Regus (UK) Ltd v Epcot Solutions Ltd

This is a claim for unpaid fees for the use of serviced office accommodation and a very large counter-claim for mis-representation and breach of contract over allegedly defective air conditioning. The dispute is one of fact but also raises questions about the Claimant’s standard terms of business and the effect upon them of the Unfair Contract Terms Act 1977.

The Claimant (“Regus”) is a UK company, part of a large group which supplies serviced office accommodation in some 400 locations in 50 countries. The Defendant (“Epcot”) is a small company providing professional IT training with ambitions to develop a franchise in that field. Epcot is controlled by its Chief Executive Officer, Mr Charanjit Randhawa. After some years in the computer business, principally at IBM, Mr Randhawa developed what he calls “Epcot Solutions unique 5 hour training concept providing a full day’s IT training within the highest quality training environment in an extended half day”. The concept also involved a base in world class serviced offices which companies like Regus and its competitors are able to provide. He had bold ambitions for Epcot and, as he puts it, he left his previous company in November 2000 “following the finalisation of the project plan and securing the finance and team to set-up the worlds finest commercial IT training environment by April 2001. The vision was to build a global organisation offering clients with the highest quality IT training for free or at cost effective prices to create life long learning; the company would radically change the global IT training and reseller markets”. Mr Randhawa decided that the right starting point would be Regus’ Heathrow location, first because travel related industries were based close by, and, secondly, because potential franchise partners could readily visit Epcot after landing at Heathrow.

Mr Randhawa met Mr Deegan of Regus in January 2001 and agreed to take accommodation on a day to day basis from the end of March. On 21 August Epcot entered into an agreement with Regus for 12 months. In August 2002 Epcot renewed the agreement for 12 months, but on 5 November 2002 were informed that the Heathrow location was due to close from 28 February 2003. Regus’s terms and conditions committed it to try to find alternative accommodation for customers. Epcot was offered alternative accommodation at Stockley Park, a business centre about 3 miles away. Mr Cannon of Regus offered to ensure that the transition was seamless and to provide the necessary support for moving office equipment, informing clients of the impending move and maintaining the same prices for the remainder of the outstanding term. Although there had been some complaints about air conditioning in the summer of 2001 the occupation at Heathrow was otherwise uneventful. .

Epcot moved to Stockley Park and on 14 March 2003 entered into a new agreement for three and a half months which was in the then current standard form known as “Regus Business Centre Service Agreement”. Epcot was to pay £50 per day, in effect £1,500 per month, plus VAT, plus what was, in effect, a deposit of £3,000. Epcot was to occupy Office 118 which in time became Meeting Room 3 on the First Floor of the Stockley Park Business Centre.

It is common ground that these terms govern the contract between the parties and in view of their significance I set out below in full the most relevant clauses:

I set out the picture that emerges from the correspondence before turning to the disputed evidence about Epcot’s stay in Meeting Room 3.

On 26 March 2003 there is first mention of air conditioning when Mr Randhawa, in an e-mail, informs Regus that this needs adjusting because in the afternoon the room temperature exceeds the safe server temperature range. He asks for the temperature in the room to be reduced. Around this time Mr Randhawa was also urging Mr David Johnson, Managing Director of Regus to become involved in the Epcot franchise operation. He urges Mr Johnson not to miss the opportunity presented which, if not grasped, might lead to Regus losing some £7 million sales each year from Mr Randhawa’s franchise partners. On 3 June Epcot renewed its agreement for a further 6 months and Regus suggests that this is consistent with the company being reasonably satisfied with the service it was receiving. Epcot has produced a copy letter dated 4 June 2003,(the original is not on Regus’ files), which refers to numerous discussions with Tracy Craddock of Regus and with the Manager, Nicola Pugh, over the previous 2 months on the problems caused by poor air conditioning. The letter refers to IT training being badly affected by the extreme hot and cold temperatures generated by the air conditioning. Epcot refers to meetings it will be having with venture capital companies and “business angels” about substantial investments in its business. Epcot also refers to potential franchisees coming to see it and seeks to hold Regus responsible for any loss of business caused by the air conditioning problems. The letter also pursues a claim for £13,000 in wasted marketing costs caused by the “forced relocation” and £2,750 claimed as the costs of the move from Heathrow to Stockley Park. The letter says that it is the “last letter” highlighting the air conditioning problem, and warning that unless things are fixed within one month Regus will be held liable for all losses which could be “multi-million pounds”. This appears to be the first, rather than the last, letter, it is not referred to in subsequent dealings and correspondence, and at first sight would appear to be the sort of communication one might send before negotiating renewal of an agreement rather than the day after doing so. In November 2003 the Agreement was renewed for a total of 22 further months.

There are no further records of complaint until 18 May 2004 when Mr Randhawa complains to Ariane Morin of Regus about the air conditioning being too hot. It is possible because of a spelling error that the e-mail did not arrive but it is clear that some air conditioning problems were being caused at that time. Epcot have produced two evaluation sheets from the students both dated 1^st June 2004 complaining about the air conditioning and the room being too hot. On 8^th June Ms Morin sent a memo to “all clients” about the air conditioning thanking them “for your patience in regard to air conditioning issues” and suggesting three options. On 10^th June Mr Randhawa e-mailed a further complaint to Ms Morin attaching five pages of previous complaints which may not have reached her. The 10^th June e-mail however is correctly addressed and would have been received by Regus. On 17^th June Mr Randhawa noted some improvements following help from a security guard but he mentioned other problems. He complained again on 2^nd July. On 12^th July Mr Randhawa wrote to Mark Smith, the Area Director for Regus, referring to earlier claims for relocation costs, this time seeking £55,400 including amongst other things “over £30,000” for “loss of business”. He said that Epcot was requesting a rent free period six months for “over £40,000 compensation” and because of loss of business not only following the relocation but due to the air conditioning problems. The parties met, apparently in July to discuss the issue. No agreement was reached but it seems clear from a Regus internal e-mail of 23^rd September that it had offered to pay for stationery at £3,919.80 plus VAT but this had been refused. Regus had it in mind to offer this amount again but only as a discount. The figure was apparently the amount of a quotation for replacement of brochures and other material which Regus had obtained at what seemed a much lower price than that available to Epcot. By the end of September despite a meeting the parties were at loggerheads. Mr Randhawa considered that Epcot were entitled to six months rent free occupation, four months equating to relocation costs of £2,750 and the marketing expenses of £3,900 with a further two months to make good loss of clients due to the air conditioning problems .Regus saw it as a straightforward question of overdue bills and decided to suspend service from 8^th October. Mr Randhawa warned Mr Malamo, by then manager at Stockley Park, that there would be substantial adverse consequences for Regus should it purport to suspend Epcot from using its rooms. By 5^th October Mr Randhawa’s position was that he would pay four months rent at £6,600 provided he was paid £6667 which he considered Regus owed to Epcot. It seemed that Epcot was going to be able to move from Regus to another serviced office provider, Starwood, on 31^st October should it have to do so.

Epcot received on 1^st October 2004 a “notice of suspension of services” with effect from Tuesday, 5^th October and this was followed by a virtually identical notice dated 6^th October to take effect from Friday, 8^th October. The relevant part of the notice provided as follows:-

“After the final discussion with Regus CEO David Ford and negotiations with London Area Director Mark Smith we write to inform you that in accordance with the Terms & Conditions of your Agreement, from Friday, 8^th October 2004 at 13.00 GMT we will suspend your services. This will include suspension of telephone calls, photocopying & administration services, mail & fax handling and any other services you may use. These will not recommence until cleared funds have reached our bank account. A late payment surcharge will be added to your next invoice. You should be aware that re-establishing services may involve additional set up costs which will be charged to you.”

Regus added in an e-mail from Mr Ford ,Chief Executive Officer, that Epcot would not be able to access its office after 8^th October. On that day, once service had been cut, Mr Randhawa wrote to Regus reiterating his claims, alleging loss of business caused by the relocation and by faulty air conditioning and stating that the suspension action compelled his company to close down and move out of Stockley Park.

Regus now claims £6,814.58 for the period up to 8^th October 2004 when services were suspended (this being a reference to the right to withhold services reserved in clause 39) plus £23,385.46 being the standard fee for the period to the end of October 2005, when the renewed agreement would have expired had it run its term.

Regus’ brochure describes Stockley Park as having “a 4 Pipe fan coil air conditioning system” which would apparently give good local temperature control in all areas of the building. That claim is not correct. Instead Stockley Park has a variable air volume system designed for larger areas such as those with open plan. In order to work satisfactorily in a meeting room such as that occupied by Epcot there would need to be a variable air volume box with enough volume to meet the fresh air requirements of the number of people occupying the space.

It is clear that the system did not work satisfactorily and that it was in some respects defective. On 27^th September 2002 a company called Unitair reported to Johnson Control Systems Limited, the company retained by Regus to deal with such matters in its buildings, on an inspection which it had carried out at Stockley Park. This showed a series of defects in the air conditioning systems and made nine proposals for “remedial work” that “should be undertaken as a matter of some urgency from both a health and safety issue and plant performance aspect”. The report contained a price of £23,500 plus VAT for the work and concluded:-

“We are of the opinion that the aforementioned works should be undertaken as a matter of urgency as the issue of rusting standing water in operational plant is a serious health and safety issue.

The performance and in turn the efficiency of the air handling units is being seriously compromised as the fresh air, recirculation air and exhaust air motorised dampers are not correctly operational.

The structural integrity of the plan is being further affected by the continuous presence of water within the air handling units.”

As a result of staff turnover at Regus, there is no evidence that this report was, or was not passed by Johnson to the company at the time. There was however no reason for Johnson not to pass it on and in the ordinary course one would have expected them to do so. It clearly reached Regus at some point.

It seems reasonably clear that Regus was under some financial pressures in 2002 and 2004 to keep costs down. The only reasons for the work not being done put forward by Regus witnesses related to the delays and limitations inherent in the Regus processes for authorising expenditure beyond a certain limit. No Regus witness had a good reason to put forward for the work not having been carried out and, indeed, all were commendably frank on this point. Furthermore the evidence of Mr Janath Jayawardana, an air conditioning engineer employed by Johnson Controls who had worked at a variety of sites including Stockley Park was that it seemed that budget constraints were the only reason for not carrying out the recommended work. In addition there is an e-mail exchange dated 30^th June 2003 between Mr Johnson of Regus and Nicola Varney then the manager at Stockley Park. Mr Johnson says “I am concerned at the amount of work that is required and the amount of money needing to repair. As you know this centre is far from busy and I would like not to have to spend money until it gets busier again. If I have to spend any, which would you prioritise?” Ms Varney replies “I have spoken with Jay, our Refrigeration Manager, and he recommends that if any one item is of a higher priority, then it would be item 1” (an item costing £2,250, of a kind which would not have assisted Epcot is then identified). Other reports within Regus of electrical and mechanical maintenance evidence the lack of progress with repairs. Eventually Regus did carry out a significant amount of work on the air conditioning but not in time to be of much assistance to Epcot.

Epcot obtained an expert report from Mr Michael Carver a chartered engineer with various other qualifications including that of having been a council member of the Chartered Institute of Building Services Engineers. His expertise was not disputed. Regus instructed, although unfortunately not until very shortly before the trial, and obtained a report from Mr Alan Fenn who is also well qualified. The differences between the experts relevant to the central issues in this case were limited and indeed neither was required to attend for cross-examination. In particular the following conclusions of Mr Carver were not subject to challenge.

The air conditioning provided by Regus to Meeting Room 3 involved a cassette unit and the central VAV system. If both had been operational they could have provided appropriate temperature control despite the amount of equipment and the number of people who would be using the room. There were fundamental problems affecting the performance of the central VAV system and nothing significant was done to rectify this until July 2004 when work was put in hand. The cassette unit was also defective and, had it been working, it could have controlled the temperature. There are no records to indicate that the cassette unit was working at the relevant time and indeed it was inoperative when Mr Carver visited on 21^st November 2006. Mr Carver was unable to inspect certain aspects of the air conditioning but it was his opinion that the management of health and safety issues fell a long way short of what would be considered reasonable in office accommodation of this kind. He also suggested that lack of fresh air in the meeting room would have contributed to a stuffy environment and potentially caused higher levels of cross infection. The water leaks in and around the air handling units identified in reports in 2002 could potentially have been a breeding ground for Legionella bacteria with the potential, at low levels, for symptoms similar to that of a cold. He concluded that from the information he had seen temperatures had been such that the space was not “fit for purpose” and did not meet any normally accepted criteria for offices.

Mr Mark Smith, formerly Regus’ Regional Director responsible for some twenty four centres including, from January 2004, Stockley Park dealt with the discussions in which he had been involved leading up to the suspension of services. He said that he had been sympathetic to the idea of giving Epcot financial assistance in relocating offices but the sums of money paid to clients had in the past generally been of the order of £500 or so. Mr Randhawa was claiming much more. In his time if a fundamental problem arose with a building it would be fixed at once even if the cost was high. In his experience Regus did not skimp on essential maintenance. While engineering and maintenance reports did not generally come to him he accepted that he would generally have expected a report such as that from Unitair to have been addressed promptly.

Mr Markus Malamo was manager at the centre from 5^th July 2004 onwards and his authority was limited. He likened his role to that of a hotel manager. While he was involved in the discussions leading to the suspension Mr Malamo, through no fault of his, had little to add.

Ms Ariane Morin was manager from early 2004 until Mr Malamo took over. She accepted that there were problems with the air conditioning and sometimes parts of the building were too hot and at other times too cold. Different areas were affected at different times in a large building but she did what she could to offer portable cooling units and fans to provide temporary alleviation of the problem. She accepted that when she had visited the Epcot room it had been hot on a busy day. She was not aware of the problem causing aches, pains or any physical harm to people. The difficulties had arisen only after mid May 2004 when the weather warmed up.

Ms Emma Palmer worked for Regus at Stockley Park. She too accepted that at times between the Spring of 2003 and October 2004 there were complaints from a number of clients about temperatures in the building being too high or low. She said that complaints were always dealt with promptly and she would invariably contact the main maintenance engineers. She rejected suggestions made by a former colleague Samantha Orr that they had both been told by their manager to mislead any customers who complained about the air conditioning.

Mr Nigel Craddock is Regus’ Maintenance Manager responsible for business centres in London and the South East. During the period of this dispute Mr Craddock worked for Workplace Management, a company which provided maintenance services for Regus at amongst other places Stockley Park. He accepted that with the wisdom of hindsight a manager within Regus should have acted upon the Unitair report. He accepted that there were a number of failures in the air conditioning at different parts of the building. He concluded that the reason why the repair works had not been carried out was because of the requirements of the financial processes and procedures within Regus.

A witness statement was served for Mr Garry Deegan who no longer works for Regus but had between 2000 and 2002 been a sales manager with the responsibility for attracting occupiers to business centres both at Heathrow and at Stockley Park. Mr Deegan denies in his statement that he represented to anyone that Regus had a long term lease of Heathrow with a further seven years remaining or that Regus would not be moving out of Heathrow. He had a memory of meeting Mr Randhawa and of some tough negotiations. He had no recollection, after some six years, of specific conversations but he considered that if anybody had asked him how long the lease had to run he would have told them. He said that he would not however have given any guarantee or promise about how long Regus intended to remain in occupation, particularly when negotiating a short term let of a small amount of space.

Mr Randhawa explained the commercial background to his company wishing to take space at Regus Heathrow. He said that on 30^th January 2001 he sought assurances from Mr Deegan and was told that Regus had a further seven year lease and would not be moving out of the Heathrow building. Mr Randhawa says that he emphasised Epcot’s “global expansion programme and how they would require permanent serviced offices in the majority if not all of Regus’ locations world-wide through the set up of company owned and franchised IT Solution Centres”. He was very unhappy when Regus closed down Heathrow but was assured of the same level of professional service and commitment at Stockley Park and that the full replacement costs for marketing materials and full relocation costs would be paid. When asked why he had not confirmed these discussions and the earlier ones with Mr Deegan in writing Mr Randhawa explained that he had trusted those with whom he dealt and indeed they, Mr Deegan in particular, had been impressed by what he had to offer and wanted to be involved in the Epcot project. He said that the manager at Stockley Park, Nicola Pugh had met him briefly at the outset and explained the advantages of the location and the fact that the centre had a 4 Pipe fan coil air conditioning system. He said that in the spring of 2003 he was complaining on a weekly basis about a serious air conditioning problem. He said that at that time Ms Tracey Craddock had told him that Regus knew about problems with the air conditioning system- major parts needed replacing and the set up was not safe. Repairs were not being authorised because the centre was neither busy nor profitable. In April 2003 Tracey also advised him not to say anything about their conversations on the subject of air conditioning and not to ask for the relocation and marketing costs or to complain until the renewal was signed. He referred to various conversations and promises made by Mr David Cannon. Mr Randhawa said that on 3^rd June, before signing a renewal he asked Nicola Pugh about the air conditioning and was told that it would be fixed properly. He said that he had signed the renewal on the basis that he would the following day provide her with a letter stating that if the air conditioning was not fixed within a month he would be holding Regus responsible. He also referred to discussions in November 2003 with Tracey Craddock. She told him that even if he wrote complaining about the air conditioning at that point he would not get a satisfactory answer because the company policy was never to confirm problems in writing. Tracey apparently told Mr Randhawa that she would make sure that Regus fixed these serious problems. It was on the strength of this that he signed further agreements for twenty two months up until October 2005. It was suggested to Mr Randhawa that all of these claims were untruthful or exaggerated, were improbable and had been invented to explain the absence of a written complaint and Epcot’s apparent willingness to renew its agreement despite the alleged severity of the air conditioning problem. Mr Randhawa denied this. It was suggested to him by reference to a press cutting about his disagreement with his one time employer IBM that since on that occasion he had apparently regretted settling for a verbal commitment rather than insisting on a written one he might have been expected to take particular concern to record things in writing. Mr Randhawa says that he spoke to Tracey Craddock again in February 2004 and accepted her advice that it would be counter productive to terminate the contract for breach of contract on account of the air conditioning. He accepted that advice too. Mr Randhawa also referred to the experiences of and his dealings with the other witnesses who came forward to assist him.

Mr Randhawa’s statement runs to 37 pages. It was prepared at a time when Epcot did not have continuous access to legal advice. It is perhaps understandable therefore that the statement is expressed in terms of marketing promotion rather than detached exposition of fact and often advances a case rather than set out the facts as a witness should. The statement gives the impression that Epcot is a substantial organisation with a proven record that is inevitably bound to succeed with its ambitious objectives and attracts enormous and often spontaneous admiration from all those with whom it comes into contact. That is not the real world . In fact Epcot is a small company which puts on what seem to be excellent courses for its customers but which has not yet progressed in its ambitions to develop a huge franchise operation. Mr Randhawa’s understandable concerns to promote the business appear to have led to some exaggeration and occasionally to untruths. Thus in a business plan seeking investment in Epcot by Alchemy Partners, the well known venture capitalists, Mr Randhawa claims that Epcot “has formed strategic partnerships with the following best of breed companies” and includes amongst those “Regus/HQ Global”. In fact there is no such strategic partnership with Regus. Mr Randhawa’s approach in the course of his evidence seemed to me consistent with the following observation made by Mr Malamo in his witness statement:-

“He initially came across as very calm and professional. He made his points concisely and well. However, after about 5 or 10 minutes, he began to talk about financially substantial venture capital partners; a pending trip to the United States; and prospective million pounds contracts. The contrast between Mr Randhawa’s “talk up” and the quantum of the sums we were discussing (Mark and I believed that we were discussing repayment, at most, of 4 or 5 hundred pounds) was stark. This was my first and lasting impression of Mr Randhawa. There was a huge gulf between the scope of his business plans (in terms of the figures he was talking about) and the size of his operation.”

This tendency to exaggerate affected other areas of his evidence . An intelligent and experienced businessman like Mr Randhawa would be most unlikely to receive assurances and not commit them to writing , at least in an e-mail, and his explanation for this , a mixture of trust and being too busy , did not convince me . The conversations with Ms Craddock were also probably very different from the account given by Mr Randhawa which is improbable and open to criticism as being tailored to explain why Epcot kept renewing its contract without complaint. Mr Randhawa is a highly intelligent and persuasive businessman who has clear entrepreneurial skills and an ablilty to inspire loyalty in his colleagues but his evidence was often unconvincing.

Mr Raj Chana had been a project manager at Uxbridge College and was impressed with Epcot’s work in providing IT training funded by the European Social Fund. Mr Chana admired the brilliance of the tutor but also the physical environment, an impressive office building rather than the inadequate facilities provided by other similar schemes. He said that he had received adverse comments from students about courses on the 29^th January 2004 which had led him to suspend dealings with the company. He had also noted warm temperatures on earlier visits. I did not doubt Mr Chana’s evidence that the room had at times been too hot for comfortable work but other claims seemed exaggerated. For example he says this in his witness statement “I had no doubt had it not been for the serious breach of health and safety laws by Regus Epcot Solutions would have formed over seventy permanent or long term partnerships with colleges and further education establishments in the UK each providing substantial training revenue per year …”. As one would expect, Mr Chana accepted that he had been in no position to commit, as opposed to persuade, anybody except to a limited extent the college for which he worked.

Mr Deepak Khanchandani was Managing Director at Regus Stockley Park and noticed unbearable temperatures in the building about which he frequently complained. In 2003 and 2004 he noticed that temperatures were even higher in Epcot’s offices than in his own. It was suggested that he was exaggerating as none of the complaints was in writing. Mr Khanchandani responded that there was no need to supplement his complaints with written ones and the costs of setting up at Stockley Park and then moving his base would not justify moving on. While Mr Khanchandani’s evidence may have been tinged with some loyalty to Mr Rhandawa I did not doubt the thrust of it.

Mr Sarabjit Uppal is Chief Executive of another small company based at Stockley Park. His impression of the air conditioning problems was similar to that of Mr Khanchandani. He had done a course in Epcot’s offices but left it because of the high temperatures which he felt made him ill. Tracey Craddock had assured him that the air conditioning would be fixed shortly but had also disclosed in February 2004 that Regus senior management knew of the problems but were deliberately refusing to spend the necessary money to put them right. He made other claims about conversations with Ms Craddock which seemed to me far fetched . Mr Uppal was asked about the absence of written complaint and his reaction was similar to that of Mr Khanchandani. It was suggested to him that his claims about feeling ill were exaggerated and had only been put forward once the views of Mr Carver the expert were known to Mr Rhandawa. He denied this.

Mr Tarsem Chana had been a contract trainer for Epcot between April and October 2004. He too complained about the defective air conditioning about the room being too hot and suffering harm to his health - in the form of feeling unwell rather than any affliction which needed medical attention.

Ms Elaine Baudouin worked as a trainer between April 2001 and February 2003 at Heathrow and also at Stockley Park until January 2004. She said that she made complaints to Regus staff but in the end gave up working for Epcot because of the problems which were making her feel tired and ill at the end of the day. Ms Baudouin acted on a freelance basis her work for Epcot being a day or so a month. Like Mr Chana she originally had hopes of Epcot’s franchise business developing. She would then have hoped to take on a franchise which might create revenues through her ability to hire and take on other staff. This witness has had wide experience in the industry and I accept her evidence

Ms Samantha Orr had worked as a customer services representative for Regus from August 2002 to July 2005 before leaving in unhappy circumstances. In her statement she referred to what seemed to be systematic deception by Regus of Epcot and its other customers. It emerged however that her concerns about deception were two fold. First more senior members of Regus had pretended to be out or unavailable. Secondly they had instructed her to say that matters would be addressed and rectified when they and she knew that that was unlikely. She also complained that her health suffered while working for Regus and was taking advice about whether the premature birth and death of her son was connected with these matters. Ms Orr left Regus under sad circumstances. I accept the thrust of her oral evidence but not her witness statement some of which is convincingly contradicted by her former colleagues.

I do not accept Epcot’s claims that they entered into their first agreement with Regus on the strength of a misrepresentation by Mr Deegan. Mr Deegan was not available for cross-examination but his memory is likely to have been a distant one. Furthermore it is improbable that he would have made these claims. If he had made them I would have expected Mr Rhandawa, particularly against the background of his personal experience, to have recorded them in writing. I also found Mr Rhandawa’s oral evidence on the point improbable containing as it so frequently did a recollection that the person he was dealing with had effusively admired the Epcot product and, in Mr Deegan’s case, sought employment with them.

I accept the evidence from Epcot witnesses that the air conditioning was defective and in particular made the room too hot in the summer months. These witnesses clearly had a degree of loyalty to Mr Rhandawa and I found surprising the claims of some that their statements were their own independent work. I was also unconvinced by the ill health claims not because I suggest that they have been fabricated but because the witnesses may well have learned something of what Mr Carver had reported and reasonably attributed their fatigue after working in overheated conditions to real ill health. Nonetheless the central complaints about the air conditioning rang true and are supported by the expert evidence and to a degree by Regus’s witnesses.

As I accept the evidence of Mr Carver ,which was not significantly challenged, the reason for the air conditioning being defective was the failure of Regus to carry out urgent and significant repairs. It seems to me more likely than not that the Unitair report did reach Regus at some level. Even if it did not the company should have had a sound system for monitoring its contractors and ensuring that basic systems were properly maintained. The very uncertainty about what happened to the report evidences a want of care on Regus’ part. Other evidence, such as the Workplace Management reports from May 2004 onwards and what Mr Jayawardena had to say confirm the impression of a company failing to carry out basic repairs to save money. Mr Jayawardena’s English was limited but his competence in his area was plain, his approach was moderate and he exuded integrity. The company was negligent within the terms of paragraph 23 of the Terms and Conditions.

The inadequate air conditioning was significant but not a real threat to Epcot’s business. If conditions had been as bad as Mr Rhandawa claimed, particularly in 2003 he would undoubtedly have mentioned this in writing. He would also have raised the matter more aggressively when repeatedly renewing Epcot’s agreement with Regus. Mr Rhandawa’s accounts of his discussions with Tracey Craddock have been exaggerated, possibly to explain Epcot’s willingness to renew. Although Ms Craddock did not give evidence (and Epcot may have known that she would not be available) it would be very surprising if she had said what is attributed to her and even more surprising if Epcot had accepted the advice and acted upon it. Stockley Park had real advantages despite the air conditioning problem. The facilities were impressive as Mr Raj Chana noted and available on good terms. Epcot was paying approximately £1,500 per month which seems to have been only about one third of what Regus claimed was the going rate , although I appreciate that it would have been a nuisance and an expense for the company to have to move.

.Having reached these conclusions about the facts I now turn to the various legal claims between the parties which it is convenient to take chronologically rather than considering first the claim and then the defence and counterclaim.

I have found as a matter of fact that Epcot has not established that these misrepresentations were made. Furthermore even if they had been made they might well have correctly reflected Regus’ intentions at the time and to that extent have been true. I also accept Mr Braithwaite’s submission that since Epcot had no security of tenure beyond the series of short term contracts with Regus it was in no position to place reliance on Regus’ own security of tenure. Regus were able to terminate Epcot’s use of offices at comparatively short notice.

Regus contracted to provide services to Epcot which included air conditioning. A failure to provide adequate air conditioning is therefore, in the ordinary way, a breach of contract. The rather convoluted pleading served by Epcot (which was not the work of Mr Colbey) puts its claim as a breach of an implied obligation to provide service to offices fit and suitable for use and occupation by Epcot in the course of its business. It is also put as being a breach on an implied obligation to exercise reasonable care and skill in the provision of service to offices. It seems to me clear that Regus was in breach of the obligation to provide the services it promised and Epcot is entitled to recover damages for any loss which it suffered subject to the effect of provisions in the Terms and Conditions excluding or restricting liability. Air conditioning was promised and Epcot was entitled to have it in what was the business equivalent of a hotel room.

Epcot also claims that as a result of the misrepresentations of Mr Deegan it suffered loss and damage in the form of having to replace redundant brochures, business cards and other stationery at a cost of £15,392.50 and also suffered relocation costs of £2,750. Those claims fail because of my conclusions about misrepresentation generally. Against that possibility Mr Colbey sought to amend the pleading during the course of the trial to claim the same sums on the grounds that Regus, through Mr Cannon in particular, had agreed with Epcot that it would pay the reasonable costs incurred as a result of the move. I refused that amendment because Regus were not in a position to deal with the factual allegation at a trial. While the allegations were contained in Mr Rhandawa’s witness statement they were no part of his pleaded case. I indicated that it remained open for Epcot to apply to proceed with that claim against Regus at some later point if it wished to do so, subject of course to issues as to costs. There is, in the papers, evidence that Regus accepted that they would be responsible for some reasonable cost incurred as the result of the move. The matter did not move forward however because Epcot were demanding much higher sums than the £3,900 on offer from Regus.

Clause 23 which I have set out in full above first of all excludes liability for any loss unless the failure relied upon is deliberate or negligent. Even then there is no liability “for any failure until you have told us about it and given us a reasonable time to put right …”.

As I have made clear I consider that the failure by Regus to provide adequate air conditioning was negligent. Regus were also told about this failure by Epcot and were given a reasonable time to put it right. I should re-emphasise that I do not accept Regus’ argument that it could postpone works on grounds of cost and profitability . That would not be consistent with the nature of the service they had promised to provide, analogous to that of an hotel not a leasehold office, and the extent of the work that required to be done. This limb of clause 23 therefore affords no protection to Regus in this case.

The second constraint within clause 23 is that Regus will not “in any circumstances have any liability for any loss of business, loss of profits, loss of anticipated savings, loss of or damage to data, third party claims or any consequential loss. We strongly advise you to insure against all such potential loss damage expense or liability.” The clause goes on to limit liability, except for personal injury or death, to £1 million for damage to personal property and otherwise “up to a maximum equal to 125% of the total fees paid under your agreement up to the date on which the claim in question arises or £50,000 (whichever is the higher), in respect of all other losses damages expenses or claims”.

Epcot’s claim for damages extends to “loss of profits and loss of opportunity to develop its business to generate anticipated profits” (which Regus claimed is validly excluded by clause 23) and “distress and inconvenience and loss of amenity” (which, at first, Regus claimed was irrecoverable since this damage could only be suffered by people not by corporate bodies).

It is common ground that clause 23 falls within section 3 of the Unfair Contract Terms Act 1977 as it restricts liability in respect of a breach and is within Regus’ written standard terms of business. Regus has to show that the term satisfies the requirement of reasonableness in section 11 of the Act that is to say it was a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. Regard is had to the matters specified in Schedule 2. Further where, as in this case a person seeks to restrict liability to a specified sum of money regard shall be had in particular to the resources which he could expect to be available to him to meet the liability if it should arise and how far it was open to him to cover himself by insurance. Schedule 2, which I do not set out in full requires regard to be had to the listed criteria which include the relative strength of the bargaining positions taking into account other means by which a customer’s requirements could have been met, whether the customer received an inducement to agree to the term and whether the customer knew or would reasonably to have known of the existence and extent of the term.

I should mention straight away that Mr Rhandawa accepted in evidence that he was well aware of the existence of the standard terms of Regus when he entered into the contract. He also said that he was aware of the existence of these exclusion clauses generally and indeed was aware that his own company CTC Heathrow Limited “reserves the right to cancel or reschedule a course due to demand and does not take responsibility for any indirect or consequential losses incurred.”

Regus argues that the clause is reasonable for several reasons. Loss of profit, as the clause notes, is a classically insurable loss. The tenants vary from large multi-nationals to small start up companies and their insurance requirement will vary greatly. The extent of those requirements will be better known to customers than to Regus. If this responsibility fell upon Regus there would be massive and unnecessary increases in charges. Regus is not the only service office provider generally or in the area of Stockley Park. Indeed Epcot moved to another one HQ Global. As the papers make clear Epcot used the existence of rivals to press Regus for discounts. Epcot sought to renegotiate some terms frequently and energetically but not that relating to loss of profit (although Mr Randhawa claims that he told Mr Deegan that the exclusion clause was not acceptable-another claim which I doubt). Negotiation of the price downwards from standard rates was in the knowledge that the exclusion clause applied and remained in place.

Mr Colbey for Epcot argues that clause 23 fails the test of reasonableness. The words “in any circumstances” are inherently unreasonable as they purport to protect Regus against the consequence of unjustly depriving Epcot of its right to occupy the room and, for example, to extort rate increases. He suggests that the bargaining power of the parties was unequal and that Regus had a virtual monopoly over the accommodation that Epcot wanted to use. No one suggests that a variation would have been permitted.

Regus responds that the clause has to be read as not seeking to exclude categories of conduct, for example fraud, that the law does not permit to be limited. Mr Braithwaite said that it followed that the claim for loss of profits was excluded and that the claim for distress, inconvenience and loss of amenity did not arise because this remedy while available to individuals could not be suffered by a corporate body. The latter submission was in reply to suggestions that Epcot should receive damages akin to what tenants receive in breach of covenant cases. When I suggested to Mr Braithwaite that if this was right no remedy at all was available to Epcot for breaches of contract relating to the air conditioning he took a little time to consider the matter. He submitted on reflection that these damages would be available and that his submissions to the contrary overlooked the reasoning of the House of Lords in Ruxley Electronics and Construction v Forsyth [1996] AC344. I was not taken to the case itself. As I read the decision however the House of Lords when reversing the decision of the Court of Appeal to overturn the judgment of the Mercantile Judge also upheld , for the most part in passing, an award of damages of £2,500 for loss of the pleasurable amenity (ie fun) of a swimming pool. This was on the basis that the contract was one to provide pleasure and amenity analogous to Jarvis and the holiday cases, and thus very different from the business purpose of the contract in this case. Epcot does not however appear to claim damages for loss of any subjective or idiosyncratic pleasure or amenity and it would be unusual, if not impossible for a company to do so. For the most part a company’s advances and setbacks are measured in financial terms. I emphasise that I was taken to no authority on this issue.

In addition to the findings of fact I have already made I should make it clear that I do not accept Mr Rhandawa’s evidence that he refused to accept clause 23 in discussions with Mr Deegan. It would be unexpected for Regus to agree to vary its terms and had it done so there would have been some written record. Regus would have recorded the exceptional step it was taking and Mr Rhandawa would have been sure to have it put in writing. Mr Rhandawa was also, as I have made clear, aware of the terms he was accepting on Epcot’s behalf. There is considerable inequality of bargaining power but against that there were other serviced accommodation providers available nearby and Epcot used at least one of these both for negotiating with Regus and also now to occupy for its business. The evidence about the availability of insurance is non-existent and it is not helpful for me to choose between the understandably underinformed submissions of counsel about this.

I conclude that in principle it is entirely reasonable for Regus to restrict damages for loss of profits and consequential losses from the categories of loss for which it will become liable when in breach of contract. I do not consider however that it can satisfy the burden of reasonableness when the clause deprives Epcot of any remedy at all for failure to provide a basic service like air conditioning in what is the business equivalent of an hotel, not the lease of a flat. Furthermore clause 23 provides an illusion of a remedy by limiting (as it is in principle reasonable to do) liability to 125% of the total fees paid or £50,000. But as the clause stands , because of the broad wording of the exclusion of financial losses, a business will be unable to establish the liability which Regus seeks to limit . The frail prospect of damages for loss of amenity is remote and uncertain. When I asked Mr Braithwaite to what “losses, damages, expenses or claims” this limitation could refer to given the breadth of exclusion in the rest of the clause he mentioned only third party liability.( in the letter to which I refer in the next Paragraph Mr Braithwaite says he had in mind expenditure by Epcot on third parties to remedy or mitigate breach by Regus and gives two examples- I will respond to that at the hand down of this judgement after I hear the views of Mr Colbey. I give that opportunity not for the reason suggested by Mr Braithwaite but out of courtesy ). I therefore consider that such a broad exclusion is not reasonable when one applies the factors identified by the Act. It is unfair for no remedy at all to be available to customers of Regus, most of whom will be companies, for serious failures in service over what may be a contract for a significant period of, for example, eighteen months. As it is not open to the court to sever a clause which fails to meet the requirements of the Act clause 23 is of no effect.

It follows that Epcot has a right to recover any damages it has suffered as a result of the air conditioning failures. As I have made clear earlier in the judgment these failures were significant but not crucial. They interfered with the efficient conduct of business but did not prevent it. Epcot chose to continue to operate with inadequate air conditioning given the compensating benefits of an attractive level of fee and the other facilities at Stockley Park. The appropriate measure of damage would in the ordinary way be some percentage deduction from the fees paid by Epcot unless it can show additional specific loss caused by the air conditioning failure. ( In his helpful letter of 20^th April Mr Braithwaite suggests first that there is a tension between the last sentence and my conclusion in Paragraph 50 that Clause 23 deprives Epcot of any remedy at all. I disagree and have added ‘specific’ to make it clearer. In the last sentence I was suggesting that the economic consequences for Epcot might best be measured in this way , not that there was after all a claim for loss of amenity, as I was seeking to discourage further unrealistic claims for damages. That is why I refer to the ‘ordinary way’. That expression also, I hope, answers Mr Braithwaites’s second point that a claim for damages assessed in this way is not currently pleaded-indeed it is not.) I have already expressed severe reservations about the quality of Mr Rhandawa’s recollection and the reliability of what are no doubt his sincere beliefs about the scale of losses. Generalised claims of loss of business are unconvincing unless supported by relevant contemporaneous documentation as opposed to anecdotal recollection. Those considerations apply even more strongly to claims for loss of potential franchise revenue or other venture capital investment. While Epcot will have the right to produce further evidence on this issue I am, on the basis of the material set out in the bundles for a trial which was originally to have covered the amount of loss as well as the question of liability, very sceptical about these consequential loss claims.

The circumstances surrounding the end of the working relationship between the parties are messy. Regus did not give notice of termination; it characterises its notice of suspension as being a withholding of service under clause 39. It is permitted to withhold a service “while there are any outstanding fees and interest or you are in breach of your agreement”. There were, in the strict sense, clearly fees outstanding at the date notice of suspension was given. The consequences of withholding are however severe since Epcot in principle remains liable to make payments to the end of the contractual term (a year later) despite receiving no benefit from the service. The clause is potentially penal and any way needs to be construed, in the event of doubt, against Regus. I therefore conclude that in order to obtain the benefit of clause 39 “outstanding fees” must be net of the value of any legitimate claims arising out of a performance of the service for which the fees are claimed. In principle it follows that unless Epcot’s right to damages was worth less than £6,814.58 as at 8^th October 2004 Regus cannot invoke clause 39. Moreover should there be a determination of Epcot’s claim to removal costs in its favour that too would, as it were, count against the £6,814.58. These are calculations that cannot be made at the present stage of this case. Epcot’s claim that Regus’ conduct in and about the suspension was a repudiatory breach of contract. If it should transpire that Regus did not have a legal justification for the suspension there would be force in that contention but it is one to be examined more closely once questions of damage have been identified.

I hope that I have resolved those issues which are capable of decision at the present stage in what started as a County Court claim for some £30,000 but became a counterclaim for millions. I will at the handing down of the judgment give directions for further stages in this case. For this reason I shall be grateful if counsel will let me have an agreed note of corrections, suggested further directions agreed as far as possible and short written summaries of the relief they intend to seek on the next occasion. I have made it clear that while I keep an open mind the prospects of a substantial award of damages in favour of Epcot seems remote. It follows that any damages hearing will concern a comparatively limited sum of money. I urge the parties to take a realistic approach to the remainder of this case and to endeavour to ensure that disproportionate costs are not run up.