower and/or the lie of the land meant that more than a leg of the tower needed to be secured: this was achieved by constructing an “L” shaped muff so that the leg could go in at the junction of the arms and one or both of the arms of the “L” could support a bracing strut if required.

123.

Both the ancillary works and the muffing involves the repetition of much routine work. National Grid had a framework of standard rates for each task on a standard tower, with a tariff to cope with variations (e.g. deeper or broader foundations). As between National Grid and its main contractor Eve the sums payable were therefore determined largely by the prescribed framework rates. But these rates allowed for a very substantial profit margin: if Eve subcontracted the work the essential question for Eve was how this comfortable margin should be shared with its subcontractor.

124.

Mr McKenzie was the project engineer (and Mr Read was retained as the quantity surveyor) on these South Wales projects until October 2005, when Mr McKenzie was replaced by Mr Hewson. (The removal of Mr McKenzie related to an incident between himself and Ms Bishop, with whom he had been having an affair, on 28 September 2005: it was not connected with the quality of his work). Rigout was appointed by Eve as a subcontractor for the replacement of tower furniture, ACDs, the installation (or management of the installation) of Rapid Rail and step bolts in September 2005. Other subcontractors were engaged for similar work on other parts of the line (e.g a subcontractor called “Security Fencing” installed the ACDs). It is National Grid’s case that Rigout had been pre-selected by Mr McKenzie who influenced Eve to issue the subcontracts. In support of this National Grid relied on the fact (a) that Rigout appears to have sent a quotation or draft to Mr McKenzie before its submission to Eve: and (b) on the evidence of Mr McKenna (who coordinated some of the works from his office in Taunton, using information supplied to him by his project delivery of site engineer Mr Rothwell) and who said that he had been told by an employee of Eve that the subcontract had been awarded to Rigout on Mr McKenzie's instructions. The first however is equally consistent with Mr McKenzie “grooming” Rigout (or helping it put in a faultless bid). As for the second I do not accord much weight to such second-hand hearsay, and it was contrary to the direct evidence of National Grid's witnesses in relation to the “muffing” contract. In my judgment the likely true position is not that Mr McKenzie gave an instruction to Eve that Rigout must be engaged as subcontractor, but rather that he helped Rigout put together a winning bid. (That was certainly what Mr Read did; for Rigout was not on Eve's list of approved contractors, and Mr Read (on 23 September 2005), advised upon sourcing (and himself drafted some of) the requisite documents such as method statements, health and safety and environmental policy statements, risk assessment forms and training records etc).

125.

There is in my judgment no doubt that Rigout’s bid for these ancillary works was the combined effort of each of the joint venturers. Some of the quotations were e-mailed to Mr McKenzie before submission to Eve. Some were drafted by Mr Read (even though he was fulfilling the role of quantity surveyor to National Grid): and I have already noted his role in securing Rigout’s approval as a subcontractor. Some were sent to Mr Maddocks at Eve as a follow-up to “a recent discussion with Mick Squires”. The work quoted for was actually going to be undertaken by Grimston personnel; and Mr Good and Mr Squires cooperated to ensure that the appropriate safety records were in place.

126.

Rigout was able to invoice Eve for a total of £607,100 in respect of these works. The invoices were delivered (and the bulk of the work undertaken) by Rigout after Mr McKenzie and Mr Read had ceased to be involved on the South Wales project and Mr Hewson had taken over as project engineer. The evidence establishes that Eve recovered this sum from National Grid: but it does not conclusively establish that Eve paid that sum to Rigout. Invoices were however rendered monthly (and continued to be rendered notwithstanding the commencement of these proceedings). This suggests to me that Eve (which had been paid by National Grid) was paying Rigout, for the documents portray an entirely ordinary commercial arrangement between main contractor and subcontractor. This assessment is supported by a number of receipted invoices. The £607,100 paid by Eve was not the full value of the sub-contract, because in January 2006 Eve took the ancillary works contract back “in house”. (There is, incidentally, no evidence that that caused any reduction in the price paid by National Grid for the work).

127.

In acting as he did I consider that Mr McKenzie acted in breach of the terms of his employment. He should not have become engaged in a joint-venture concerning the profits derived from work of this sort when his position as project engineer would require him to assess the quality of the work undertaken and the performance by Eve of the main contract.

128.

In paragraph 19F(3) of its Re-Amended Particulars of Claim (which related to work undertaken pursuant to the Joint Venture) National Grid claimed to have been charged and to have paid for non-existent work, and also for actual work and services at inflated prices, and to have suffered had suffered loss by reason of this work. In opening it was said that only an account was sought in relation to the South Wales work. But in the course of evidence questions were put which seemed to me to raise issues as to the amount charged for the work. National Grid did not suggest that the South Wales work was unnecessary. They claimed that the rates were inflated, or alternatively higher than they would have been if quoted by a contractor who was unaware of National Grid's framework rates. I reject his argument for four reasons.

(a)

National Grid paid Eve, and it paid the rates negotiated by Eve with National Grid by reference to the framework rates applicable (not on a “cost plus” basis). There was no evidence that the price as between National Grid and Eve was in any way influenced by the price which Eve in turn managed to negotiate with its subcontractor.

(b)

Rigout was not the only subcontractor tendering for this work: there appear to have been two other subcontractors whose rates would have provided for Eve a ready cross reference.

(c)

Rigout had no need to charge excessive rates: the framework pricing system enabled those working for National Grid to earn substantial profits, and I as I see it the object of the joint venture was to see that those profits came the way of the joint venturers rather than went to either the main contractor or some other subcontractor.

(d)

When Mr Hewson took over as project engineer it does not appear to have struck him that work was being done at an inflated rate: he continued the arrangement.

129.

Then National Grid suggested that under the South Wales ancillary works contract Rigout was charging for Grimston personnel in respect of whom Mr McKenzie was already signing off timesheets. In that way it was inflating its charges. There is indeed a coincidence in time and location. But I reject this claim. The evidence (an analysis of Grimston's bank statements and employment registers) establishes Mr McKenzie's response to the suggestion, namely, that there were two gangs of Grimston personnel. One gang was billed to National Grid via Spring. The other worked for Rigout and the charges rendered by Grimston in respect of them were simply absorbed by Rigout as a cost of the performance of its subcontract with Eve. So the charges were not inflated in that way either.

130.

Accordingly in my judgment on these facts damages at common law are not available, whether the claim is brought for breach of contract or deceit or conspiracy, because National Grid has suffered no actual loss. If there are to be financial consequences flowing from these events it must be because Mr McKenzie is made to hand over what he has received or what he is to be taken as having received. In closing this was certainly accepted by National Grid. I will revert to this issue after consideration of the muffing contract.

131.

National Grid’s case in opening was that the entire idea of replacing the muffs was a dishonest scheme by Mr McKenzie to generate unnecessary work which could be given to Rigout. The evidence will not sustain such a finding. Muff replacement was a then current concern which had been discussed with National Grid's regulator. The normal course in the case of a “fittings only” contract such as the South Wales ancillary works would have been to inspect all muffs and replace those showing damage. This was the original intention in South Wales in October 2004. But Michelle Clark recalls that Mr McKenzie was concerned about (and discussed with her) underground failure of the foundations and unseen corrosion: there is no suggestion that this was a contrivance or a cunning plan to discuss with the asset replacement team a wholly spurious concern. Subsequent South Wales contract meetings are less clear about what was intended, saying that National Grid was to “assess conditions of muff replacements… prior to works commencing”. Mr McKenzie caused a full photographic survey to be undertaken of each muff: a curious step to take if one was about dishonestly to embark on large-scale unneeded work. National Grid call no evidence to establish that the photographic survey demonstrated that work on the muffs was unnecessary. Mr McKenzie then decided in September 2005 that a general replacement program should be undertaken. It was only about 8% complete when Mr Hewson took over as project engineer: at the 2 November 2005 contract meeting he commissioned a review of the muff replacement programme, postponing but not cancelling it as unnecessary. He then revived and continued it so that by April 2006 it was 30% complete. He then appears to have instructed Eve to undertake further muff replacements (which enabled them to award Rigout a further subcontract relating to the 4YV line).

132.

National Grid then suggested that if the work was to be done it should have been done either by Eve as the main contractor or by its own “Gridline team”. I reject this argument. Mr Maddocks the former construction manager for Eve who dealt with the South Wales projects told me that Eve lacked the resources to complete the task within the contract period. Eve accordingly sought subcontractors: and as examples there were produced at trial (a) a letter dated 16 September 2005 from Mr Staton (Eve's Commercial Manager) to Mr Hancock inviting him to quote for muffing work and (b) an invitation in November 2005 the MasterBuild Services Ltd to quote. Further Mr Maddocks told me that two other companies (“Morrisons” and “PLS”) also quoted.

133.

National Grid then suggested that if subcontractors were to be used then Mr McKenzie directed Eve to engage Rigout. This was categorically denied by Mr Maddocks of Eve (who was called by National Grid): and I accept his denial.

134.

National Grid then suggested that Rigout were advantaged by being told by Mr McKenzie or Mr Read what were the framework rates. But the documents demonstrate that Eve sent out National Grid's specification and pricing schedules routinely to persons invited to quote on sub-contracts.

135.

So I decline to hold that the award of the muff replacement subcontract was contrived and somehow caused loss to National Grid (although it was between Eve and Rigout), or that it was on terms somehow less favourable to National Grid than could otherwise have been achieved. In the end National Grid did indeed (as indicated in its opening, focus not upon any loss it suffered, but rather upon what profit Mr McKenzie (and Mr Read) gained.

136.

I am in no doubt that Rigout was assisted in getting the muffing work both by Mr McKenzie and by Mr Read. It was almost certainly Mr McKenzie who alerted Rigout to the opportunity that he had created (for it was Mr Maddocks’ evidence that Eve did not need to approach Rigout). It was certainly Mr McKenzie whose help was sought by Rigout when there was a possibility that Eve would take the muffing works “in house”: National Grid was proposing a simplified specification which would have enabled Eve’s unskilled workforce to perform the task, and Rigout proposed that the specification should be couched in technical language to disguise its simplicity. Such an approach would have been unthinkable unless Mr McKenzie was known to be willing to act, not in the interests of National Grid, but in the interests of its subcontractor. It was certainly Mr Read who enabled Rigout to comply with Eve’s approval process. It was Mr Read who on 6 October 2005 e-mailed a draft quotation to Rigout (reminding the recipient that the sender's name must be removed from the “properties” of the word processed document so as to disguise Mr Read's involvement). It was Mr Squires who provided Rigout with Grimston labour to enable it to perform the contract.

137.

Eve paid Rigout £542,000 for muff replacement work on the 4YW line and £559,000 for such work on the 4YV line. It is not possible to ascertain what Rigout paid its subcontractors or what costs of its own it bore. That is partly because the documentary record is incomplete: and partly because there were ambiguities in the head contract and in the sub-contracts as to the estimation of quantities. But in May 2006 Rigout undertook some rough calculations of the gross margin by comparing the amounts billed and amounts paid to date. This showed a gross margin of 45% and would suggest a gross profit of £495,450 for the South Wales muffing works. This compares with a “guess at the prospective gross and nett profits” of “the South Wales project” which Mr Good of Rigout estimated at £400,000 to the end of March 2006 and £700,000 to the end of May 2006 in a letter of 30^th March addressed to Grimston, and he directed the transfer of this sum (£400,000 by the end of March 2006 and £700,000 by the end of May) to Grimston. I find that such a transfer would not have been in payment of liabilities to Grimston in respect of genuine management charges: it would have been to create a fund to discharge expenses and then distribute the balance amongst the joint venturers.

138.

I began this section of the judgment with a reference to Rigout’s letter of 5 November 2005 as an indication that the ancillary and muffing works in South Wales were part of the joint-venture. There is no doubt of this. In December 2005 there is e-mail traffic between Rigout and Mr Read referring to “a 4 way split of [the] total profit”. It is true that these e-mails are not copied to Mr McKenzie: but his professed ignorance of the arrangements to which they refer was wholly unconvincing, and he was unable to advance any explanation as to why Rigout and Mr Read were treating him as entitled to a 25% share of the profit if that was not truly the case. In February 2006 there was renewed traffic between Mr Read and Rigout about the need to include certain costs “within the pot prior to the profit share taking place in order for the split to be equal among the consortium members i.e. 25% Alan/Harbour 25% Mick/Grimston 25% Tony/Rigout 25% AM”. Though he denied it, it is plain that the AM referred to is Mr McKenzie. Further e-mail traffic in March 2006 between Rigout and Mr Read (on its face copied to Mr McKenzie) explicitly refers to “consortium members” and to “the profits on our South Wales venture”. In it there is the suggestion that the split should not be 4-way but (because of Mr Iszatt’s contribution to achieving very profitable rates on “L” shaped muffs) should be 5-way. In the same way as the £90,000 profit earned out of the culvert contract was to be divided between the joint venture so also the profit earned on the South Wales ancillary works and muffing contracts was to be divided between the consortium members (though a small doubt hovers over their shares). Mr McKenzie lied to me when he said it was not so.

139.

Just as Mr Read prepared a spreadsheet showing the division of the profits on the culvert which proceeds on the footing that there is to be a four way split of total profit, so he prepared spreadsheets showing the projected profits on the ancillary works. It took the form of a spreadsheet down to February 2006 showing the amount billed and the actual costs incurred (ostensibly by Rigout but in part by Grimston) on the ancillary works. (I have previously held that these bills were probably paid). These showed a profit margin of 24% and received profit of £143,123. Mr Read described this as “the final profit and loss summary for all works completed as part of the ancillary works”. As I have indicated, there is no comparable spreadsheet for the “muffing” works: but there is some material to suggest that in May 2006 Rigout’s assessment of the gross profit lay in the range £700,000 - £500,000 (with a margin of about 45%). Unlike the culvert it cannot be demonstrated that this profit was in fact received by Grimston for the purposes of distribution (because it cannot be established on the documents that the invoices for the management charges Grimston was invited to raise were paid). Consequently, it cannot be demonstrated that Mr McKenzie received anything (and there remains a doubt whether in relation to the muffing works the split was to be 4-way or 5-way).

140.

In these circumstances National Grid claims an account from Mr McKenzie of the money that was received by Rigout. They seek an account of £607,100 in respect of the ancillary works and of £1,100,650 in respect of the muffing works.

141.

The remedy to be fashioned for breach of fiduciary duty must be one that is fair in all the circumstances, depriving the defaulting fiduciary of all benefit derived from the transaction, but not otherwise punishing him. I do not think that an account of all sums paid in respect of the ancillary works and the muffing works would lead to a result that could be described as “fair”. It would mean that Mr McKenzie was to be personally liable for the cost of refurbishing many miles of the electricity grid except to the extent that he could establish (he not having conducted the works himself and having no access to the relevant paperwork) that the money paid by Eve represented the value of work that had been properly undertaken. On the other hand he must render account of something.

142.

He must render an account of the profit derived from the transaction.

(a)

The starting point should not be the gross sums paid to Rigout. The starting point should be the profit as it appears to the consortium members to be. In the case of the ancillary works that was £143,000; and in the case of the muffing contract £600,000. But (unlike the profit on the culvert) it is by no means clear that this money was received for distribution within the consortium, and there is a real doubt as to what Rigout has done with it. The settlement with Rigout precludes the possibility of ordering an account by Rigout as the receiving party or an enquiry as to what it received and what it has done with the money.

(b)

My provisional view was that I should order Mr McKenzie to pay by way of equitable compensation for breach of fiduciary duty a sum assessed by reference to what he would have received on the assumption that the projections of the profit were accurate but discounted by a factor to represent the risk of non-receipt. I would have assessed that provisionally at £92,500 (being 25% of the combined estimated profit discounted by 50%). This was not a possibility canvassed at trial, and fairness required that the parties have the opportunity to address me.

(c)

Mr Phillips QC did so. He submitted that this was an unprincipled approach to the difficulties occasioned by the facts, that “compensation” presumed loss (and I had found there was none), that I must order an account, and that if I was not prepared to take the gross sum that Rigout had received as the staring point then I must, consistently with my treatment of the culvert profit, order an account as against Mr McKenzie (and for that matter, Mr Read) of the entire presumptive profit, and that the idea of discounting for the possibility of non-receipt could not be entertained.

(d)

I do not think my approach is unprincipled. I think Mr McKenzie must account to his then employer for the secret profit made from the sub-contract entered into at the time when his duty to his employer to see that all work was done to the correct standard potentially conflicted with his personal interest as a consortium member in seeing that it was done to achieve maximum profit for distribution. To render that account he may have to call on Rigout to identify the profit. Equity regularly directs the payment of money in lieu of the performance of an equitable obligation: I referred to this as “equitable compensation”. I accept Mr Phillips QC’s submission that my proposed discount for potential non-receipt lacks a proper foundation.

(e)

I do not agree with him that I am bound to direct an account of the entire presumptive profit, and I am firmly of the view that for Mr McKenzie to be exposed to the risk of having to subsidise the refurbishment of the South Wales line to that extent would be neither fair nor equitable. I think a distinction may be drawn between the culvert and these works. Here the profit is not an identified sum in the hands of the party charged with distribution and known to have been distributed. It is an unascertained sum still in the hands of the consortium member who undertook the work. I would be prepared to order Mr McKenzie to account for his presumptive share of the estimated profit (£185,000): but National Grid must take the claim to an account of the shares received by Rigout and Grimston as satisfied by the sums paid by those parties in settlement of the claims against them.

The minor Shelford Quarry Claims

143.

It is now necessary to revert to Shelford Quarry. The variation order by means of which the £185,000 due in respect of the culvert was paid was in fact in the sum of £371,970. National Grid says that the entirety of the balance (£186,970) was also fictitious. If this is right that would give rise to claim for damages at common law for breach of contract or for deceit. It cannot be demonstrated that this £186,970 found its way to Mr McKenzie or to the consortium: so in the course of trial National Grid abandoned its claim hitherto pursued for an account that sum.

144.

National Grid's basis for the allegation is that the proposed variation was on 7 October 2005 originally in the sum of £230,400, but a fortnight later had risen to £371,970 (the increase apparently being assessed in a matter of days). National Grid submits that that is a very short time within which to find so much additional expenditure and that it is extremely unlikely that increases and additions of this kind had been genuinely identified, valued and submitted as additional variations. I can see why suspicion is excited. But a conclusion on the issue requires evidence. The additional items provide for scaffolding, tree cutting, additional costs incurred in relation to Toyota and third-party liaison. The report prepared for the re-sanctioning of the Shelford Quarry scheme by Mr Head (who was called as a witness by National Grid) warned of the possible need for extra scaffolding to avoid damage to vehicles on a Toyota showroom forecourt. The evidence of Mr Bullen (who was called as a witness by National Grid) was subcontractors were engaged for scaffolding, access accommodation and tree cutting. Notes made by Mr McKenzie on 19 October 2005 refer to third-party liaison costs incurred by Balfour Beatty (although the main contractors on the site were Interserve). It is quite likely that the additional items specified in the variation referred to these matters. When in his oral evidence Mr McKenzie gave a detailed account of the make-up of the “genuine” variations it was said that this was said that this was spontaneous invention: but it was not. An account was to be found in his witness statement: and no evidence was called to gainsay it. I am struck by the oddity of Mr McKenzie being involved in considering the variations for the contractor to claim, and that certainly gives me pause for thought: but that circumstance seems to me equally explicable by the fact that Mr McKenzie is trying to hide £185,000 of false expenditure and it is perhaps natural that he should look at all items likely to appear on the variation in order to see how best to do so. I cannot conclude on the balance of probabilities that the entirety of the £186,970 is fictitious.

145.

National Grid then had a fallback position. It was that either through this variation or through other purchase orders specific items were wrongly charged to Shelford Quarry and wrongly approved by Mr McKenzie.

146.

First there were three laptops. National Grid says these were charged by Interserve to it in the sum of £16,250. Although Mr McKenzie says that these were paid for by Interserve, I am satisfied that National Grid reimbursed Interserve for them on 16 April 2006. The question is whether they were properly purchased. Mr McKenzie said that the Shelford Quarry site required a connection into National Grid's internet-based communication system (particularly for the retrieval of data and drawings from the central web-based storage system), that this required a remote station on the National Grid network, and that accordingly computers supplied by Interserve were not adequate. Mr Bullen confirmed that a contract meeting on 20 September 2005 he recalls Mr McKenzie requiring Interserve source three laptops. Mr Bullen says that this was unnecessary since he had a serviceable laptop, and that in any event he never saw the laptops at the site office (although he did see two Interserve employees with new laptops). £16,250 was a lot to pay for three laptops in 2006: Mr McKenzie answers that by saying that the description “laptop” includes some redecoration at the site offices. I have no documents to assist. The inherent probabilities do not illuminate the problem. I must simply decide the issue on the respective credibility of the witnesses. That would incline me to believe Mr Bullen over Mr McKenzie. I find that the laptops were not purchased for the purposes of or used by National Grid. They were therefore purchased in breach of Mr McKenzie's contract and National Grid has suffered loss equal to their cost. Mr McKenzie must pay damages of £16,250.

147.

Second, it was alleged that Mr McKenzie wrongly ordered from Interserve “site administration services” for which National Grid paid. The services provided were the secretarial services of Johanna Middleton and Joanne Birdsall. Interserve charged £4000 per month for each of them (a total of £54,140). The women themselves appear to have been paid approximately £500 per week (consisting of £363 per week basic wage and £135 per week “out of town allowance”). The result was that Interserve made a gross profit of about £1500 per month for the supply of each.

148.

Ms Middleton and Ms Birdsall did work; and their presence was no secret, for their names appeared on the minutes that were circulated. Mr McKenzie told me that Joe Birdsall worked principally for Mr Calvert. Mr Inglehearn on the other hand told me that she was a receptionist/administrative assistant and that he was unaware she was employed by Interserve. This last evidence was plainly untruthful: for I was shown e-mail traffic generated in November 2005 (and so before National Grid had paid Interserve in respect of Joe Birdsall's employment) demonstrating that to the knowledge of Mr Inglehearn Jo Birdsall worked for Mr Calvert as “Technical Secretary to Projects” and was employed by Interserve, and that Mr Inglehearn had been requested to phase out her involvement on the scheme administration side via Interserve without jeopardising “the schemes”, but evidently did not then do so (apparently because of some sensitivities concerning her employment). It is clear that I have not been told the whole truth by National Grid concerning this employment; and I am unable to conclude on the evidence that National Grid has established that Jo Birdsall was employed on unapproved terms and without authority. That being so I do not feel able to find that Jo Middleton's employment was on unapproved terms and made without authority either. (I should record that there were undoubtedly irregularities in her employment. At one stage she was given £1000 by Mr McKenzie to spend on clothes. But this does not answer the difficulty posed for National Grid by her very evident presence and role, which nobody questioned). This head of claim is dismissed.

149.

Third, it is said that Mr McKenzie procured Interserve to pay for (and then charge back to National Grid) two site vehicles on the Shelford Quarry project. Mr McKenzie admits doing so: but says that it does not constitute a breach of his contract nor yet the commission of the tort of deceit, and that he is not liable to compensate National Grid for any loss.

150.

One of the vehicles provided was a Nissan X-Trail which was used by Mr Eaton (then an employee of Interserve). It is at first sight strange that National Grid should be providing an employee of its main contractor with a vehicle. Mr McKenzie says that National Grid's project delivery engineer at Shelford Quarry was Mr Bullen, who was an inexperienced project manager. He was struggling. Mr McKenzie arranged for Mr Eaton to become “project coordinator” to assist Mr Bullen: and in return for those services he agreed to provide a car. Mr Bullen himself acknowledged his inexperience, that Mr Eaton performed the role of site coordinator, and that he provided appreciated help. Mr McKenzie’s account might seem to provide a credible “alternative arrangement” entered into for the good of National Grid, and not forbidden by any clearly stated written policy. But a degree of caution is called for, both because of the longstanding connection between Mr Eaton and Mr McKenzie, and because Mr Eaton was not called to support Mr McKenzie’s account. I think I have to look at the relevant purchase order as a whole.

151.

The order was a single one addressed to Interserve for the provision of two site vehicles from September 2005 to May 2006 for the sum of £37,600. The requisition was raised by Mr McKenzie and was (under the arrangements then current) within his authority. The vehicles were supplied to Interserve by HMR and ultimately funded by Grimston. In closing (paragraphs 33 and 89.3 of the written closing) National Grid identified the second of the vehicles so supplied as a Land Rover Discovery provided for the personal use of Mr McKenzie. Mr McKenzie did not need a site vehicle in connection with the Shelford Quarry project. He was based in Yorkshire: and he had the benefit of a company car allowance. The terms of his employment did not entitle him in addition to the free use of a premium 4x4. He could only exercise his power to place orders to be paid for by National Grid for proper purposes in connection with the business of National Grid. Ordering the Discovery for his personal use in addition to his contractual vehicle entitlement was not a proper purpose.

152.

Once the vehicle order is tainted by that impropriety I think there is an evidential burden on Mr McKenzie to satisfy me that the supply to Mr Eaton was not similarly tainted: and on the evidence which I have recited I do not consider that that burden has been discharged. I think the likelihood is that this is a case of Mr McKenzie taking personal advantage of an underspend on the Shelford Quarry project. I find and hold that the requisition and purchase order relating to the two vehicles acquired through Interserve on the Shelford Quarry site were acquired in breach of Mr McKenzie’s contractual duties and that he must pay damages of £37,600. (When handing down judgment it was drawn to my attention that I ought also to refer to a third vehicle, provided in exactly the same way for the benefit of Mr Squires: this time at a cost of £11,880. I had included the vehicle when dealing with Mr Read’s liability for it in paragraph 173 below: but had omitted reference to it here).

The further vehicle claims

153.

National Grid alleged that Mr McKenzie had been involved in a number of discrete vehicle frauds: and these I must now turn.

154.

First it was alleged that he had arranged for the supply to Ms Bishop (a wayleave officer with National Grid, with whom he was having an affair) of a high specification Land Rover Freelander. The fact of supply could not be disputed. The circumstances of supply were readily apparent from the documents. On about 12 July 2004 Rigout purchased the Freelander (probably using funding provided by Grimston). On 16 July 2004 the Freelander was provided to Ms Bishop. On the 30 July 2004 Mr McKenzie raised a requisition (under the arrangements then current, within his authority to approve) for the supply of the Freelander at £450 per week. National Grid's Procurement Department authorised the purchase and placed the order with Rigout on 2 August 2004. Thereafter Rigout invoiced National Grid for 3-monthly hire periods at the rate of £450 per week. National Grid paid a total of £48,600. What was in issue was the reason for the supply.

155.

National Grid asserted that Mr McKenzie was providing a benefit for his girlfriend. Mr McKenzie gave evidence that he was providing a 4x4 vehicle to a wayleave officer to enable her to perform her duties: and that the vehicle was a replacement for a Land Rover Defender which had previously been made available to Ms Bishop by AMEC in connection with the Indian Queen’s project. I reject Mr McKenzie's explanation without hesitation. Ms Bishop already had a company car provided by National Grid. The terms of her employment did not entitle her to any more. If she needed a vehicle in connection with her wayleave activities then National Grid provided site vehicles. Of all the wayleave officers Mr McKenzie singled out Ms Bishop because she was his girlfriend. I find and hold that Mr McKenzie committed a breach of his contract and acted deceitfully in placing the order, and that National Grid has suffered a loss. I do not assess that loss in the sum of £48,600. Ms Bishop blew the whistle in November 2005. From that month National Grid would have known about the wrongful supply of the Freelander. They did not terminate the contract until after the commencement of the present proceedings: and I infer that they did not do so in order to induce Ms Bishop to co-operate further. Rental payments arising in that period were not a loss caused by Mr McKenzie. To allow for the fact that National Grid could not immediately bring the rental payments to an end in December and might have to allow the next three months hire period to run I will reduce the damages claimed by £1800 and award £46,800.

156.

(There was some debate as to whether the rate charged for the hire of the Freelander was grossly inflated: Mr Inglehearn and Mr Hill both gave general opinion evidence to the effect that it was. The only hard evidence was the charge made by Balfour Beatty as main contractor on the Chesterfield to High Marnham refurbishment, where for a 93 week period National Grid was charged £540 per week for the supply of a 4x4 vehicle to it. So had it been necessary for me to decide the issue I would have decided that the rate was not excessive).

157.

Next National Grid made a claim in respect of the supply of “all terrain vehicles” (or “ATVs” or “mules”). The picture that emerged was of the abortive supply of one ATV followed by the apparent supply of three ATVs by Rigout to National Grid. On 9 February 2004 Rigout sent an invoice in the sum of £21,000 to National Grid for the supply of mule at Pembroke for the month of January 2004. This strikes me as an extraordinarily high charge for one month’s use of a Kawasaki ATV. But the matter is not explained because is no preceding correspondence, nor yet a quotation. The disclosure by Rigout and by Grimston does not reveal the purchase in or about January 2004 of an ATV for hire. The invoice was originally not paid by National Grid because it did not bear an order number: but it was revised and resubmitted and paid.

158.

At the beginning of March Rigout then provided a quote for the supply of three Kawasaki mules plus trailers at Pembroke for £250 per vehicle per week for six months, plus a delivery and collection charge for all three vehicles of £1000. That also comes to £21,000. This was followed by e-mail exchanges between Rigout and Mr McKenzie with the evident object of producing an invoice for £12,000 (reached by hiring three ATVs at £250 per week for three months plus £1000 delivery per vehicle). It was then arranged that Rigout would not hire directly to National Grid but would hire to Interserve (to enable Interserve to on-hire to National Grid). Mr McKenzie assisted Rigout with the drafting of the quotation (at the suggestion of Mr Squires).

159.

National Grid asserts that no ATVs were ever provided and that this was simply a scheme to generate phantom invoices, cooked up between Mr McKenzie, Rigout and Grimston. The basis for this is in part the generation of the order and in part the absence of any purchase documents in the disclosure provided by Rigout and Grimston. I do not need to go that far. I need only find (as I do) that National Grid has established that these vehicles were not ordered because they were necessary for the projects on which Mr McKenzie was involved. The evidence of Mr Lamont that Interserve's site engineers saw ATVs on the site and put them to work does not establish that the ATVs he saw were the three Kawasaki ATVs with which I am concerned. These ATVs were ordered not because National Grid needed them, but because Rigout could profitably supply them. Accordingly Mr McKenzie is liable in damages (for breach of contract or deceit or conspiracy) in the sum of £21,000 plus £58,900 (which is the amount charged to National Grid for the ATVs)

160.

I am clear that the supply of the ATVs was part of a scheme operated by Mr McKenzie, Rigout and Grimston to enable Rigout and Grimston to take for themselves profits that would otherwise have accrued to third-party suppliers. Its nature is set out in an e-mail sent on the 13 February 2004 by Mr Good to his accountant. Grimston was (pursuant to an arrangement that had been made in December 2003 and recorded in writing) to fund the purchase of some new vehicles (described as “2 or 3 4x4 Jeep types and 2 or 3 Commercial pickup types”) of which Rigout would be the registered keeper (and insured): Rigout would then hire vehicles to National Grid. As Mr Good explained “[National Grid] pay Rigout and Rigout pay Grimston. Everyone does well -- Grimston get their money back and some”. Mr McKenzie was undoubtedly involved in this because he (an employee of National Grid) prepared some of the quotations which Rigout was to propose to National Grid for vehicle hire. He took as his starting point a quotation that he had prepared for the provision of ATVs. When the bidding for the ATVs got into difficulties it was to Mr McKenzie that Mr Good proposed a solution and enquired “let me know if you agree or otherwise that this route is preferable for all”. I consider that the ATVs were provided pursuant to this arrangement.

161.

So also were two Nissan Terranos. There is on this occasion an acceptance by National Grid that such vehicles were supplied. But familiar issues were again canvassed.

(a)

It was said that it was wholly inappropriate for such vehicles to be provided for the full-time use of employees of National Grid. I have already referred to one instance of Balfour Beatty providing to National Grid a 4x4 vehicle on the Chesterfield project. Other instances came to light. Les Jones (a National Grid employee) was provided with a succession of 4x4's first by Balfour Beatty and then by AMEC over a 20 month period. Jim Brown (another employee) was provided with one by Balfour Beatty for five months. Jon Boxhall (another employee) was provided with one for 10 months by Eve. Robin O'Brien (another employee) was provided with one by Balfour Beatty for seven months. There was no examination of the circumstances of such provision: but the existence of such arrangements undermines National Grid’s evidence that they were wholly inappropriate. Furthermore Mr Griggs, one of the National Grid employees to whom Rigout made available a Nissan Terrano told me that it did not strike him as unusual or something that he ought to report to his line manager.

(b)

It was said that the rate charged was too high. But the only hard evidence I have suggest that that is not so. And the fact is that these arrangements were passed by National Grid's Procurement Department. It was their job to spot excessive charges.

162.

But I am again not satisfied that there was any actual operational need to acquire these vehicles. They were ordered in furtherance of the vehicle scheme so that Grimston and Rigout would earn for themselves the profits. If Rigout was not supplying them these vehicles would never have been ordered. In the circumstances Mr McKenzie is liable in damages in respect of expenditure which should not have been incurred. The ATVs cost £79,600 and the Nissans £90,850.

Investigation damages

163.

Before turning to deal with Mr Read (and one minor complaint which concerns both Mr McKenzie and Mr Read) I should deal with what is almost the largest claim but received only passing mention to trial and was not the subject of substantial cross-examination. That is the claim for payment of £994,367 for the costs of investigating the frauds. This head of claim has been recognised at least since British Motor Trade Association v Salvadori [1949] Ch 556 it covers the money actually extended in unravelling and detecting the unlawful machinations of the defendants before any proceedings could be taken i.e sums that cannot be recovered as costs in the litigation. They are treated as part of the consequential loss caused by the tort. They cover the costs of external investigators and the “wasted time” cost of employees: but it must be established that the time was indeed spent on investigating or mitigating the relevant wrong: R+V Versicherung AG [2006] EWHC 42. Of course like any other loss in respect of which damages will be claimed there is an obligation to avoid avoidable costs in investigating the relevant wrong. The evidence of Mr Dudley established that National Grid had incurred costs and borne wasted time to the value of £961,115. Seven volumes of material were produced at trial to demonstrate what was done: but these volumes were not opened. Neither Mr McKenzie nor Mr Read challenged what was done or the time charged for it. But Mr Dudley disclosed that the work included investigation of National Grid employees and suppliers in whom no wrong was found, and examination of everything in which Mr McKenzie had been involved, even though that resulted in most of his dealings being found in order. It also included investigation is into the wrongs committed by those parties with whom National Grid has now settled for sums which do not reflect the cost of investigation. I think in principle there must be some limit upon or examination of the amounts claimed. But this is not the case to establish or explore those limits because the defendants do not challenge what was done. All that remains is to assess whether the costs of doing it were reasonable. I have considered whether to that end I should order an enquiry before a master assisted by an assessor: that is a course I was minded to take if the defendants wish. But it would be on terms that they submit to a joint and several order for interim payment in the sum of £500,000 (for the costs of proper investigation cannot be less than that). I invited further submissions before the final order was drawn. These revealed that Mr McKenzie and Mr Read did not wish me to take that course: they wanted the matter over and done with, and the amount of the investigation damages was of entirely academic interest (given the size of the other awards and the extent of their means). On the footing that what is in issue is the reasonableness of the level of charge, I assess the investigation damages recoverable against Mr McKenzie and Mr Read jointly at £575,000 being 60% of the total claim (having deducted therefrom time admittedly spent on litigation and not investigation issues).

Mr Read

164.

Before turning to deal with the case against Mr Read generally, there is one area of specific overlap with the case against Mr McKenzie. This relates to a claim by National Grid that Mr Read through HMR paid for 3 Honda quad bikes.

165.

National Grid alleges that secret and corrupt arrangements were made between Mr McKenzie and Mr Read under which Mr McKenzie received secret payments and the secret provision of other benefits. Amongst these it is alleged that Mr Read provided three Honda quad bikes to Mr McKenzie. National Grid adduces no direct evidence, but relies on documents recovered from Mr McKenzie’s home on a “search and seize” order. These documents, which Mr Phillips QC described as “invoices” were delivered by a specialist vehicle supplier to “Harbour Management” at Mr McKenzie’s home address. They relate to three Honda quad bikes at a total price of £1,880. In his evidence Mr Inglehearn said that he understood that the quad bikes themselves were also found at Mr McKenzie’s house: but at trial it seemed to be accepted by National Grid that this evidence was not reliable. The case rested on the terms of the documents and the fact that they were shredded.

166.

It is be noted that the documents are not “invoices” but “receipts”, each bearing the pre-printed words “paid in full”. But they undoubtedly cast an evidential burden upon Mr McKenzie to displace the inference that might otherwise be drawn that Harbour had paid £1,880 for three Honda quad bikes for delivery at Mr McKenzie’s address. Mr McKenzie gave direct evidence that he had purchased the vehicles over the internet, that it was necessary to register a business name in order to place an online bid and that he used the name of Harbour Management without Mr Read’s approval, but used his own address, and that he paid for the vehicles with £2,000 drawn in cash from his account on 10 March 2006. He collected the vehicles the following day when he discovered that they were partially dismantled ex-army vehicles so he had them delivered to a specialist dealer near York where (so far as he knew) they remained, since the commencement and conduct of the present proceedings meant that he could no longer afford their repair. He said he had disclosed to National Grid on the occasion of the search and seize order the address in York at which the vehicles could be found.

167.

National Grid could not demonstrate that this evidence (almost the entirety of which had been set out in detail in Mr McKenzie’s witness statement) was false. No material was produced from Mr Read’s disclosure which demonstrated that he or Harbour had paid the £1,880 or that the transaction had passed through his books in any way. There was no suggestion that the vehicles were not to be found at the address which Mr McKenzie gave for them. There is nothing to suggest that the vendor’s website did not in March 2006 operate in the way suggested. What was submitted was that there was a disparity between the date on the shredded documents (7 April 2006) and the date on which Mr McKenzie said he paid for the vehicles (11 March 2006), that Mr McKenzie was falsely relying on a bank withdrawal that really had nothing to do with the quad bike transaction, and that Mr McKenzie was a liar who had shredded the relevant document. The first is curious: the second is possible: and the third is an accurate submission. But the fact that Mr McKenzie has told me lies does not mean that he never tells the truth: and the fact that he shredded a document is as explicable by the inference that he wished to conceal any connection with Mr Read and HMR (because of dealings on other projects) as by the inference that HMR paid for the quad bikes. To be balanced against this is the feature that the receipt is sent to HMR at Mr McKenzie’s address (not Mr Read’s): and Mr McKenzie’s direct evidence, which, when given, did not strike me as manufactured. In the result I am not satisfied that National Grid’s suggested inferences from the shredded invoices establish on the balance of probabilities that Mr Read paid for the Honda quad bikes.

168.

With that issue out of the way I can now focus on the case against Mr Read. Mr Read undertook very little cross-examination of National Grid's witnesses and decided to give and call no evidence. Although I gave him the opportunity to reflect upon adopting that course, he stuck with it. This leaves it open to me to draw adverse inferences from his failure to give material evidence.

169.

National Grid's case is that Mr Read was a conspirator from the outset and fully involved in everything. He has not answered that case in evidence: but I must measure that case against the found facts in the claim against Mr McKenzie.

170.

Much of the material relating to Mr Read had already been canvassed. These are my specific findings. They are stated shortly because Mr Read did not challenge the evidence, or support the respects in which his Defence traversed the Particulars of Claim.

171.

Mr Read was a quantity surveyor who traded both on his own account and through HMR. His original involvement with National Grid was when he bid for a contract connected with the metrication of the power network in 2002. In bidding for that contract he very substantially undercut all other tenderers and it cannot be suggested that he was in the project to overcharge National Grid. It cannot be inferred that at that time he was willing to act wrongfully. He was next engaged by Mr McKenzie in January 2005 to act as quantity surveyor on the Mannington line. His engagement was approved by Mr Inglehearn. He achieved significant savings. Mr McKenzie began to use him not only on the Mannington project but also for project management services in South Wales and as a quantity surveyor on the Shelford Quarry scheme. Although retained on a daily rate and on National Grid's standard consultancy terms (to which I was not taken) he owed the same fiduciary duties in relation to his retainer as did Mr McKenzie in relation to his employment. The difference was that he was free to undertake other commercial activity provided that it did not involve a breach of any of his contractual or fiduciary obligations.

172.

From about January 2005 Mr Read began to be involved in Mr McKenzie’s schemes. He had regular contact with Mr Squires and it may be inferred he acquired a working knowledge of the arrangements relating to Mr Squires’ timesheets and the Grimston personnel timesheets (with which he was later to display familiarity). He acquired a working knowledge of the fuel charge scheme: so that when the scheme broke down in November 2005 he was able to advise on the figures. He acquired a working knowledge of the vehicles scheme and himself provided via HMR Mr Eaton’s Nissan and Mr McKenzie’s Discovery. Harbour also supplied a further vehicle (which was used by Mr Squires) at a cost of £11,880. He was involved in the payment of shopping money to Jo Middleton and Ms Bishop in March 2005. In August 2005 he became without doubt a participating member with a 25% share in the consortium relating to the “New Joint Venture Eve and Interserve Site Projects”. From that project he received in respect of the culvert contract £15,000 from Rigout for project management services and £10,000 from Grimston, both of which he showed on the spreadsheet he prepared for the other participants. He was the quantity surveyor on Shelford Quarry and it is to be inferred that (both in that capacity and as a consortium member) he was aware of Mr McKenzie's intention in breach of fiduciary duty to create fictional variations: in which scheme he dishonestly assisted. He was likewise a participant in the joint venture relating to the ancillary works and muffing contracts in South Wales, on which he was retained as quantity surveyor until November 2005. He assisted in the preparation of quotations for the muffs and other work, and in so doing gave instructions that his involvement should be concealed. He undertook the management of the people actually doing the work. He prepared the spreadsheets showing the profits. While so acting he was paid a total of £82,375 by way of fees by National Grid.

173.

The consequence in terms of remedies is as follows:-

(a)

Mr Read conspired with Mr McKenzie from shortly after January 2005 in his breaches of duty relating to the Squires timesheets and the Grimston personnel timesheets. He is liable in the sum of £70,000 in respect of the “additional two hours” and the “absence” claims of Mr Squires. He is liable for £83,000 in respect of the Grimston personnel. (These figures were calculated by National Grid in closing and not challenged as computations by Mr Read).

(b)

He is himself in breach of fiduciary duty in relation to the culvert and bound to account for the secret profit of £24,250 which his schedule shows him as making: but he is alternatively liable to pay £90,000 on the same basis as Mr McKenzie is so liable.

(c)

He conspired with Mr McKenzie over the fuel cards and is liable in damages for £58,000 in respect of excess fuel charges.

(d)

He himself acted in breach of fiduciary duty in providing vehicles in circumstances where his interests conflicted with his duties and is liable to account for the sums of £37,600 and £11,880 received by Harbour but less the expenses of their provision for that period.

(e)

He is in breach of fiduciary duty in relation to the South Wales projects and is to be treated in the same way as Mr McKenzie.

(f)

He is liable for the costs of investigating the wrongs in the same way as Mr McKenzie.

174.

Those are the conclusions at which I arrive.

Mr Justice Norris…………………………………………………21 July 2009