Derek Hodd Ltd v Climate Change Capital Ltd

This is principally a claim to recover a contingency fee alleged to be payable for consultancy services in the field of expense reduction provided under a written agreement dated 13 November 2006 (“the 2006 Agreement”). The sum charged for those services by an invoice issued on 12 February 2008 was £125,250 plus VAT, making a total of £142,674.38. That is the amount which the claimant now seeks to recover, together with interest from the invoice date.

There are, however, some preliminary issues about the identity of the parties to the 2006 Agreement, and its legal validity, with which I will need to deal. The introductory details which follow will help to set the scene for the resolution of those issues.

The claimant, Derek Hodd Limited, is the corporate vehicle through which Mr Derek Hodd, a procurement consultant, now carries on business. Nobody suggests that either Mr Hodd or his company was a party to the 2006 Agreement, but his company now sues as assignee of the benefit of the 2006 Agreement from a company called Zukra Limited (“Zukra”). Zukra was the corporate vehicle through which another procurement consultant, Mr Dominic Hollywood, carried on business from 1 August 2006.

At the time when the present story begins, both Mr Hollywood and Mr Hodd were sole traders who operated as franchisees of an organisation called Expense Reduction Analysts (or “ERA” for short). ERA was a worldwide business operating on a franchise model. The UK arm of the business was conducted through a company called Expense Reduction Analysts (UK) Limited (“ERA (UK)”).

Mr Hodd was an experienced consultant, having worked in the field of procurement since 1999. He was evidently good at this job, and in 2006 he was ERA’s consultant of the year. Mr Hollywood, by contrast, was a relative newcomer to procurement consultancy. His background was in accountancy, and after qualifying as a chartered accountant in 1995 he then worked for ten years in that field, rising to hold posts at corporate finance director level. In late 2005 he decided on a change of career, and bought a franchise from ERA (UK) on 6 December 2005.

As Mr Hollywood explains in his written evidence:

“Everyone who becomes a franchisee of [ERA (UK)] is entitled and licensed to trade as ERA. Franchisees often begin working as sole traders and later on form a limited company. We tend to find that ERA consultants talk to each other as fellow associates and use each other’s knowledge when this is required. I trained on a course operated by [ERA (UK)] which commenced in January 2006. I began working as a sole trader and then on 1 August 2006 I transferred the franchise to my company Zukra Ltd.

[ERA (UK)] would give franchisees access to their brand and we were required to trade under the name Expense Reduction Analysts. They had a standard methodology and corporate identity and supplied marketing material, template terms and conditions and letter of engagement.”

The claimant’s case is that it was Zukra which agreed to provide the relevant services under the 2006 Agreement. Reliance is placed, in particular, on the “ERA Terms and Conditions of Trading” set out on the reverse of the letter of engagement which Mr Hollywood signed on 13 November 2006 (“the Letter of Engagement”). Those terms said at the top of the page:

“This Agreement is between Expense Reduction Analysts (ERA) and the Client named in the Accompanying Letter of Engagement, and consists of these ERA Terms and Conditions of Trading, together with the Letter of Engagement (LoE) and any additions or modifications it contains.”

At the foot of the page, beneath the terms and conditions, was the statement, in a larger font and olive green instead of black ink:

“ERA is the trading name of Zukra Ltd, 2 Marlborough House, 317 Kennington Road, London SE11 4QE.”

On the face of it, therefore, it seems reasonably clear from the terms and conditions on the reverse of the Letter of Engagement that the party which contracted to provide the services was indeed Zukra, trading as ERA. This is not accepted by the defendant, which relies on the Letter of Engagement itself. The Letter of Engagement was written on the headed notepaper of “Expense Reduction Analysts”, giving its London address and contact details, including Mr Hollywood’s ERA email address. At the foot of the page, beneath the signatures, one finds in the left hand corner, in small print, “Associate Office of Expense Reduction Analysts (UK) Limited”, while in the right hand corner, in various fonts of differing sizes, is the web address of ERA (UK) placed immediately above the words “Releasing hidden profits”, and a reference to offices in Asia, Australasia, Europe, North America and South America.

The body of the Letter of Engagement contained no reference to Zukra, and described the body that would perform the work as “ERA”. It also said that the project would be completed “according to the Terms and Conditions overleaf”. The letter was signed by Mr Hollywood, with his name printed under his signature, but giving no indication of the capacity in which, or on whose behalf, he was signing.

Against this background, the defendant does not admit that any contract was made with Zukra and says that at all material times it believed that Mr Hollywood was representing ERA (UK).

Alternatively, the defendant says that if it did contract with Zukra on the terms of the Letter of Engagement, that contract was concluded only because Zukra failed to state its company name in legible characters on the Letter of Engagement in breach of section 4(1)(a)(iii) of the Business Names Act 1985, and that the defendant suffered loss and damage as a result of that breach. Accordingly, it is pleaded in paragraph 26 of the defence that the Letter of Engagement (and any contractual debt purportedly created thereunder) was unenforceable by Zukra as against the defendant, and the claimant as assignee of the alleged debt can be in no better a position than Zukra itself.

I now turn to the problems associated with the identity of the defendant, Climate Change Capital Limited (“CCC”). The Climate Change Capital group of companies was established in October 2003 to provide advice and invest in products and services operating in the low carbon economy. By 2007 it had grown rapidly, and significant sums had been invested in funds which it managed, first by retail investors and later by financial institutions. The clients paid either a management fee or an advisory fee. The group’s initial investment products were in the wind energy market in the UK, but the group was also at the forefront of emerging carbon markets worldwide. In 2006 and 2007, the parent company of the group was Climate Change Holdings Limited (“Holdings”), which was owned by a mixture of the founders, staff, private individuals known to the founders, and a small number of financial institutions. Holdings operated the group through 18 subsidiary companies, each of which had a particular function. The main subsidiary was CCC, which was authorised by the Financial Services Authority to conduct investment business, and was appointed as the manager of the investment funds to which external investors subscribed. The other subsidiary companies had various roles in the holding structures of the funds, some of them acting as general partners. Apart from its central role as the FSA-regulated manager of the funds, CCC also provided advisory services to external professional clients. All staff within the group were employed by Holdings, which also paid for most expenses, including travel. There were internal contracts in place for services between the different companies, not always written but clearly understood. Thus, for example, Holdings provided services to CCC, and charged CCC a fee for those services.

Thirteen of the subsidiaries were incorporated in England and Wales, the remainder of them being incorporated in the Cayman Islands or the USA. None of the subsidiaries was called Climate Change Group Limited. That, however, is the name which appears on the Letter of Engagement as the name of the client, and the letter was expressed to be signed “For and on behalf of Climate Change Group Ltd” by Mr Paul Bramley, who appended the description “Group FD” to his signature.

Mr Bramley had joined the group in April 2006 as interim group finance director on a consultancy contract. He was the senior finance professional in the internal finance department, and reported to the Chief Operating Officer of the group, Mr Mark Bell. He was not a director of any of the group companies, and subsequently left the group on 31 May 2007.

The question which thus arises is: with which company in the group was the 2006 Agreement made? Was it the principal operating subsidiary, CCC? Or was it Holdings, the company which employed staff and paid for most expenses, including the air travel expenses which formed part of the subject matter of the Letter of Engagement?

In his witness statement, Mr Hollywood said that he had made a mistake in preparing the Letter of Engagement. He went to the Companies House website to check on the correct name for the company he was going to contract with, but made a mistake and instead of writing down Climate Change Capital Limited, he wrote down Climate Change Group Limited. Although there was no company of that name in the CCC group, there was a dormant company of that name recorded in the register of companies. Relying on this evidence of mistake, the claimant avers that the 2006 Agreement was made with CCC. It says that the four references to Climate Change Group Limited in the Letter of Engagement are obvious misnomers, which can and should be corrected as a matter of construction. Alternatively, the court is asked to rectify the 2006 Agreement so that the contracting party is named as CCC.

For its part, the defendant (CCC) denies that it was a party to the contract, and points out that Mr Bramley was never a director of CCC. It is further denied that he had any authority to bind CCC to any contract, his only role in the group being as a consultant with the job title of interim group finance director. In addition, the claimant was put to proof of the alleged mistake made by Mr Hollywood.

The witnesses who gave evidence on behalf of the claimant were Mr Hollywood and Mr Hodd. As I shall explain, although the 2006 Agreement was negotiated and concluded by Mr Hollywood, he then instructed other ERA consultants to help with the work, including in particular Mr Hodd whom he engaged to help with the review of air travel expenses which lies at the heart of this case. Thus it is Mr Hollywood’s evidence which is mainly relevant to the preliminary contractual issues, while Mr Hodd is the principal witness in relation to the substantive issues.

Mr Hollywood gave his evidence by video-link from Beijing on the second day of the trial. I am satisfied that he was an honest witness who did his best to assist the court, although at times his answers seemed a little argumentative. I also need to bear in mind that Mr Hollywood, through Zukra, has a financial interest in the outcome of this action, because the terms of the assignment of the disputed debts by Zukra to the claimant in February 2009 entitle Zukra to an undisclosed share of any recoveries from CCC after deduction of legal fees, and also oblige Zukra to pay an undisclosed percentage of any legal fees incurred by the claimant which cannot be recovered from any other party. I do not believe that this financial interest coloured Mr Hollywood’s evidence in any significant respect, but it may explain the argumentative tone which he sometimes adopted.

Mr Hodd was a careful and conscientious witness. He gave his oral evidence for the best part of a day, and underwent a searching (but entirely fair) cross-examination by Mr Wright, designed to establish that he had made a number of serious mistakes in the work which he carried out for the CCC group. Mr Hodd was obliged to admit that he had indeed made several errors, but he understandably sought to play down their significance and to defend both his methodology and the overall value to the client of his work. I would not wish to criticise him for this natural human reaction to an attack on his professional competence, particularly under the pressure of cross examination. Although Mr Wright criticised Mr Hodd’s evidence quite severely in his written closing submissions, I am satisfied that Mr Hodd never deliberately misled the court, and that he did his best to uphold the high professional standards which he sets himself. There are occasions when I have found myself unable to accept his evidence, but I would readily acquit him of any charge of dishonesty.

There was a graphic illustration of his conscientious approach to giving evidence, and his wish to do himself justice in the witness box, at the beginning of the second day of the trial when Mr Hodd asked me if he could enlarge upon various answers which he had given the previous afternoon, having had the opportunity to re-examine his raw data overnight. I acceded to this request, to which Mr Wright wisely did not object, and Mr Hodd then embarked on a speech of considerable length in which he sought to explain and justify parts of his earlier evidence.

The only witness to give evidence for the defendant was Mr Ian Temperton, who is currently a director of CCC and in charge of the group’s mergers and acquisitions advisory business unit. This unit has been advising clients on mergers and acquisitions in the low carbon energy sector since it started in 2003. Mr Temperton was one of the group’s first employees, having joined in January 2004. Despite his long experience with the group, however, he played no part in the events which led up to the 2006 Agreement. Nor did he have any direct involvement in relation to the work subsequently carried out by Mr Hodd, or the decision to terminate the review which was taken in late September 2007 by Mr Mark Macleod who had replaced Mr Bramley as the group’s chief financial officer in July of that year. It follows that Mr Temperton was unable to give first-hand evidence about any of the principal matters in dispute, and much of his witness statement reads more like a written submission and report on the documents prepared with a view to advancing the defendant’s case. That said, when Mr Temperton went into the witness box he gave his oral evidence in a frank and straightforward manner, and I have no hesitation in accepting him as a witness of truth who did his best to provide full and clear answers to all the questions put to him. He never tried to pretend to have first-hand knowledge which he lacked, and he frankly said that he saw his main function as a witness as being to inform the court how the business operated. He readily accepted that he knew nothing about the negotiations in which Mr Hollywood had been involved, and said he remained blissfully unaware of the present dispute until it became a disclosure issue in connection with a recapitalisation programme in 2008.

The failure of the defendant, whether deliberately or otherwise, to call any evidence from the key people involved in the dispute is clearly a matter that I need to keep well in mind. No explanation for the absence of such evidence was provided, apart from the fact that most of the relevant people no longer work for the group. Mr Temperton did say, in answer to questions by Mr Blaker for the claimant, that he had spoken with Mr Macleod in general terms about the dispute, but did not discuss the content of his witness statement with him. Mr Temperton said that he had also had some recent discussions with the former chief executive officer of the group, Mr Mark Woodall, but had not asked him to give evidence for the defendant.

One other key figure whom it is convenient to mention at this point is Ms Natalie Carthew, who returned to the group from maternity leave at the beginning of October 2006. It was agreed that she would then take up a revised role on a part-time basis, and she was offered and accepted the position of “Office and Facilities Manager, Central Services”. In a letter of engagement from Holdings dated 6 September 2006, and counter-signed by Ms Carthew on 2 October 2006, she was informed that she would report directly to the chief operating officer, Mark Bell, and that her key responsibilities would be, inter alia, to “monitor discretionary expenditure, control against budget and consider ways to cut costs”.

Mr Temperton’s comment on Ms Carthew is that she:

“… was one of the earliest employees of the group and, under direction, looked after the office premises and facilities. She would have been responsible for the relationships sourcing office supplies and the provision of external services such as the travel management company, and office cleaning. She was very competent in liaising with service providers but she did not necessarily understand much of the business context for the services required.”

It seems to me that this comment may rather downplay the significance of Ms Carthew’s role after her return from maternity leave, bearing in mind that she reported directly to the chief operating officer, and that one of her express key responsibilities was to monitor discretionary expenditure and consider how costs might be cut.

In the first half of 2006 Mr Hollywood was developing his new business as a procurement consultant. A former accountancy colleague of his, Andrew Sheehan, happened to be working for Holdings, and it was he who provided Mr Hollywood with an introduction to the CCC group. On 8 June 2006, Mr Hollywood sent Mr Sheehan some background information on ERA, and a meeting was subsequently fixed between Mr Hollywood and the CCC group’s management for 12 June 2006. The material sent by Mr Hollywood included some promotional literature of ERA (UK), which said that ERA had been operating for almost 20 years, had a “UK resource of over 100 analysts”, and was currently working with over 2,500 UK companies, reviewing annual expenditures of over £300 million. There were quotations from testimonials by satisfied clients such as Bank of Scotland, the RSPCA and Coral UK Racing Ltd.

The meeting on 12 June 2006 took place at CCC’s offices at Grosvenor Street in Mayfair. It was attended by Mr Woodall, Mr Bell and Mr Bramley. There was a general discussion about the services that ERA could provide and how it operated. At that stage Mr Woodall left the meeting, but Mr Hollywood continued his discussions with Mr Bell and Mr Bramley, moving on to the annual spending of the group and possible savings that might be made. At the end of the meeting Mr Hollywood was authorised to explore the matter further. It was also agreed that if he lacked expertise in a particular field, he would get another consultant to carry out the necessary work. Mr Bell and Mr Bramley appeared perfectly happy with this suggestion. As Mr Hollywood says, one would not expect a consultant to have detailed knowledge of every area where savings might be made.

During the meeting, Mr Hollywood handed over his ERA business card. It is not suggested that he said anything about his plans to incorporate his own company, and it is possible that he had not yet decided to take that step.

On the next day, 13 June, Mr Sheehan emailed Mr Hollywood setting out a number of possible areas for savings. One of those areas was “travel air fares”, expenditure on which over the previous nine months was said to be £156,000. Mr Hollywood replied on 14 June, saying that he thought savings might be feasible in six of the areas mentioned by Mr Sheehan, including travel air fares in respect of which he said:

“savings potential would be on the portion of this spend for which a travel agent is required – significant savings are possible here but more information is needed to assess potential. Can you get a copy of the management reports from your travel agent? They should be able to provide these for the last 6 months showing airline, routes flown, class of travel and cost.”

Other areas where Mr Hollywood saw the potential for savings were telecoms, office supplies, insurance, printing and couriers. Based on the figures provided, which he extrapolated over 12 months, Mr Hollywood said he would expect “annual savings opportunities of over £30k with potentially a significant saving on airfares in addition to that”.

Mr Sheehan then forwarded Mr Hollywood’s email to Mr Bell and Mr Bramley, asking whether Mr Hollywood should be invited back to take the matter further. Mr Bell’s response was favourable, although he said that it was necessary to hold off for a week or two. Mr Bramley, however, was unenthusiastic. He replied on 20 June, saying that in his opinion it was not a priority, and he was sceptical about the results and time required. He said the group should be able to do its own work on telecoms and flights, where the bulk of the savings were, and suggested that they should revisit the proposal in August or September when things would be quieter.

It seems that Mr Bramley’s suggestion was adopted, because the matter was not raised again within the group until late September. Meanwhile, Mr Hollywood had incorporated Zukra and, with the agreement of ERA (UK), had assigned his ERA franchise agreement to Zukra with effect from 1 August 2006. On 26 September, Mr Sheehan emailed Mr Bramley and Mr Bell, reminding them that it was well over three months since they had met Mr Hollywood and asking:

“Do we want to pursue this, no cost involved and minimal time disruption?”

Mr Bramley was still sceptical, replying on 27 September:

“My view is that it is still not the right time unless we feel we can achieve savings of £5-10 k pa ..

Things like telecoms/mobiles Roy is reviewing and defining policy.

Other overheads are not that outrageous.”

Mr Bramley copied his reply to Mr Bell, who presumably agreed as the matter then went to sleep again for a further six weeks.

On 6 November 2006, Mr Sheehan tried again. He emailed Mr Bell and Mr Bramley, saying:

“Any further thoughts on this?

Does not cost us any money, from what Dominic mentioned, we would expect to get £30k p.a. savings at a minimum.

Areas to look at include flights, telecoms, office supplies, insurance & couriers.

I don’t see how Roy can analyse the market to get us best rates, he won’t have the time.”

It would appear that this time Mr Bell and Mr Bramley thought the time was ripe to take the matter forward with Mr Hollywood, because the Letter of Engagement was signed a week later. Unfortunately, the bundle does not contain any internal CCC emails or attendance notes between 6 and 13 November, and none of Mr Bell, Mr Bramley and Mr Sheehan has been called to give evidence. All I have to go on, therefore, is Mr Hollywood’s evidence that he was told that CCC wanted to proceed to enter into an agreement, and he was invited to attend another meeting at their offices on 13 November. In advance of the meeting, Mr Hollywood prepared a draft letter of engagement, using the ERA template for that purpose. Nobody told Mr Hollywood which company in the CCC group should be the contracting party, so he went to the Companies House website to check the names of the companies in the group.

I have already referred to Mr Hollywood’s written evidence about the mistake which he says he then made: see paragraph 16 above. It emerged in cross-examination, however, that mistake is only a partially correct explanation of how Mr Hollywood proceeded. It is true that he wrote down the name Climate Change Group Limited in the mistaken belief that the company of that name formed part of the CCC group; and having made that mistake, he might understandably have assumed that it was the principal company in the group, and therefore the appropriate contracting party unless he was otherwise informed. But in cross-examination Mr Hollywood disclaimed any train of thought of this nature, and said he simply didn’t know which was the correct company to specify for the provision of services, and he regarded it as an internal matter for the CCC group to identify the appropriate counterparty. He said that the question had not been raised in the previous discussions or correspondence, and he just failed to focus on it. He had been concentrating on the services that he would be providing, not on the particular company in the group to whom they would be provided.

It seems, therefore, that Mr Hollywood’s naming of Climate Change Group Limited as the counterparty in the Letter of Engagement was little more than a shot in the dark, and that he never had any positive intention to name the defendant company, CCC. There is also no evidence that anybody focused on the question at the meeting on 13 November. Mr Hollywood said that his normal practice was to take two copies of a letter of engagement to a meeting, one of which he would leave with the client when it had been signed. I infer that he followed this practice, although it may not have been until after the meeting that the client’s copy was signed by Mr Bramley, because Mr Hollywood said in cross-examination that he had no recollection of meeting Mr Bramley on the 13^th, and he was subsequently handed the signed copy of the Letter of Engagement by Mr Sheehan. Whether or not Mr Bramley was in fact at the meeting, there is no evidence that anybody on the CCC side paid any attention to the identity of the contracting party, and Mr Bramley was content to sign as “Group FD”. Nor is there any evidence that anybody at the meeting referred to the incorporation of Mr Hollywood’s business, or the fact that it was now Zukra rather than Mr Hollywood personally who held the ERA franchise.

I have already described the general format of the Letter of Engagement, how it is headed, and the signatures and other printed material at the foot of the front page. I must now describe the content of the letter.

The letter began:

“Thank you for instructing us to review the following expense categories on behalf of Climate Change Group Ltd:

OFFICE STATIONERY

COURIERS

AIR TRAVEL

TELECOMS

TAXIS”

The five categories listed above were entered in manuscript in boxes which were left blank on the template. Presumably the final decision about the categories was taken at the meeting on 13 November.

The letter then continued:

“ERA will commence the first project (category) on or about (date) and anticipate being in a position to submit our Recommendation Report within eight weeks of that date. This will be completed according to the Terms and Conditions overleaf. Once we have commenced the audit our period of engagement will be either up to submission of our Recommendation Report or, if the review is successful as defined overleaf, for eighteen months from full implementation of a Successful Recommendation Report.

I attach, for your information, a project plan that outlines the project stages with target completion dates. In the normal course of events the project is estimated to require some [ ] man-days to submission of Recommendation Report. In keeping you informed of progress periodically I will communicate with you in the main by email/…/telephone, which will also detail any changes in the time plan.

You have requested us to identify your quality and service needs, audit and analyse your expenditure with a view to identifying and implementing cost saving opportunities that may be available to Climate Change Group Ltd whilst maintaining at least current service levels.

The Target % Reduction for each project/category is set as 5% (unless a different figure has been inserted against any particular category above), or any saving negotiated with your current supplier, or any credits or rebates identified.

It has been agreed that our fees will be charged on a … Contingency Fee basis, whereby ERA shall receive 50% of the savings actually obtained. Where deemed appropriate ERA may subsequently offer a Report Purchase option as described overleaf.

I look forward to working with you on what I hope will be a number of projects, and meanwhile would ask you to sign and return the enclosed duplicate copy of this letter, in order that I may commence work.”

Despite the reference to an attached project plan, there is no indication that any such document was in fact attached to the letter. Nor were any particulars given of the first project to be undertaken, or when the work would begin. It was, however, expressly agreed that ERA would be remunerated for its work on the contingency fee basis, and not on the alternative day rate basis which was defined in the terms and conditions overleaf as £950 per seven hour day plus expenses.

As I have already explained, ERA’s terms and conditions of trading were set out on the reverse side of the Letter of Engagement, and it was stated at the foot of the page that ERA was the trading name of Zukra. The detailed provisions of the terms and conditions are not relevant to the preliminary contractual issues, but for convenience I will now set out the main provisions which are relevant to the substantive dispute between the parties:

“ERA OBLIGATIONS

…

2.

Agreement – Having been engaged to complete all stages of the project to Recommendation Report submission ERA confirms willingness to do so upon the terms of this Agreement, provided any estimates of expenditure made on behalf of the Client prior to this Agreement are substantiated upon our initial review

…

PROJECT MATTERS

6.

Savings definition. Savings will be the direct or indirect reductions in expenditure and calculated from each of the following: - (a) the difference between the benchmark prices and prices the Client subsequently receives, multiplied by the quantities purchased, (b) any credit/rebate identified by ERA, (c) any other area of potential saving that has been submitted by ERA and agreed by the Client in the Benchmark Report.

7.

Definition of Success Criteria – to be successful a saving must provide equivalent quality levels of product and service as defined in the Benchmark Report AND either:

(i)

in the case of a new supplier exceed the Target % Reduction defined in the Letter of Engagement (LoE), OR

(ii)

be any saving from the incumbent supplier, or any other saving progressing from the Benchmark Report.

8.

Benchmark Report. This report details the current service levels and prices paid for the items or services under review. It may also highlight other savings opportunities. These prices and service levels will be the benchmark used for calculating subsequent savings. The benchmark prices will be adjusted in line with industry-wide price variations throughout the period of engagement to reflect true savings. If the project is based on a Contingency Fee, ERA will also confirm the Success Criteria.

9.

Recommendation Report. This report analyses potential savings against the Success Criteria presented in the Benchmark Report.

10.

Successful Recommendation Report (SRR) (Contingency Fee only). A Recommendation Report is considered successful if it meets either of the Success Criteria. If it does not meet the Success Criteria and the Client does not follow the recommendations included then no fee will be charged for the review.

…

CLIENT OBLIGATIONS – the Client agrees:

16.

No duplication of effort – that the expense categories being reviewed are not currently being examined either internally by staff or externally by others and the Client will not in any way duplicate the work of ERA in the period detailed in the LoE. All unsolicited enquiries from any suppliers will be passed to ERA for evaluation.

17.

Engagement – that ERA has been engaged to complete all stages of the project to Recommendation Report submission, and the Client will provide all reasonable assistance to achieve that.

18.

Action – that findings and prices shown in a SRR will only be valid for 90 days from the date of tender, and that the Client will therefore authorise implementation of Recommendations within 60 days of submission of that SRR unless otherwise agreed in writing.

…

23.

PAYMENT OPTIONS

…

Contingency fee payable as follows:

(a)

On presentation of Successful Recommendation Report a fee note for 15% of recommended projected savings (non-refundable) will be paid;

(b)

After implementation a further fee note for 10% will be paid;

(c)

The balance will be periodically invoiced by ERA against actual savings received.

…

ACKNOWLEDGMENTS

…

25.

Client decisions. The Client understands that ERA facilitates savings through cost reduction. ERA will enable the Client to verify the suitability of suppliers prior to implementing any recommendation.

…

27.

Breach of this agreement by the Client

…

(ii)

failure to implement (clause 18) or any breach after implementation has been agreed shall entitle ERA to immediate payment of the greater of time expended calculated at the Day Rate Option basis, or 50% of the recommended projected savings for the period in the LoE. Where applicable, credit will be given for payments already received.”

Having set the scene and described the history of events down to the conclusion of the 2006 Agreement, I will now deal with the preliminary contractual issues.

Which company contracted on behalf of the CCC group?

I pose the question in this form because it cannot be doubted, on an objective appraisal, that a contract was concluded on 13 November 2006. Neither side has contended the contrary. The question therefore is, which company in the CCC group was a party to that contract?

In the light of Mr Hollywood’s written evidence in chief, the issue was understandably pleaded and presented in argument as one of misnomer. But in my view Mr Hollywood’s evidence in cross-examination shows that this cannot be the right approach. There is a misnomer where a party knows who it is to whom he wishes to refer, but by mistake he attaches the wrong name to that person. The problem in the present case is that Mr Hollywood never decided which company in the CCC group was to be his client, so although his choice of the dormant and unrelated Climate Change Group Limited was on any view a mistake, it was not a mistake about the identity of a particular counterparty. Nor, it seems, did the CCC group give any thought to the question. Mr Bramley was content to sign a document which referred four times on its face to a non-existent group company; and if anybody else on the CCC side spotted the error, nobody said anything about it.

The likeliest explanation, I think, is that neither side directed its mind to the question. Both sides clearly intended that the CCC group should be legally bound by the Letter of Engagement, and I suspect that the need to specify an individual group company as the contracting party was either overlooked, or regarded as a detail of no commercial importance which could be sorted out in due course if the need arose, perhaps by the group’s lawyers.

In those circumstances, I consider that the natural intention to impute to the parties, looking at the question objectively in the light of the relevant factual background known to both parties, is that the contracting party was to be the chief operating company of the group, namely CCC. It was that company which was authorised and regulated by the FSA, and which managed all of the group’s investment funds as well as providing advisory services to external clients. In the absence of any indication to the contrary, CCC would therefore have been the obvious company to take a lead in trying to curb expenditure in the five categories listed in the Letter of Engagement. Although Holdings was in fact the group company which employed staff and paid for most expenses, this was a matter of internal group organisation which (on the evidence before me) had never been communicated to Mr Hollywood. It therefore did not form part of the factual matrix in which the contract has to be construed.

I am reinforced in my view that this is the correct conclusion by the fact that no point appears to have been taken by anybody within the CCC group about the identity of the contracting party until Mr Hollywood sought to enforce the contract in 2008. At that point, lawyers were brought in and the issue of misnomer was debated in correspondence, with the CCC group contending that no contract had been concluded with any member of the group. As I have explained, I do not regard that as a tenable view, and Mr Wright did not advance any argument to that effect in his comprehensive written and oral submissions. Once it is recognised that a contract clearly was made, that the only plausible contenders for the contracting party on the CCC group side are Holdings and CCC, and that the special role of Holdings within the group in relation to the payment of expenses was never communicated to Mr Hollywood, the question is in my view put beyond reasonable doubt. Indeed, I think it is regrettable that the defendant should have continued to run a point which is so conspicuously devoid of merit.

I should add that I was referred to a number of authorities on this part of the case, but I have not found them to be of much assistance. I agree with the view expressed in Lewison, The Interpretation of Contracts, 5^th edition, para 10.08 that in a case of an alleged misnomer:

“the court will be able to take into account the same evidence of the background as would be admissible for the purpose of interpreting the contract including any relevant course of dealing between the parties. In the end the question is one of construction of the contract in question, and therefore the material available and the techniques used in contractual interpretation ought to apply …”

I would accept that, if it is impossible to identify a party to a contract as a matter of construction, the contract must fail for uncertainty unless it can be rectified. I would not, however, accept that any special rules apply to cases of alleged misnomer, at any rate where the issue is one of construction of a contract. Mr Wright referred me in this connection to the decision of the Court of Appeal in Dumford Trading A.G. v OAO Atlantrybflot [2005] EWCA Civ 24, [2005] 1 Lloyd’s Law Reports 289, where the issue was the identity of a guarantor named in a commercial contract. The question arose in the context of an application for summary judgment. After reviewing cases in which the misnomer had been of a party, rather than of an incident of a contract, Rix LJ (with whom Jonathan Parker and Brooke LJJ agreed) said at [32]:

“It seems to me that the doctrine of misnomer is of uncertain width. It is clearly a doctrine of construction, but it is not plain to what extent it permits the reference to extrinsic evidence. Davies v Elsby Brothers Limited [reported at [1961] 1 WLR 170] would suggest that where there are two possible entities, the rule is a strict one: unless one can say from the four corners of the document that the parties must have intended to refer to one rather than the other entity, then the doctrine does not apply. If, however, there is only one possible entity, then it is possible to use extrinsic evidence to identify a mis-described party. It is arguable that Nittan v Solent Steel [Nittan (UK) Limited v Solent Steel Fabrication Limited [1981] 1 Lloyd’s Rep. 633] falls into this latter category. Moreover, the cases, as does common sense, suggest that a case of mere misnomer is not easily (query if ever?) concluded to be such without the mistake being explicable.”

Despite the doubts expressed by Rix LJ in this passage, I respectfully consider that the law is correctly stated in the passage which I have cited from Lewison, and that there are no logical grounds for distinguishing between cases where there are two possible entities and cases where there is only one. The earlier (1960) decision of the Court of Appeal in Davies v Elsby Brother Limited is in my view readily distinguishable, partly because it involved the naming of the defendant on a writ in the context of an application to amend after the relevant limitation period had expired, but more importantly because it long pre-dated the modern approach to the construction of written documents beginning with the landmark decision of the House of Lords in Mannai Investment Co Limited v Eagle Star Life Assurance Co Limited [1997] AC 749.

In my view, sounder guidance is to be found in Nittan v Solent Steel, where Brightman LJ said at 639:

“In my opinion, in construing a document, the Court is at liberty, as a matter of construction, to correct a misnomer. A misnomer is not, in my view, necessarily a mistake which requires the equitable remedy of rectification. The misnomer may be a mere clerical error. A simple example would be the use in a conveyance of the expression “the vendor” where clearly “the purchaser” was intended. It is not necessary to rectify the conveyance to enable it to be read and take effect as the parties plainly intended.”

The present case is admittedly not one of mere clerical error, but once the court has decided, as a matter of construction, that the parties intended the contracting party to be CCC, I can see no good reason why the error should not be corrected as a matter of construction.

If that is wrong, I would accede to the claimant’s alternative contention that the 2006 Agreement should be rectified so as to replace the references to Climate Change Group Limited with references to CCC. The basic requirements of rectification were authoritatively stated by Lord Hoffmann in Chartbrook Limited v Persimmon Homes Limited [2009] UKHL 38, [2009] 1 AC 1101, at [48], approving the succinct summary given by Peter Gibson LJ in Swainland Builders Limited v Freehold Properties Limited [2002] 2 EGLR 71 at 74:

“The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention.”

Lord Hoffmann went on to hold that in cases where there was no binding antecedent agreement, the common continuing intention of the parties is to be ascertained objectively in the same way as a contract would be construed, and “in both cases the question is what an objective observer would have thought the intentions of the parties to be”: see paragraph [60].

Applying these principles, I would if necessary hold that, viewed objectively, the common intention of the parties on 13 November 2006 was that CCC should be the contracting party; that the agreement on 13 November to enter into a contract on the terms of the Letter of Engagement satisfied the requirement of an outward expression of accord; that the common intention continued at the time of signing the letter; and that, by mistake, the letter failed to reflect their common intention.

Who was the other party to the contract?

I accept Mr Hollywood’s evidence that he explained how ERA operated at his meeting with Mr Woodall, Mr Bell and Mr Bramley on 12 June 2006. I infer that this explanation would have included the fact that ERA operated on a franchise model, and that Mr Hollywood was an individual consultant trading on his own account who was entitled to do so under the ERA name and terms of business, making use of the resources and contacts of ERA’s UK organisation. It was not put to Mr Hollywood in cross-examination, and I do not find, that he held himself out to be an employee or agent of ERA (UK), or that he sought to disguise his status as a franchisee. There would have been no reason for him to do so, when one of the selling points of the franchise model was the access which it gave him to the accumulated experience and expertise of ERA (UK). The important thing from the customer’s point of view was that Mr Hollywood had evidently satisfied whatever requirements were necessary to enable him to trade under the ERA name, with its established global reputation, and (as he explained at the meeting) that he could bring in other consultants to help him in any areas where he lacked personal expertise.

Against this background, the question whether Mr Hollywood carried on business as a sole trader in his own name, or through a one-man service company, would in my view have been a matter of indifference to the CCC group, provided that the party with whom a contract was made had the benefit of the ERA franchise. Any contract which was concluded would be one for consultancy services, for which the group would not have to pay until they were performed. Thus the group would have no significant upfront financial exposure, and it would have the reassurance of knowing that it was contracting with an entity which had the benefit of the ERA franchise. Accordingly, although there is no evidence that Mr Hollywood drew attention to the incorporation of Zukra and the transfer to it of his franchise at the meeting on 13 November 2006, I see no reason to doubt, looking at the matter objectively, that it was Zukra, and not either ERA (UK) or Mr Hollywood in his personal capacity, with whom the contract was concluded. Zukra was the corporate vehicle through which Mr Hollywood by then carried on business, and the ERA franchise had been duly transferred to Zukra with effect from 1 August 2006.

Was there a breach of the Business Names Act 1985?

In November 2006 the relevant provisions of the Business Names Act 1985 were as follows:

“4.

Disclosure required of persons using business names.

(1)

A person to whom this Act applies shall –

(a)

… state in legible characters on all business letters, written orders for goods or services to be supplied to the business, invoices and receipts issued in the course of the business and written demands for payment of debts arising in the course of the business –

…

(iii)

in the case of a company, its corporate name,

…

and

(iv)

in relation to each person so named, an address in Great Britain at which services of any document relating in any way to the business will be effective; …

…

5.

Civil remedies for breach of s.4.

(1)

Any legal proceedings brought by a person to whom this Act applies to enforce a right arising out of a contract made in the course of a business in respect of which he was, at the time the contract was made, in breach of subsection (1) … of section 4 shall be dismissed if the defendant … to the proceedings shows –

…

(b)

that he has suffered some financial loss in connection with the contract by reason of the plaintiff’s … breach of section 4(1) … ,

unless the court before which the proceedings are brought is satisfied that it is just and equitable to permit the proceedings to continue.”

These provisions have now been repealed, and the corresponding provisions in Chapter 2 of Part 41 of the Companies Act 2006 (sections 1200 to 1206) apply only to sole traders and partnerships carrying on business in the UK. It is clear, however, that section 4 of the 1985 Act applied to Zukra in November 2006, and the question therefore arises whether the Letter of Engagement complied with the requirements of subsection (1)(a)(iii) and (iv). The requirement was that the corporate name and address for service should be stated in legible characters “on” the Letter of Engagement. It is common ground that no such statement is to be found on the face of the letter; but Zukra’s name and address were stated, in legible characters, at the foot of the terms and conditions on the reverse of the document. Was that good enough to secure compliance with section 4?

In my judgment, it was. The Letter of Engagement referred to and incorporated “the Terms and Conditions overleaf”, and once the reader turns over the page, the necessary details can be found at the foot. There is no express requirement that the details should be stated on either the front, or the first, page of a business letter; and since breach of the requirement gives rise to criminal liability under section 4(6), in the absence of a reasonable excuse, as well as to the civil remedies set out in section 5, I think that it would be wrong to imply any such requirement, even though it would obviously have been better practice to display the necessary statement on the front page of the letter. Once it is accepted that the terms and conditions page formed part of the Letter of Engagement, which it did both physically and through incorporation by reference, it follows in my judgment that the necessary details were stated “on” the letter.

Mr Wright submitted that the purpose of the 1985 Act was to ensure that counterparties knew who they were dealing with, and that this purpose would not be achieved if, for example, the relevant details were buried somewhere in a lengthy contract incorporated by reference in a business letter. I accept that the statutory purpose is correctly identified by Mr Wright, but the facts of the present case come nowhere near the extreme example which he gave. In particular, it is unnecessary for me to decide whether mere incorporation by reference would suffice. For present purposes, it is enough that the necessary details were printed at the foot of the reverse page of the Letter of Engagement, and that the front page referred to the terms and conditions overleaf.

Since I consider that the requirements of section 4(1)(a) were satisfied, it is unnecessary for me to consider whether the defendant can show that it has suffered some financial loss in connection with the 2006 Agreement by reason of Zukra’s alleged breach of section 4(1), or (if so) whether it would be just and equitable to permit the proceedings to continue. I will merely say that the loss relied on for this purpose by the defendant appears to me far-fetched, and were it necessary to do so I would exercise my discretion in favour of allowing the action to continue. As I have already said, I do not think the defendant was in any way misled into thinking it had contracted with ERA (UK), and the important point was that it contracted with the entity which had the benefit of the ERA franchise. In the context of the present case, the objection under the 1985 Act appears to me as devoid of merit as the objection about the identity of the defendant. It must therefore be dismissed.

Having cleared away the preliminary issues, I will now describe the history of events after the conclusion of the 2006 Agreement. I will refer to the client for whom Mr Hollywood and Mr Hodd were working as “CCC”, partly because that company was (as I have held) the contractual counterparty within the group, but also because both Mr Hollywood and Mr Hodd probably regarded themselves as working in a generalised sense for the group as a whole, which has always described itself as Climate Change Capital. In the reports and other documents which they prepared in the course of their work, and in the invoices which they submitted, Mr Hollywood and Mr Hodd continued to refer to the client as Climate Change Group Limited, without any comment or objection from the CCC side.

Mr Hollywood lost no time in seeking to enlist the services of Mr Hodd in relation to the air travel part of the review. He emailed Mr Hodd in the early evening of 13 November 2006, saying:

“I finally signed up another client today and one of the categories is Airfares. The name of the client is Climate Change Capital …

The Airfare spend appears to be about £600k per annum, signed up for 18 months. I have management reports from their travel agent (Reed & MacKay...) and can fax these over to you.

Would you be interested in a JV [i.e. joint venture]?”

Mr Hodd evidently accepted the invitation, although there is no evidence of the precise nature of the arrangement which he made with Mr Hollywood. Mr Hodd had not worked for CCC before, and he was briefed by Mr Hollywood about the group’s business. On 11 December 2006, they both went for a preliminary meeting at CCC’s offices where they met Ms Carthew and Rosina McClosky, a personal assistant who did much of the actual travel booking. Ms McClosky is still employed by the group, and is now the company secretary of CCC. Despite her apparent availability, however, she was not called to give evidence.

Meanwhile, Mr Hollywood had already started work on other parts of the review, beginning with office supplies. His main dealings on that subject were with Ms Carthew, and he had a number of meetings with her to discuss possible savings. As well as enlisting Mr Hodd to help with the travel project, Mr Hollywood also instructed another ERA consultant, Tobias Morris, to help with the telecoms review.

On 8 December 2006 Mr Hollywood asked CCC to sign a letter of authorisation permitting Mr Morris, Mr Hodd and himself to contact their suppliers for the purposes of the costs review. This authorisation was granted, and Mr Bramley signed a letter addressed “To whom it may concern” which explained that ERA had been engaged “to undertake a review of our costs and to recommend ways of reducing them”. The letter continued:

“Please assist Mr T Morris, Mr D Hodd and Mr D Hollywood with any information regarding our account with your company.

The initial brief for ERA is to look at our Overhead costs. You will be contacted shortly by ERA consultants to inform you of the process that will be followed. You are asked not to contact Climate Change Capital Ltd about this initiative and employees have been instructed not to respond to supplier questions on this subject.”

At the meeting on 11 December, CCC’s travel needs and expenditure were discussed. Mr Hollywood thought that the meeting lasted for about one hour. The discussion was at a fairly general level and did not descend into much detail. Mr Hodd had prepared a written note of questions to ask, which he annotated at the meeting. He was informed, for example, that CCC had a travel policy, which was effectively enforced, and he was told that a copy could be provided. He was informed of the existing arrangements with Reed & MacKay and given their contact details. In answer to the question whether any changes in travel patterns were expected, he was told that travel volumes were likely to increase within the next 12 to 18 months, with more travel to China, Singapore, Hong Kong and Latin America. He was told that senior management had a preference for flying with British Airways, followed by Virgin, and that travellers had a BA card. There was also some discussion about ticket flexibility, and whether CCC would agree to adopt and enforce a “suitable” travel policy, to which the answer written down by Mr Hodd was “Yes, subject to arrival times”.

Both Mr Hollywood and Mr Hodd gained the impression at this meeting that Ms Carthew had been nominated by senior management as the person they should deal with in connection with the travel review, and that she had the necessary authority to represent the group in their discussions with her. I find that this impression was correct, and that it reflected the fairly senior position which Ms Carthew had taken up on her return from maternity leave in October.

At around the same time, Mr Hollywood began to review CCC’s courier costs, but this turned out to be, in his words, “a non-viable project”. However, Mr Hollywood’s work on office supplies went well, and on 9 January 2007 he forwarded a Recommendation Report to Ms Carthew for them to discuss at a meeting later that day. The report gave a detailed analysis of potential savings using a basket of 92 core items, and set out the results of a re-tendering exercise which Mr Hollywood had carried out. He recommended that CCC should change its supplier to a company called Phase Office Supplies, with whom he had negotiated savings of approximately 33% over a 12 month period. The report stated that the options presented for consideration met the success criteria agreed with CCC, and the final section of the report was headed “Recommendation”, followed by an implementation schedule. Mr Hollywood explained in cross-examination that the 92 core items which he had selected for examination constituted about 80% of CCC’s annual spend of around £23,000 on office supplies, and said that in his areas of expertise a sample of this order of magnitude was required for reliable extrapolation from it. He stressed, however, that a different approach to sampling might be appropriate in other areas, as there was no uniform methodology and a procedure which was suitable in one context might not be suitable in another.

Following Mr Hollywood’s meeting with Ms Carthew on 9 January, CCC evidently decided to accept his recommendation and on 22 January 2007 Mr Hollywood and Ms Carthew met the new supplier. On 7 February 2007, Mr Hollywood invoiced “Climate Change Group Limited” for the contingency fees payable in respect of the “successful recommendation report” for office supplies and its implementation, pursuant to clause 23(ii)(a) and (b) of the terms and conditions. The invoice was duly paid, without anybody questioning either the name of the customer shown on the invoice or the fact that payment was to be made to Zukra, described in the small print at the bottom as an associate office of ERA (UK). This pattern was to be followed in relation to all of the invoices subsequently submitted, apart from the disputed ones relating to the air travel review.

Meanwhile, on 9 January 2007 Ms Carthew forwarded to Mr Hollywood a copy of the CCC travel policy, which he forwarded to Mr Hodd the same day. The version of the travel policy which Ms Carthew sent to Mr Hollywood dated from November 2005, and had in fact been superseded by a later version dated 24 May 2006. For the most part, the differences between the two versions were insignificant; and there was of course no way in which either Mr Hollywood or Mr Hodd could tell that the version which they received was not the most up to date one.

In the earlier version supplied by Ms Carthew, the travel policy contained this passage on air travel:

“C. Air Travel

Class of Travel for Domestic and EU Flights

Flights less than 6 hours of flying time: Economy

Flights more than 6 hours of flying time: Premium Economy or above to be authorised by manager

Flights of any duration that are client re-chargeable: Business Class or above*

Class of Travel for Flights outside UK and EU

Flights less than 6 hours of flying time: Economy

Flights more than 6 hours of flying time: Premium Economy or above to be authorised by manager

Flights of any duration that are client re-chargeable: Business Class or above*

*Written confirmation from client required prior to any travel booked in Business Class & above

•

When business objectives and time allows, employees should be flexible in their travel plans and book flights as early as possible to make use of advance purchase airfares and other discount promotions including non-refundable tickets and low cost carriers.

•

Travellers will be offered the lowest available fare for the journey they wish to undertake in the permitted fare class.

•

A search will be made of one hour either side of the indicated travel time to determine if this results in a cheaper fare.

•

If the suggested flight does not meet business needs, the traveller may request a different flight. All exceptions will be logged. If the cost difference exceeds £70 ($100), additional authorisation is required by their manager.

•

Employees are encouraged to use e-tickets (electronic tickets) where available. E-tickets provide convenience to the traveller and savings to CCC on each transaction booked.”

The travel policy document then went on to deal with exchanged or unused airline tickets, lost tickets, vouchers or cash reimbursements from airlines, frequent flyer mileage programmes, and weekend accommodation or extensions of business trips.

The up to date version of the travel policy did not differentiate between domestic and EU flights on the one hand and flights outside the UK and EU on the other hand, but instead introduced a new category of flights with a flying time of more than nine hours in respect of which the designated class was “Business class at manager discretion”. In all other respects, the air travel section of the document remained materially unchanged.

In his evidence Mr Temperton explained that the group had widespread travel needs, either on behalf of clients or to promote central corporate management and expansion of the business. Most of the travel to Europe and Asia was for clients, and the majority of the expenditure on travel was on flights to Asia. There were about 20 frequent travellers in the group. The business was growing very fast at this time, when the funds had recently been launched and CCC was striving to expand its business. In Mr Temperton’s words:

“Client meetings required liaising with counterparts, intermediaries, and local officials in emerging jurisdictions; these meetings were often last minute and we were looking to push the agenda along so we did not often have the luxury of delaying so as to be able to purchase cheaper flights. Such meetings are that much more effective face to face as they are about relationships, and the timetable was dictated by the business need … By way of example, at the time we were working on a very substantial project codenamed Panda which was very important for the group and had the ability to generate substantial returns to investors. If the counterparty requested a meeting at the plant in China on a particular day we would make it our business to be available to attend. Other projects were smaller and lower profile but also important and still had to be managed in a similar way. Contrast that with routine operational visits to the region that can be scheduled well in advance. However that was not the nature of the great majority of our travel.”

Mr Temperton goes on to say that CCC was well aware of the demands that it was making on its staff in requiring them to undertake international travel, and of the potential adverse impact on staff morale if they were asked to travel on the cheap:

“To take on the job and do it effectively staff need to feel valued. This was reflected in the group travel policy … which stated that for less than 6 hours of flying time flights should be in economy class, flights over 6 hours flying time should be Premium Economy or above to be authorised by manager, and flights of more than 9 hours of flying time should be Business Class at manager discretion. Flights of any duration that were client re-chargeable should be Business Class or above subject to written confirmation from the client. Approval is given by the Business head or manager where the traveller is a Business head. At the time most of the more expensive flights were to China and from mid 2006 were on behalf of the carbon funds, a client. There were also flights on behalf of Panda, which was a project outside of the funds. The flights to China were of more than 9 hours duration. In fact the travel costs were re-charged to the client carbon funds, as was understood by the funds, and so the travel policy provided that they be business class or above. Likewise Panda related flights were treated as if paid for by the client as CCC received a travel inclusive fee.”

The special position of flights which were rechargeable to the client is a matter that Mr Hodd discussed with Ms Carthew, probably on the telephone. He was informed by her that approximately 50% of flights fell into this category, as is shown by a manuscript annotation which he made to an extract from what appears to be yet another version of the group’s travel policy. The significance of this point is that such flights would be booked in either Business Class or First Class, subject to written confirmation from the client.

Mr Hodd studied the material provided to him by CCC and Reed & MacKay. I am satisfied that he spoke to Ms Carthew as and when he considered it necessary to do so, and it appears that a meeting took place on 21 March 2007, probably at the offices of Reed & MacKay in London, which was attended by both Mr Hodd and Ms Carthew and at which possible ways of reducing the group’s expenditure on air travel were discussed. In an email sent to Mr Hodd after the meeting, Samantha Fagg of Reed & MacKay said:

“Thank you for your time today – it was very beneficial to discuss how and where you are able to highlight to Climate Change Capital the process which will provide higher air fare savings if they wish to accept them. I am sure with a new travel authorisation form in process and a more streamlined method of booking travel this will hopefully be a natural progression to more travellers/travel bookers accepting the reduced air fare savings with other suppliers that are already offered.”

She also said that she would forward to him “the transaction cost element that you require” as soon as she received it from the finance department.

On 27 March 2007 a one hour meeting had been scheduled for 11 am at which Mr Hodd would present his initial travel benchmark report to Ms Carthew. A further meeting was scheduled for 2 pm at which she would discuss progress on the office supplies savings with Mr Hollywood and the new suppliers.

The benchmark report which Mr Hodd prepared was a document of the kind envisaged by clause 8 of the terms and conditions. Its particular importance lay in the fact that the prices and service levels recorded in the report would be used as the basis for calculating subsequent savings, and in ascertaining whether the success criteria for payment of a contingency fee were satisfied. There is no indication that Mr Hodd provided a draft of the report to Ms Carthew in advance of the meeting, and I infer that she saw it for the first time at the start of the meeting. She would, however, have already been familiar with much of its content because of her earlier contact and communications with Mr Hodd, including the meeting at Reed & MacKay a few days earlier.

The report was headed “Benchmark Report on the category of Business Travel for Climate Change Group Ltd”. Beneath the heading there was a reference to Mr Hollywood as “Client Manager”, and beneath that the words “Prepared and submitted by: Derek Hodd Consultant Analyst”.

In the Introduction on page 3, the question which ERA set out to answer was stated:

“Is it possible for ERA to secure increased value for money without reducing the quality of goods and services currently in place?”

The introduction continued:

“This report addresses the following issues:

•

Proposes the benchmark prices for your approval. These will form the starting point to calculate the level of savings achieved.

•

Proposes the travel profile to be tendered.

•

Specifies quality and service requirements that will form the basis upon which suppliers are requested to provide their responses.

We are asking you to confirm that all of the information contained in this report is correct, as it will form the basis of our tender document and the starting point to calculate the level of any savings achieved.

This report invites discussion over the points raised so far, with a view to going forward to the market with the best possible understanding of our clients’ requirements.”

The next section of the report, headed “Audit Analysis”, said that the spend on business travel had been analysed and was found (after exclusion of subsistence etc) to be in the order of £670,000. It was stated that “Travel Management Company (TMC) electronic management information (MI) reports covering the 12 month period January to December 2006” had been analysed for this purpose; and in the next section, headed “Benchmark Analysis”, Mr Hodd recorded that CCC was using only one TMC, namely Reed & MacKay. The “overall travel spend purchased through Reed & MacKay” was then set out in a table, from which it appeared that air fares accounted for £587,728, with the balance of the £670,000 being made up of commission and hotels. There thus appears to be an immediate discrepancy with the figure of £670,000 for business travel quoted on the previous page, which was said to be “after exclusion of subsistence etc”.

The next page of the report set out extracts from the out of date group travel policy which Ms Carthew had provided, including the extract which I have quoted in paragraph 69 above. There was then a summary of the services provided by Reed & MacKay, followed by an analysis of the timing of bookings (showing that half of them were made within three days of the date of travel), and an analysis of travel expenditure by person (which showed that over the audit period 78 people travelled, of whom 22 incurred 80% of the total spend through Reed & MacKay, and the top ten of whom accounted for 57%). In the table which followed, the total expenditure for all 78 travellers was recorded as being £625,242.04.

There then followed an analysis of travel by region, which purported to show that international flights outside Europe accounted for 98% of the cost of air travel over the audit period. The total expenditure shown in this table was yet another figure, namely £507,168. Mr Hodd then commented that on the available data it was impossible to determine the split between travel by economy and business class, “but it is clear that the overwhelming majority of long haul flights are in business, with no evidence of premium economy being utilised”. He said that a quarter of the fares utilised were classed as “lowest fare available on route taken”, while 18% were shown as “cheaper option declined”. In 16% of cases, Reed & MacKay “creative ticketing” or special fares had been used. In the 64 cases where no savings were shown over the full fare on the day of travel, and where the lost savings totalled £42,000, the reasons given were broken down into three categories, with an indication of the lost savings attributable to each category. The largest category was “cheaper option declined”, which accounted for lost savings of £37,000.

There then followed a table of the top ten destinations between pairs of cities for trips booked through Reed & MacKay during the audit period, and a further table showing the top “city pairs” with the share of total expenditure for which they accounted. The total spend for trips booked through Reed & MacKay was said in the first of these tables to be £530,369, yet another figure which bore no apparent relation to those which had been given previously. Mr Hodd said that all ten of the top city pairs had been “looked at in some detail”, and the top four were shown as examples in the appendices. He then took as an example the London/Beijing pairing, and made some comments based on Reed & MacKay’s data. He noted that all the travel, apart from three flights, was in business class, and that nearly all of it was with British Airways.

The next section of the report, headed “Client Requirements – Stakeholders”, said this:

“It is vital to involve all stakeholders who can best ensure that we have a proper understanding of your needs, or who will need to be bought into the outcomes. For this project, discussions will be held with Natalie Carthew to ascertain ongoing service requirements: these presently defined are represented in the Benchmark section below.

ERA’s experience indicates that involvement of stakeholders is crucial to successfully achieve change. [CCC] will need to instruct personnel to adopt the agreed recommendations, as failure to do so will have a significant impact on savings delivery …”

The next section, “Value for Money”, expressed the belief that worthwhile savings could be achieved “following further input and research”, commensurate with CCC’s business needs. One of the ways in which ERA could help CCC to make savings would be by carrying out a review/selection exercise in relation to the travel management company, by reference to “benchmark service/quality levels” which were listed on page 17 of the report. All of these benchmarks related to a possible TMC re-tendering exercise, as Mr Hodd confirmed in cross-examination.

Page 18 then set out “success criteria”, as follows:

“In order to ensure that ERA is working to [CCC] objectives and that solutions meeting the criteria will mean that a successful report has been produced, please give us guidance on the following.

•

We are assuming that [CCC] will accept any saving through incumbent TMC.

•

For a sufficient saving with an alternative TMC or travel arrangements, the minimum saving required.

•

Service levels as defined above.

Any saving must be commensurate with the needs of the business.”

Here again, the success criteria seem to have been framed with reference only to the TMC aspect of the review. Consistently with this, the next section, headed “Next Steps”, was confined to a discussion of the procedure for the tender exercise.

The final section of the report, headed “Benchmark Approval”, was as follows:

“[CCC] acknowledges receipt of the Benchmark Report for travel costs prepared by [ERA] and agrees with the purchasing profile and service level considerations set out in the report.

…

This Benchmark Report is submitted for your approval. In approving it you are confirming that:

•

You agree that the prices indicated are the current ones paid and it is reasonable to use these and the standard flexible fare price in cabin as the Benchmark against which to measure savings

•

The Benchmark can be adjusted to allow for industry wide price changes

•

You have no objections to the actions proposed

•

You will notify us immediately if there is any price or service changes before presentation of the Recommendation Report

•

ERA has been notified of any suppliers with whom you do not wish to be involved

•

That you are prepared, in principle, to change TMC if necessary to secure the projected savings

•

You accept that if the ERA recommendation, as a result of the tender process, shows an alternative solution as offering the best savings, then this projected saving will form the basis of initial fee calculations.

Should any concerns come to light, please notify us immediately.”

Beneath that, the report was signed by Mr Hodd for ERA and Ms Carthew “for and on behalf of Climate Change Group Ltd”.

Despite the references in the body of the report to detailed material contained in the appendices, they appear to have been largely left blank. There was one page of an analysis of Beijing flights, based on raw material provided to Mr Hodd by Reed & MacKay, and another page listing flights taken by certain individuals between London and Beijing, Hong Kong and Shanghai respectively on various dates in 2006. That was all, apart from Appendix A which reproduced an initial questionnaire which Mr Hodd had put to Ms Carthew at a very early stage, probably at their initial meeting in December 2006.

Mr Hodd went through the report with Ms Carthew at the meeting on 27 March, and she expressed herself to be satisfied with it. The meeting may have lasted for a little more than an hour – Mr Hodd says he remembers it running on, and being followed by a late lunch – but it is clear that there was no in-depth examination of Mr Hodd’s analysis of travel expenditure in 2006. If there had been, Ms Carthew would surely have remarked on the discrepant figures given for the total expenditure at various places in the report and asked for an explanation. I infer that she relied on Mr Hodd, as the expert consultant, to have analysed the data correctly, and she did not see it as her function to question either his methodology or his arithmetic.

Meanwhile, work had been progressing on the telecommunications project, and in April 2007 Tobias Morris presented a recommendation report. As in the case of office supplies, the document was headed “Recommendation Report”. It contained a detailed review of three months’ data relating to land line and audio conference calls, described the results of tender exercises, and set out clearly numbered options for CCC’s consideration, giving the estimated savings for each of them.

On 23 April 2007, Mr Hodd emailed Ms Carthew saying that everything was “now ready to go to the first stage of this project in the marketplace”. He asked for her help in obtaining details of the charges made by Reed & MacKay for their services. Ms Carthew passed on his request to Samantha Fagg, and on 30 April Reed & MacKay provided a detailed explanation of their charging structure. Mr Hodd then asked for details of all the actual services which Reed & MacKay had invoiced to CCC during 2006, and on 8 May he was supplied with a spreadsheet which summarised the total charges made by Reed & MacKay during that year. Mr Hodd then said that what he really needed was “the number of transactions for each charge, so that I can see the profile of long haul, on line, European transactions etc”, and on 16 May fuller details were provided, eliciting from Mr Hodd the response “just what I wanted”. Mr Hodd said there was still one point on which he would like more input, namely fares negotiated by Reed & MacKay, and this further information was duly provided on 25 May.

Meanwhile, around the end of April Mr Hodd had set the TMC re-tendering process in motion by sending out a so-called Request for Proposal Process (or “RFP”). He told Ms Carthew and Reed & MacKay that he had done so, and promised to keep Ms Carthew updated as the project moved along. The target dates for the RFP envisaged that the process would be completed by the beginning of September 2007.

On 10 May Mr Hodd sent to Ms Carthew, and copied to Mr Hollywood, his proposals for the weightings to be given to each section of the TMC proposals. He said that the weightings would enable him to make the correct overall assessment of the offer against CCC’s perceived needs, and he then set out a table based on his understanding of the position. The table showed percentage weightings under the following five headings: executive summary (1%), supplier qualifications (13%), service requirements (36%), pricing section (40%) and accounting and legal (5%). There were sub-divisions under the third heading, and an apparently incomplete sub-division of the fifth heading. The impression that the table was incomplete is reinforced by the fact that the percentages for headings one to five add up to only 95%. In his email to Ms Carthew, Mr Hodd apologised for the fact that the layout was “a little confusing”, but said that in essence he had given a 36% weighting to service requirements and 40% to pricing. He continued:

“Do please let me know (there is no immediate urgency on this!) if you would like me to adjust these weightings; otherwise I will go forward on the above basis.”

There is no indication that Ms Carthew ever replied to this email, or that she noticed the discrepancy in the figures. The point was immediately picked up, however, by Mr Hollywood, who emailed Mr Hodd later the same day saying:

“I’m not sure all of the section weightings came through in your email below. Sections 1 – 5.1 are there (adding up to 95%), but I think there’s a section 6?”

Mr Hodd replied to Mr Hollywood the next day:

“Thanks – there is a small tidy up to do. It may well be that Natalie doesn’t respond, so it would be useful – based upon your broader knowledge of [CCC] – give me your feedback with regards to weightings.”

It is unclear whether Mr Hollywood replied to this email, but with or without his assistance Mr Hodd did the necessary “tidying up” without further reference to Ms Carthew, or (it would seem) anybody else at CCC. Mr Hodd had an opportunity to bring the matter to Ms Carthew’s attention when he emailed her on 16 May with a list of the ten TMCs (including Reed & MacKay) who were participating in the RFP, but for whatever reason he chose not to do so.

On 13 June Mr Hodd emailed Ms Carthew saying he had completed his review of all the responses to the RFP and thought she might like to see how things looked at the moment. He then gave both the raw, and the weighted, scores of five candidates, using for this purpose (and without comment) the following weightings: executive summary (5%), supplier qualifications (13%), service requirements (40%), pricing section (40%) and accounting & legal (2%). It can be seen that the earlier weightings had been “tidied up” by increasing the executive summary weighting from 1% to 5%, increasing the service requirements weighting from 36% to 40%, and reducing the accounting and legal weighting from 5% to 2%. At least the figures did this time add up to 100%. The five candidates for whom details were given did not include Reed & MacKay. Mr Hodd said it was his intention to “engage in deeper discussion” with two of the candidates, and “[a]s Reed & MacKay are your incumbents and you are happy with their service, I plan to also meet with them”. He added:

“Should you wish me to include, or exclude, any of the above, then please do let me know.”

There is no sign that Ms Carthew ever replied to this email, and I infer from his comment to Mr Hollywood on 11 May (“It may well be that Natalie doesn’t respond”) that this was a pattern to which Mr Hodd was becoming accustomed, at any rate where figures were involved.

On 21 June Mr Hodd visited the offices of Reed & MacKay to gather further information. On 25 June, Jacqui Beresford of Reed & MacKay emailed Mr Hodd to say that she had just received a request from Andrew Aldridge at CCC to explore the possibility of securing a route deal with British Airways. She continued:

“As you know, we are closely monitoring MI [monthly information] with a view to talking to airlines on behalf of CCC and do believe that there may be potential to have an agreement with BA on various routes (not just Beijing as requested by Mr Aldridge) … BA would want to meet with CCC and analyse MI prior to offering a route deal, therefore I think the best option would be to proceed with this once the alternative fare analysis and travel review process has been completed.

In the meantime, we need to respond to Mr Aldridge and I wanted to check with you, if it is common knowledge that the company is in the middle of a travel review?”

Mr Hodd replied on the same day, saying that the best thing would be to bring Ms Carthew “into the loop”, which he did by copying her into his reply. He explained:

“As ERA is working on a “no competition” basis with [CCC], I think it best to ask Natalie to handle and advise.”

It appears that Reed & MacKay then discussed the position with Ms Carthew, and a decision was reached that any pursuit of a route deal with British Airways should be put on hold until the RFP process had been finalised. Reed & MacKay informed Mr Aldridge accordingly on the following day, taking the opportunity to say that they hoped to be successful in securing the CCC business “as we thoroughly enjoy working with you and assisting you with all your travel requirements”.

By early July 2007 Mr Hodd had almost completed his work on the travel report, and he contacted Mr Hollywood with a view to arranging a date for a meeting with Ms Carthew and the finance director to discuss it. On 9 July, Mr Hollywood emailed Ms Carthew saying that Mr Hodd was in the process of completing the travel report and they would like to schedule a meeting with her and Mr Bramley. He said they would be available on various dates at the end of July and the beginning of August. It appears that a meeting was then fixed for 25 July, and on 24 July Mr Hollywood informed Mr Hodd that Ms Carthew had invited the new chief financial officer, Mark Macleod, to attend the meeting, as Mr Bramley (who signed the 2006 Agreement) had since left the company.

Both Mr Hodd and Mr Hollywood say in their written evidence that a meeting took place on 25 July 2007, attended by each of them and Ms Carthew, at which the travel report was presented and Ms Carthew was taken through it. Mr Hollywood adds that she “was delighted with the findings and wanted to start discussing the matter internally in order to commence implementation”. However, the bundle contains an email from Mr Hodd to Nick Pratt of Fleet Street Travel (one of the TMC tenderers) dated 27 July in which he said:

“The Wednesday meeting was postponed at the last minute, as the lady’s son was unwell. Still trying to find a suitable reschedule date.

Will let you know where things stand, once the meeting(s) have taken place.”

25 July 2007 was indeed a Wednesday, and the bundle also contains emails evidencing attempts to rearrange a meeting with Mr Macleod and Ms Carthew, either together or separately. I think, therefore, that the recollections of Mr Hodd and Mr Hollywood must be mistaken, and that no meeting with Ms Carthew took place on 25 July. It is, however, likely that Mr Hodd delivered a copy of his report to CCC around this time, because on 6 August Zukra submitted an invoice for £10,000 plus VAT. The invoice referred to clause 23(ii)(a) of the terms and conditions, describing the work done as “Travel, Successful Recommendation Report” and claiming a “payment on account”, with 18 months’ savings “to be confirmed”.

On any view, this invoice was based on an optimistic interpretation of clause 23(ii)(a), which provided for the payment of 15% of recommended projected savings on presentation of a successful recommendation report. If the savings were still “to be confirmed”, it is not immediately apparent that £10,000, or indeed any amount, was due. It is therefore hardly surprising that Mr Macleod emailed Mr Hollywood on 10 August in the following terms:

“Dear Dominic

My name is Mark Macleod, I am the new CFO of Climate Change Capital. I have been shown a copy of your invoice in connection with the Travel Report; unfortunately the previous CFO who engaged you didn’t make any reference to your services in his handover to me, and I haven’t yet had time to investigate and review what work you have performed for us. As a consequence I am unable to approve your invoice for payment at this time.

I understand that Natalie is arranging a meeting in September (timing driven by holidays and our office move) where we can meet and go through the work you have been engaged to undertake. In the meantime I’d be very grateful if you could send me a copy of the engagement letter or contract we have with your firm, since as already mentioned this was omitted in my handover for which I apologise.

I look forward to meeting you in September.”

Mr Hodd’s travel report was dated 25 July 2007 and entitled “Findings Report on the category of Business Travel for Climate Change Group Ltd” (“the Findings Report”). Mr Hodd explained in evidence that it was intended to be a recommendation report within the meaning of clause 9 of the terms and conditions, and that the change of title reflected a change of nomenclature within ERA. Mr Hollywood said in cross-examination that there had been some internal discussion within ERA about the best way to present findings to clients, and although the description “Findings Report” began to be used, there was no obligation on consultants to use that term and they could continue to use the description “Recommendation Report” if they preferred. Indeed, he expressed the view that the latter term continued to be more commonly used.

I do not think that anything turns on this point. I am satisfied that Mr Hodd and Mr Hollywood intended the report to be a recommendation report within the meaning of clause 9 of the terms and conditions, and this is reflected in the invoice issued by Zukra on 6 August 2007. Whether the Findings Report in fact satisfied the relevant requirements to qualify as a recommendation report is another matter, to which I will have to return later.

The Findings Report began with an Executive Summary, as follows:

“The current spend on business travel was analysed and determined, on an annualised basis, to be in the order of £670,000. This report focuses on the cost of air travel and associated Travel Management Company (TMC) fees, which together results in an annual spend in the order of:

£615,000

[ERA] would anticipate savings of:

£17,000 - £244,000

Representing a saving of: 3 - 40%

The above saving is available without any change in current levels of TMC service and without detriment to the ability to travel from and to the business destinations in a reasonable and timely fashion.

We have made every effort to present our recommendations as promptly as possible, so that you have the earliest opportunity to start benefiting from the savings and administrative efficiencies we have identified.”

The next section, headed “Introduction”, set out the purpose of the review (Is CCC paying the market price? Are they receiving value for money? Is it possible to receive better value for money?), and a summary of ERA’s methodology. This was followed by a section headed “Audit”, which summarised “key points” from the Benchmark Report. The key points included:

•

“Airfare spend over the audited period was in the order of £588,000.

•

The [TMC] chargeable fees totalled just over £27,000.

•

£42,000 of savings was lost through declining cheaper ticket options (£37k) or stipulating a flexible fare (£5k).

…

•

65% of flights commence within 7 days of ticket finalisation.

•

22 people accounted for 80% of the spend, with the top ten travellers incurring 60% of the billed air spend.

•

60% of travel is to and within the Far East region, with a further 14% accounted for by the Americas.

•

The top destination is Beijing (£141k, 27%), followed by Hong Kong (£83k, 16%), London (£41k, 8%) and Shanghai (£26k, 5%).

•

£292,000 was spent with British Airways (58% of the total), with Virgin Atlantic next at £42,000 (8%).

…”

The next sections of the Findings Report dealt with the TMC review and selection process. Mr Hodd set out the “tidied up” response weightings, and showed the scores of the top three candidates plus Reed & MacKay, followed by the comment:

“As can be seen, Reed & MacKay scored well on service, but poorly on fee charges: hence their low overall score.”

Of more direct relevance is the next section, headed “Review of the Cost of Air Travel”. On page 9 of the report, four scenarios were identified:

“With 60% of the air travel expenditure involving the Far East, four scenarios were developed, based on round trip flights to Beijing, Hong Kong and Shanghai, to evaluate what impact such changes to the ticketing patterns might have on the overall cost.

Scenario A: Minimum change, utilise 80% 7 day advance booking, balance fully flexible BA business class.

Scenario B: Medium change, 20% fully flexible BA business class, 50% 7 day advance, 30% 28 day advance booking.

Scenario C: Fly to policy – 20% fully flexible BA business class, 80% BA Premium Economy.

Scenario D: Save money but fly business class with 20% fully flexible BA business class, 80% European airlines flexible business class.”

Beneath that, it was said that full details could be found in Appendix B, and the outcome was summarised in a table which showed potential savings ranging from 8% under Scenario A to 50% under Scenario D. Mr Hodd then commented:

“It should therefore be possible to achieve savings in the order of 1/3^rd on long haul routes. As inter regional sectors will not lend themselves so readily to such cost saving scenarios, the overall saving on the total air travel spend might be more in the order of £150,000, i.e. 26%.”

It seems to be implicit in this comment that Mr Hodd regarded scenarios B and C as the more realistic candidates. Mr Hodd effectively confirmed this in cross-examination, saying that he had scenario B particularly in mind. He did not agree, however, that scenario D was a non-runner, saying that in his view it represented an innovative solution to which CCC could have migrated in time. Scenario D involved booking long-haul flights from London in two legs, with a change to a European carrier at a hub airport such as Schipol or Frankfurt. Such flights would obviously take longer than direct flights from London, and they would involve the inconvenience of an initial short-haul leg which might well be more prone to disruption than a direct long-haul flight. Nevertheless, Mr Hodd said that some clients found this a preferable pattern, at any rate when compared with a long-haul flight in Premium Economy class.

Mr Hodd then considered the possibility of a route deal with BA, noting that BA were “notoriously fickle” on such deals and, if interested at all, they would probably want all travellers to fly with them for all routes they operated on. He then discussed the special fares negotiated by the three TMCs under consideration, plus Reed & MacKay, with carriers other than BA, taking the Lufthansa net fare to Beijing as an example. He commented that in each case the fare sold by the airline to the TMC was the same, and that various mark ups or charges were then added by the TMC, with Reed & MacKay’s coming out as the most expensive by about 20%.

The next section was headed “Discussion”, from which I cite the following extracts:

“The Company Travel Policy

From this review it is clear that significant elements of company travel are not to the published travel policy. There was, for example, scant evidence of flights of 6 hours or longer being ticketed in Premium Economy.

It is for the company to consider whether staff should fly to policy, or whether the policy should be amended to reflect actual practice.

…

Refused Fares

In 2006 there was, according to the MI provided by Reed & Mackay £54,172 of lost savings, mainly due to cheaper fare options being declined.

Analysis of the data, when dividing the amount declined by the number of trips made over the year, shows the less frequent travellers are more likely to incur lost savings than the most frequent traveller (see Appendix D).

The chosen TMC can produce a bespoke report to assist in compliance monitoring of this travel policy element.

Web Bookings

About 10% of air travel is booked directly through the web, mainly with low cost airlines. If individual websites are being searched, this leads to extra time being taken when compared to using a TMC booking tool, which can search all sites for a particular destination simultaneously.

…

Flying with alternative airlines

…

In considering flights to Beijing etc, airlines such as Emirates who offer excellent service and prices, have been discarded due to the extended duration time.

Those considered are shown in detail in Appendix D …

…

Premium Economy has seating that was a few years ago regarded as state of the art in Business Class. Now the “must have” is a lie-flat bed. All leading airlines have introduced these and the type installed can be summarised as follows …

…

Travel Focus Group

The imperatives of Finance, the duty of care of HR and the needs of the traveller will not always coincide. However, for any travel policy to work, these differing priorities need to be balanced.

Buy-in to any changes to the travel policy and effective management of travel costs are best achieved by the formation of a Travel Focus Group, with representation from each area, headed up by a senior member of management who can lead by example.

Such a group may only need to meet occasionally, with communication taking place in between by circulation of emails & documents etc.

… ”

On page 16 of the report, Mr Hodd said that in his view the success criteria for the project had been met. In the case of air travel, the relevant success criterion was “A minimum saving of 5%, on a basis commensurate with business requirements”. It was then stated, in bold type:

“The options presented therefore meet the Success Criteria agreed with [CCC].”

The next section, headed “Findings Summary”, said this:

“Having analysed and assessed all the information provided and the services offered, it is proposed that [CCC] should consider:

1.

Changing the Travel Management Company.

2.

Holding a “beauty parade” with one or more of the three best TMC’s.

3.

Carrying out a trial with the selected TMC.

4.

Forming a Travel Focus Group.

5.

Updating the company travel policy.

6.

Implementing duty of care measures, to include all travel to be booked via the TMC.”

There was then some discussion of the implementation process, which emphasised that to realise the potential savings indicated it would be necessary to have CCC’s “stamp of authority” and “internal instructions to all staff to implement this recommendation”. An example was given of a possible implementation plan, with steps to be taken in the immediate to short term (the first quarter), the short to medium term (the second to fourth quarters), and the medium to long term (year two onwards).

The final section of the report, headed “Savings Summary”, read as follows:

“Annual savings will depend on the TMC chosen and the scale and nature of any travel policy adjustments.

However based upon historic usage alone we are pleased to advise that, following implementation, [CCC] can, over the next eighteen months, obtain varying levels of savings, dependant on what action is taken:

Element Min Mid Max

TMC Fees £17,000 £17,000 £17,000

Air fares - £150,000 £227,000

Total £17,000 £167,000 £244,000

Total Cost Savings of £17,000 - £244,000

This equates to a 3 – 40% cost reduction over your current expenditure.

We are pleased to be able to provide this recommendation, which has met the agreed success criteria.

We look forward to implementing this saving and to post auditing the actual savings once the implementation has been completed.”

In due course, a meeting was arranged for 24 September 2007 which both Mr Macleod and Ms Carthew would be able to attend. On 15 September, following CCC’s move to new premises, Mr Hodd sent the Findings Report in PDF format to Ms Carthew “ahead of our forthcoming meeting”.

The meeting on 24 September was attended by both Mr Hodd and Mr Hollywood. From their point of view, it did not go well. Mr Macleod instructed them to stop working on the travel project, and said that if he had been around at the time he would never have engaged ERA to carry out the work. He said that he had done similar work himself in the past, and could handle matters of that sort without external assistance. He agreed, however, that the TMC review should proceed, and instructed Ms Carthew to liaise with Mr Hodd in making the necessary arrangements.

On the next day, 25 September, Mr Macleod emailed Mr Hollywood and Mr Hodd to confirm and follow up on what he had said at the meeting. He said he would be happy to agree to pay 50% of any savings in fees that were achieved over the agreed term of 18 months in relation to the TMC review. However, the £10,000 payment on account invoice would not be paid. In relation to the travel review, he said this:

“Regarding wider issues relating to the firm’s adherence to existing [travel and expenses] policies, and potential changes to these policies going forward, that is an internal senior management issue that I as CFO will be handling, both from an economic and cultural perspective. As we discussed yesterday, I have extensive “cost reduction” experience and I am fully equipped to handle this matter without needing any external input. (For what it’s worth, I don’t anticipate significant savings are achievable in this space due to the cultural issues I mentioned yesterday). I apologise if due to the changed circumstances at CCC you feel you have wasted your own resources on this area. Had I been aware that you were intending to bill CCC on a “day rate” type basis for your efforts, I would have advised you to stop work immediately. Again, I apologise if there have been any unintentional misunderstandings arising from the change of CFO here at CCC.”

Meanwhile Mr Hollywood had emailed Mr Hodd after the meeting on 24 September about the basis on which CCC should be billed:

“As discussed, I’ve taken a look at the logic for our billing. Scenario B in the Findings Report seems to be the most appropriate as the air travel policy does not need to be updated in order for a new TMC to be put in place and for air travel bookings to be made further in advance.

Per the Findings Report, I understand the Scenario B assumption is that 20% of bookings are made less than 7 days in advance, 50% of bookings are made 7 days in advance and 30% are made 28 days in advance. I understand that the projected Scenario B annual savings are 167k per the Savings Summary Section of the Findings Report. This results in an invoice for £37,575 (£167k x 1.5 x 15%).

It’s quite a large invoice – following the meeting today, do you still think they can achieve the advance bookings per the Scenario B assumption or should we modify that? ”

It is, I think, clear from this email that Mr Hollywood, for one, saw that there might be problems in trying to invoice CCC for a success fee based on the air travel part of the Findings Report, and was concerned that an invoice based on Scenario B might look unreasonably high. Mr Hollywood confirmed in cross-examination that his reason for raising the matter with Mr Hodd was the concerns which had been expressed at the meeting by CCC. He was unable to recall whether Mr Hodd had responded to his question in the last paragraph. There is no written record of any reply, so if Mr Hodd did respond, he probably did so orally.

On 25 September Mr Hollywood tried to retrieve the situation by sending a reply to Mr Macleod in which he says he “sought to be as emollient as possible”. He said that he had raised a credit note for £10,000 to cancel the payment on account invoice. He emphasised that ERA did not see their role as being to interfere in any way with the culture and policy discussions that CCC would be having. He explained, however, that it was part of ERA’s standard process to present clients with costed options, so that they could make informed decisions on various alternatives:

“While it only takes a very short time to identify what the options are, it takes many weeks of work to cost those options through a tender process. In addition, a lot of work also goes into analysing a client’s historical travel patterns and booking processes in order that we can identify where the potential savings may be and also come up with pragmatic options for the client based on prior usage, regardless of what the savings look like assuming compliance with Travel Policy.”

Mr Hollywood attached a new invoice for £8,825 plus VAT, made up of £3,825 (15% of the minimum £17,000 annual fee saving identified in the Findings Report, extended over 18 months) and £5,000, which he explained on the basis that:

“… very significant savings have been made by our clients through the resources that ERA can provide to manage Travel spend. Options outlined in the Findings Report provide the potential for very significant savings within both CCC’s culture and in accordance with ERA’s cost reduction process. Therefore, we don’t think it appropriate to assume a zero saving here, in particular as ERA’s work was done in good faith, large amounts of resources expended and successful recommendations presented.”

Mr Macleod was unimpressed, and replied on 1 October 2007:

“Dear Dominic

Again apologies for how this has happened, but there has been a misunderstanding as you have done work in an area where the firm isn’t about to review its policy options (and even if it does, it will be doing so internally, sponsored by myself). I am sorry but I am not able to pay anything for your work in this space.

As a gesture of good faith (because lets be honest Natalie would have reached this conclusion herself very quickly as and when she looked at it) you can issue me an invoice for the TMC transaction fee savings, and we’ll pay in the manner we agreed, 15% up front, 10% when implemented and the balance as savings come in during the 18 months.”

A further exchange of emails took place on 2 October, when both Mr Macleod and Mr Hollywood adhered to the positions which they had already adopted. Mr Hollywood submitted a fresh invoice for £3,825 plus VAT, which in due course was paid. This represented 15% of the projected fee savings in relation to the TMC part of the review. Mr Macleod reiterated that a review of travel policy was an internal matter, and he would not be paying for external input. Thereafter, Mr Hollywood tried unsuccessfully to reach an amicable solution through other channels, and eventually the claim form in the present action was issued on 31 August 2011, some four years after the relationship between the parties had broken down.

The sum claimed by Zukra in the particulars of claim is £142,674.38, as invoiced by Zukra on 12 February 2008 under invoice number DH1053. This sum represented 50% of projected savings of £250,500, less £3,825 already paid, making £121,425 which with the addition of VAT comes to the sum claimed. The projected savings of £250,500 were derived from the middle figures for total savings shown in the table on the last page of the Findings Report, namely £167,000: see paragraph 115 above. That was an annual figure, so it was multiplied by 1.5 to represent the projected savings over the period of 18 months referred to in clause 23(ii) of the terms and conditions. The full amount of the projected savings was claimed in reliance on clause 27(ii), i.e. breach of the agreement by CCC.

It is important to note that Zukra has deliberately confined its claim to the contingency fee to which it says it became entitled. There is no alternative claim for payment at the day rate of £950 plus expenses, even though that option is available under clause 27(ii) if for any reason it amounts to more than the recommended projected savings for the 18 month period specified in the Letter of Engagement. Zukra would also have been entitled to claim on the day rate basis if the correct analysis of the facts were that CCC had breached or terminated the 2006 Agreement before submission of a recommendation report. The failure to advance any alternative claim on this basis seems to have been deliberate, because in answer to a request for further information about the alternative claim to recover £142,674.38 by way of quantum meruit Zukra declined to provide details of the days spent working on the travel project.

I would also comment that the sum claimed must in any event be too high, because the mid-point annual saving of £167,000 included £17,000 in respect of TMC fees which are no longer in issue. The relevant figure for airfares was £150,000, which over 18 months would be £225,000. I can discard that possibility, however, because in his closing submissions Mr Blaker departed from invoice DH1053 and argued instead that the appropriate starting point was the recommended saving of 26% on a figure for air travel of £588,000. The latter figure was taken from the summary of the Benchmark Report on page 5 of the Findings Report, while the figure of 26% was Mr Hodd’s adjusted figure on page 10 of the Findings Report: see paragraph 110 above. On this basis, the saving over 18 months would have been £229,320, 50% of which plus VAT comes to £134,725.50. That, I take it, is the maximum sum which Zukra now realistically seeks to recover.

If the claim to a contingency fee is to succeed, Zukra must establish:

Was there a recommendation report in relation to the cost of air travel?

Under the terms and conditions, Zukra was obliged to provide two reports: a Benchmark Report setting out the current service levels and prices paid for the services under review, and a Recommendation Report analysing potential savings against the success criteria set out in the Benchmark Report. It follows that, if the Findings Report was to qualify as a Recommendation Report in relation to air travel, the Benchmark Report had to set out the current service levels and prices paid for air travel. A considerable amount of potentially relevant material for the ascertainment of air travel benchmarks was set out by Mr Hodd, in a rather disorganised fashion, on pages 9 to 13 of the Benchmark Report. However, this material was not supported by the promised appendices, and the success criteria on page 18 related only to the TMC part of the review. It follows, in my judgment, that the Benchmark Report contained no clearly identifiable yardstick in relation to air travel against which future success in reducing costs could be measured. It was, at best, a discussion paper for further consideration by CCC in relation to this part of the review. The preliminary status of this part of the report is in my view emphasised by the extraordinary number of different figures shown as apparently representing the total cost of air travel in 2006, ranging from a low of £507,168 to a high of £670,000. It may well be that Mr Hodd could have provided an explanation or justification for each of those figures, but they cannot all be right if they were meant to refer to the same thing, and if they were meant to refer to different things, no explanation can be found in the body of the report. This kind of sloppiness and imprecision may perhaps be acceptable in a preliminary discussion document, but would have been completely unacceptable if the intention was to provide a benchmark for use in calculating subsequent savings.

This lack of precision in the Benchmark Report is inevitably reflected in the Findings Report. The section headed “Review of the Cost of Air Travel” again reads as a discussion paper, setting out various possibilities for consideration by CCC, raising the question whether staff should be required to fly to policy or whether the policy itself should be amended to reflect actual practice, and recommending the establishment of a travel focus group. It is significant that the proposals contained in the Findings Summary on page 16 were confined, in relation to air travel, to the formation of a travel focus group and updating the travel policy. There were no costed recommendations of the type that were presented to CCC in the recommendation reports relating to office supplies and telecoms. Similarly, the implementation plan on pages 17 and 18 did not go beyond these preliminary steps in the first quarter, and a review of travel policy in the second quarter. As Mr Hodd said in the Savings Summary on the final page, the annual savings would depend on “the scale and nature of any travel policy adjustments”.

Against the background which I have described, the table of possible savings shown on the last page of the Findings Report could have had no more than illustrative value, and the statement that it was a recommendation which had “met the agreed success criteria” was in my view no more than wishful thinking.

Were the success criteria met?

To a large extent, I have already answered this question. The Benchmark Report contained no intelligible success criteria in relation to air travel, so it was never going to be possible for Mr Hodd to show that such criteria had been met in the Findings Report. Furthermore, the definition of Success Criteria in clause 7 of the terms and conditions stipulates that “to be successful a saving must provide equivalent quality levels of product and service as defined in the Benchmark Report”. Quite apart from the absence of any such defined levels of product and service in the Benchmark Report, it is in my judgment wholly unclear from the Findings Report precisely how, if at all, Mr Hodd’s four scenarios were meant to provide an equivalent quality level of service. Even scenario A, which involved least change to the status quo, provided for at least 80% of tickets to the Far East to be booked at least seven days in advance. By contrast, the data in the Benchmark Report show that in 2006 no fewer than 65% of travellers booked within seven days of departure. Scenario A assumes, in effect, that less than one third of those 65% actually needed to book their travel within seven days of departure; but no evidential basis is given for such an assumption, and I have already referred to Mr Temperton’s evidence about the frequent need for travel arrangements to be made at short notice during the period under review.

Mr Hodd’s scenario B was even more unrealistic, requiring 30% of flights to be booked 28 days or more in advance. Mr Temperton’s clear evidence was that this could not have been achieved. He said in cross-examination that at most 10% of the Far East flights could have been booked so far ahead.

Scenario C was described as “fly to policy”, but in fact its adoption would have required 80% of the flights to be booked in Premium Economy class. Apart from anything else, this scenario is open to the objection that a Premium Economy flight cannot be regarded as equivalent in quality to a Business Class flight, so unless CCC agreed to downgrade its travel policy this scenario could not be regarded as providing an equivalent level of quality, and for that reason alone could not generate a successful saving.

I have already referred to scenario D in paragraph 110 above. In my view it is open to the same objection as scenario C, as a two-leg flight to the Far East via a European hub would not be equivalent to a direct flight from London. Mr Temperton dismissed this as a realistic possibility, and I see no reason to disagree with him.

Finally, and in any event, the Findings Report did not even meet the minimum requirement of a 5% saving as required by the Letter of Engagement. The minimum saving identified in the Executive Summary, and again at the end of the report on page 19, was only 3%. Moreover, that 3% represented the estimated savings on TMC fees of £17,000 expressed as a percentage of the total annual travel spend of £615,000. The minimum saving on air fares shown on page 19 of the report was nil. Mr Hodd claimed in cross-examination that this was yet another mistake, and that he meant to enter a figure based on the minimum saving of 8% shown for scenario A. I am unable to accept this evidence, although I am sure this is what Mr Hodd now thinks, over five years later, he should have done. In my view he deliberately showed the minimum saving on air fares as nil, and was right to do so, because no clear recommendation had yet been quantified and everything would depend on the reaction of the group to his proposals.

Did CCC fail to implement recommendations?

It will be apparent from what I have already said that this question must be answered in the negative. In the absence of any clear cost saving recommendations in relation to air travel in the Findings Report, the question of non-implementation could not arise.

For all these reasons, I conclude that Zukra’s claim to recover a contingency fee under the 2006 Agreement must fail. The alternative claims, based on a quantum meruit and the law of unjust enrichment, are in my judgment equally unsustainable. Having failed to satisfy the agreed contractual criteria for payment of a contingency fee, Zukra cannot claim that CCC has been unjustly enriched at its expense. On the contrary, Zukra is merely being held to the terms of its bargain. It might have been open to Zukra to claim for the time which it spent working on the air travel part of the review at the contractual day rate, but for whatever reason it has chosen not to do so.

In these circumstances, it is unnecessary for me to consider the issues on quantum which would have arisen if liability had been established. The claim fails on liability, and must therefore be dismissed.