Stratton & Anor v Patel & Anor

In these proceedings the Claimants as tenants claim relief in respect of defects in and damage to restaurant premises at 35 Upper Street, Islington, London N1 leased to them by the Defendant. The claim is put forward on a number of different bases and is primarily for damages but also for specific performance.

The case is one which has become complex partly because of the large volume of documentation in the trial bundles, partly because of the large number of items of remedial work now agreed to be necessary, partly because the Claimants’ damages claim has necessitated an extensive consideration of the financial history and prospects of the restaurant, but most of all because of the very large number of issues which have been raised, a matter complicated by extensive disputes as to what issues are legitimately in contention, disputes which reflect a wider continuum of procedural disputes which occupied a considerable proportion of the time allocated to the hearing before me.

Not long before the hearing started before me, a settlement was reached between the Defendant and the Third Party as a result of which the Third Party was not represented at that hearing: however, as will become clear, a substantial contribution to the problems which I have to consider arises from the actions of the Third Party’s insurers.

Whether for the above reasons or otherwise, the costs incurred by the Claimants and the Defendant in these proceedings have reached seven figures between them, an amount far in excess of the sums truly in issue in this case.

The premises with which this litigation is concerned are located in Upper Street in Islington, a vibrant and prosperous area with many restaurants.

The Defendant, Mr. Patel, acquired the property on the 20^th February 1995. The property had been bombed during the Second World War and in 1995 the only building on it was a wooden structure with a flat roof tenanted and occupied by Kentucky Fried Chicken as a restaurant and take way. Mr. Patel says in his first witness statement that the building was demolished and he engaged architects to prepare a scheme for redevelopment which entailed removal of existing steel and steel and timber flitch crossbeams, construction of ground floor stud walling, underpinning to both party walls, erection of a number of steel channels fixed to walls as columns, construction of a new roof deck including placing new steel crossbeams into party walls on concrete padstones and timber joists with 3-ply decking, installation of new insulation to falls and new 3-ply felt roof covering.

This work was executed and then the premises were let as a pizza restaurant.

At this stage, the premises consisted of ground floor premises running from front (facing onto Upper Street) to back over the whole footprint of the site, all occupied and used as restaurant premises save for a small area at the front right hand side (viewed from the front) which contained a separate front entrance and, within, a staircase going to first floor where the staircase emerged through a stairhead enclosure onto a flat roof at the front of the premises.

Within the restaurant premises, the seating was in the front portion with the drink serving area and kitchen at the rear. At the rear of the ground floor was a staircase going to a first floor built structure which housed lavatories and a dough cupboard. This structure also allowed an emergency exit route out of the rear first floor structure towards the staircase going to the ground floor side entrance which I have already described.

These works were carried out by contractors engaged by Mr. Patel, Messrs MC Morris and KM Morris.

It was always Mr. Patel’s intention to carry out redevelopment above the ground floor premises to provide residential accommodation. Initially this was to be three one bedroom flats, but later he conceived a more ambitious scheme to construct two one-bedroomed flats and one three-bedroomed duplex or maisonette.

On the 27^th February 1996, Mr. Patel let the Premises at 35 Upper Street to Gioma (UK) Limited. I set out below my conclusions as to what precisely constituted “the Premises”.

On the 6^th January 2003 the Lease was assigned to the Claimants.

I have set out the relevant terms of the Lease at paragraphs 249 to 260below when dealing with the relevant issues in the agreed list of issues placed before me.

The Lease contained a number of specific provisions referring to the proposed redevelopment works to which I have referred already.

Attached to the lease were drawings showing the intended works. As I have already explained, as intended a front door onto Upper Street would give access to the new flats to be built. That front door is to the left of the restaurant viewed from the front. Above the restaurant would be built three flats, one on each of what would become the first, second and third floors.

The new flats were to be erected over about two thirds of the footprint of the restaurant. At the rear of the staircase to the flats at first floor level was a door which gave onto a link at that level into the first floor part of restaurant premises which I have described above. Beside the link was to be a flat roof. The flat roof and the rear structure were part of the existing building: the link was to be new.

A Licence to Carry out Alterations dated the 27^th February 1996 shows that not only was Mr. Patel intending to carry out works, but also that the tenant was to carry out fitting out works.

The lease was assigned by the first tenants to Calzone UK Ltd.

On the 6^th January 2003 Calzone UK Ltd assigned the lease to the Claimants.

On the same day Calzone UK Ltd issued a “Receipt for Fixtures, Fittings, Equipment and Furniture” in the sum of £65,000 “to purchase the chattels, items of equipment, furniture, fixtures, fittings and contents and other items as described in the inventory attached .....” There then follows a two page inventory of furniture, kitchen fittings and sundry other items.

On the 28^th April 1995 plans were deposited on behalf of Mr. Patel with Islington Council pursuant to the Building Regulations. The works proposed were described as “underpinning to party walls. New steel/timber roof/floor ducts.”

The Architect’s specification submitted to the Council described the work to be done as including:

Drawings produced in 2008 and attached to a Party Wall Schedule of Condition between Mr. Patel and the occupiers of 34 Upper Street show the void with timber bracing supporting the buildings to either side of 35 Upper Street at first floor level of 35 Upper Street over the greater part of the premises. This situation continued from at least 1996 until about 2009 when the works of redevelopment to create flats above the restaurant premises began.

Accompanying plans showed where the underpinning to which I have referred was to be carried out. Towards the rear of the premises at ground and first floor levels was shown a dotted line with a reference to “Note 12”. Note 12 on the drawing recorded “underpinning caters for future rear wall above 2^nd floor as dotted line”.

The works of underpinning and structural steelwork were the subject of a building contract between Mr. Patel and Messrs Morris and Morris dated the 25^th May 1995.

On the 18^th January 1996 Islington Council Building Control Services department issued a Certificate of Completion in respect of the underpinning works.

On the 14th March 1996 Mr. Patel obtained planning permission for the erection of the three one-bedroomed flats referred to in the Lease. As is normal, it was a condition of the permission that development should be begun not later than 5 years from the date of the permission.

On the 14^th June 1996 Building Regulation consent for the new three storey extension was given.

On the 30^th July 2001 the 14^th March 1996 planning permission was renewed for a further five years. This was followed by conditional Building Regulation consent on the 20^th September 2002 and passing on plans on the 5^th June 2003.

On the 20^th April 2007 a fresh planning application was submitted for “infill development above restaurant, at first, second, third and fourth floors to provide two one bedroom flats and one three bedroom maisonette.” The change was to add a further (fourth) floor making the top premises a three bedroom maisonette rather than a one bedroom flat.

On the 24^th July 2007, Islington Borough Council granted planning consent for the erection of the revised development above the restaurant. Conditions 4 and 5 required sound insulation to protect those within the building and those occupying adjacent buildings.

On the 8^th October 2008, the Building Control Services department of Islington Borough Council granted Building Regulation approval subject to the following conditions, amongst others:

In the present proceedings the Claimants have questioned whether the works carried out as described below complied with the Building Regulations. This resulted in a letter to London Borough of Islington dated the 11^th June 2013 asking for details of what Completion Certificates had been issued, what Building Control inspections had taken place and whether the works had been found to be compliant. This in turn led to cross-examination of Mr. Patel’s architect, Mr. McLeish, as to what had and what had not been done. Whilst it appears that there may not have been full compliance with the requirements of the Local Authority, in my view nothing turns on this.

In order to carry out the redevelopment works, Mr. Patel needed to obtain Party Wall Awards between himself and the parties to either side of 35 Upper Street. He also believed that he needed a Party Wall Award between himself and his tenants at 35 Upper Street, the Claimants. Whether he did need that Award or not is an issue in these proceedings. Mr. Robert Glaze MRICS was engaged as Surveyor to produce the Award as between Mr. Patel and the Claimants.

In the usual way, Mr. Glaze prepared a Schedule of Condition dated 13^th August 2009. This did not record any defects of any significance in the premises.

On the 17^th September 2009, Mr. Glaze issued his Party Wall Award between the Claimants and the Defendant to enable the works to build flats to proceed.

Paragraph 2 identified the works permitted by the Award:

Paragraph 4 of the Award provided as follows:

Attached to the Award are plans and elevations showing the existing building and the proposed works.

An important part of the proposed works was to carry out works to move the existing first floor dough cupboard (as I have said, the restaurant was a pizza restaurant).

On the 14^th October 2009 Mr. Patel entered into a Building Contract with MP Building Ltd (“MPB”). The Building Contract was upon the 2005 JCT Minor Works form in the 2009 Revision 2 version.

The Building Contract incorporated a Specification and Schedule of work which required, amongst other works:

Although the Claimants are the tenants of the premises at 35 Upper Street, for most of the time that the Claimants have been involved with the premises the restaurant business has been run through first one and then another limited company.

As set out above, the Claimants became lessees by assignment in January 2003. They already ran one restaurant in the West End, so decided to call their new enterprise “The Sequel”. They had entered into partnership in respect of the first restaurant by a formal Deed of Partnership dated the 19^th April 1995. Although that Deed provided for annual accounts, no partnership accounts between the Claimants have been produced to me and I infer that none were produced for any of the period after the Upper Street premises were acquired.

35 Upper Street is in an area heavily populated with restaurants of different types. It is close to Angel Underground station and also to the Business Design Centre which regularly hosts trade exhibitions and conferences as well as events aimed at the general public. It is a lively and affluent area.

On the 30^th January 2004 a company called The Sequel Restaurant Ltd was incorporated and the business was transferred to the Company. It continued to trade as “The Sequel”.

I have been provided with financial statements for The Sequel Restaurant Ltd. For the year ended 31^st March 2007 these show a turnover of £403,386 and an operating profit of £9,253. In that year rent was £52,523. Directors’ salaries and fees amounted to £25,000.

For the year ended 31^st March 2008 the picture was much brighter. Turnover was £508,163 and operating profit £76,111 after rent of £57,775 and the same amount paid to directors.

On the 2^nd July 2008 the Claimants and Mr. Patel agreed a rent increase in respect of the premises which took the rent to £85,470 p.a. The rent increase was retrospective to the 27^th February 2006. The next rent review date was the 26^th February 2011. The financial statements to which I have referred did not reflect this increase in rent, but had it been taken into account in each of those two statements it would have turned the year ended 31^st March 2007 into a loss making year and halved the profit in the following year.

For the year ended 31^st March 2009 one version of the financial statement placed before me shows an operating profit of £176,401. However, this account simply does not make arithmetical sense: turnover is said to be £533,571, slightly up on the year before. However, purchases are £167,690 and wages £134,611, a total of £302,301, to be deducted in addition to another £183,257 of expenses. Taking all these items of expenditure together, the net profit would be £48,013, consistent with the previous years’ trading. Another version of the 2009 financial statement placed before me does show the net figure of £48,013 profit. However the three sets of accounts have a hole consisting of the unaccounted backdated arrears of rent in the 2007 and 2008 years arising from the rent review.

In about June or July 2009 the business was rebranded as “Zigo”. A new company was formed called The Sequel Restaurant (UK) Ltd which soon changed its name to Zigo Restaurant Ltd. On the 14^th October 2009 The Sequel Restaurant Ltd. went into liquidation and Zigo Restaurant Ltd purchased the business.

The Joint Liquidators’ Annual and Final Report to Members and Creditors in respect of The Sequel Restaurant Ltd records that on the 17^th November 2009 the Claimants bought the plant and machinery owned by that company for £5,660 which was the value placed upon those items by Ashwells Nationwide Services Ltd., a firm of professional valuers. The sum agreed was recorded as being paid on the 12^th March 2010.

For the period ended 22^nd February 2010, the management information with which I have been provided for Zigo’s Restaurant Ltd shows a turnover of £223,583 and a loss of £20,228. This period is, I understand, the period from Zigo starting up business in the summer of 2009 until the fire in February 2010.

The information shows directors’ drawings in the sum of £42,000.

On the 27^th September 2011 Zigo Restaurant Ltd was dissolved.

On the 18^th October 2011 the rent from the 27^th February 2011 was agreed as £92,500 p.a.

The picture on the above information is of a restaurant (whichever company was running it) with a slowly increasing turnover, but also with an increasing rent bill as each rent review became operative, leaving a business which hovered between profit and loss, and which was probably never in truth profitable.

The drawings of the two claimants as directors of the companies as shown in the accounts never exceeded £42,000 between the two of them in any one year – and, in the last period of trading, the drawings were sufficient to drive the company into loss.

The impression of financial fragility is reinforced by an examination of the cash flow of the business.

From about January 2004 cheques written by one or other of the Claimants in favour of Mr. Patel were returned unpaid. The first of these, drawn on a bank account in the name of The Sequel, was in the sum of £13,050 and was returned on the 28^th January 2004.

Next a cheque for £13,125.00 drawn on an account in the name of The Sequal Restaurant Ltd (sic) was returned on the 6^th November 2006, followed by another drawn on the same account for £4,125 returned on the 15^th December 2006, and one for £13,125 returned on the 30^th January 2007. After this cheque was dishonoured, Mr. Patel took out County Court proceedings with the result that on the 23^rd February 2007 Mr. Patel obtained a default judgment against both Claimants in the sum of £1,282.51.

Another cheque for £13,125 was returned on the 2^nd April 2007, and another in the same sum on the 31^st January 2008. A further cheque for £13,125 was returned on the 22^nd February 2008: this appears to have been a replacement cheque for the one returned on the 31^st January 2008.

Another cheque for £5,000 was written on the 6^th March 2008 and returned on the 13^th March 2008.

On the 3^rd June 2008 Mr. Patel obtained a default judgment against Mr. Khan-Sherwani in the sum of £17,718.27.

These returned cheques, which all appear to have related to quarterly rent bills, show that the restaurant business had difficulty paying the initial rent of £52,500 p.a.

As I have recorded above, on the 2^nd July 2008 a rent increase was agreed backdated by over two years which increased the rent from £52,500 p.a. to £85,470 p.a.

On the 20^th July 2008 Mr. Patel wrote to the Claimants as follows:

On the 10^th August 2008 the Claimants wrote to Mr. Patel setting out their calculation in the sum of £84,773.52 and concluding

On the 19^th September 2008 solicitors for Mr. Patel, Kidd Rapinet, wrote to the Claimants demanding £92,082.10.

In response to this, on the 2^nd October 2008 Mr. Stratton, the First Claimant, drew a cheque upon an account held by his life partner, Mr. T. R. Joyce, in the sum of £30,000. This cheque was stopped: Mr. Stratton told me that this was because of an error by the bank, and I accept that evidence.

On the 7^th October 2008 Mr. Stratton drew another cheque for £30,000 upon Mr. Joyce’s account. This was returned marked “Alteration requires drawer’s signature”. Again, this was said to be an error on the bank’s part, which I accept.

On the 21^st October 2008 Kidd Rapinet wrote recording that a further instalment of rent of £21,367.50 had fallen due, bringing the total outstanding to £111,406.46. In a further letter dated 27^th October 2008, Kidd Rapinet acknowledged receipt of £30,000, reducing the amount outstanding to £81,406.46. It is clear that at this stage the restaurant was not generating sufficient cash to enable either the current rent or the substantial arrears to be paid without an injection of cash by one or other of the Claimants.

On the 18^th December 2008 a cheque for £1,367 drawn on the company account was returned unpaid.

On the 29^th December 2008 Mr. Patel obtained a default judgment against the Claimants in the sum of £89,469.36. In fact, as a letter from Kidd Rapinet dated 5^th January 2009 recorded, a part payment of £20,000 had been made on the 8^th December 2008, so that the amount outstanding on the judgment was £69,469.36.

Perhaps unsurprisingly, there are signs that at this stage, with a judgment in a substantial sum hanging over them, the Claimants were becoming desperate. In the bundles before me is a letter purportedly from Mr. Patel to the Clerk of the Court at Clerkenwell and Shoreditch County Court. It is unsigned, purportedly dated the 11^th January 2009 and reads as follows:

Contrary to what was said in this letter, the matter was far from settled. An explanation as to the background to this letter (which had been drafted in the hope that Mr. Patel would agree to sign it, rather than as a record of an agreement between Mr. Patel and his tenants) is contained in Kidd Rapinet’s letter of the 14^th January 2009:

In considering the position at this time (the beginning of 2009) it is in my view relevant that the banking system had been thrown into turmoil in the previous Autumn, and that businesses in the United Kingdom were suffering from the “credit crunch”. Thus at a time when the restaurant business was struggling to cope with a massively increased rent bill, which in itself would have been a problem even if not accompanied by arrears, there was an economic downturn which was likely to affect the business, and the ability of the company or its shareholders to borrow money was likely to be curtailed.

On the 16^th January 2009 a cheque for £42,734 drawn by Mr. Stratton on his personal account was returned marked “effects uncleared”. From later correspondence it appears that a telegraphic transfer of £42,734 was made on the 17^th January 2009.

On the 21^st January 2009 the Claimants wrote to Mr. Patel as follows:

That letter spells out clearly the Claimants’ dilemma: the restaurant could not survive without an injection of money from them at least to pay the arrears of rent for which they were personally liable. The obvious way to raise money would be by borrowing against their respective homes or one or other of their homes. However the possibility of doing that depended upon acceptance by a lending institution of their creditworthiness which was adversely affected by the outstanding County Court judgment.

On the 26^th January 2009 Kidd Rapinet replied on Mr. Patel’s behalf:

On the 30^th January 2009 the Claimants responded:

This proposal was not accepted by Mr. Patel. On the 4^th March 2009 a charging order nisi in the sum of £48,498.53 was made over Mr. Khan-Sherwani’s flat in Hackney and a similar order against Mr. Stratton over his home. On the following day, 5^th March 2009, the Claimants’ present solicitors, F S Law, wrote to Kidd Rapinet to say that they had been instructed by the Claimants. (This firm had as its sole principal the Second Claimant’s brother, Mr. Farrukh Khan-Sherwani).

As at the 17^th March 2009 the arrears outstanding together with interest and legal costs totalled £49,093.53. By the 23^rd March 2009 that sum had been discharged to the satisfaction of Mr. Patel and his solicitors.

On the 25^th March and 24^th June two further instalments of £21,367.50 in respect of rent became due. These were not paid on time and the Claimants set about trying to borrow the necessary funds.

As set out above, in July 2009 the business was transferred to Zigo Restaurant Limited. I have been provided with bank statements for Zigo Restaurant Ltd starting from the 25^th July 2009. These show that in the first month of trading almost every direct debit and cheque was returned unpaid.

On the 3^rd September 2009 the Claimants paid off £36,000 of the arrears of rent, interest and costs, leaving £8,553.36 outstanding.

It is fair to say that the bank statement for the second month of Zigo’s trading was much more satisfactory than the first as payments into the account exceeded payments out and no items were returned unpaid – however the difference between what was paid in (£13,739.84) and what was paid out (£13,911.96) effectively left nothing with which rent could be paid. In the third month the statement shows a cheque for £4,282.47 being returned by the bank, but otherwise the operation of the account by Zigo was acceptable, as it was in the following month (from 25^th October 2009 to 24^th November 2009). However payments in these months were £16,048.60 to 25^th October 2009 and £13,327.26 to 25^th November 2009, with no surplus being generated out of which rent could be paid other than in a very small part.

On the other hand, the bank statements for the month ended 25^th December 2009 show a significant number of cheques and direct debits being returned, including a direct debit in favour of the restaurant’s laundry in the sum of £2,050.01. However it may well be relevant that by this time the building works to create the new flats had begun and there had been at least one significant leak which Mr. Patel’s architect, Mr. McLeish, accepted was to the account of Mr. Patel as being the fault of MPB. These may well have diminished turnover in what should otherwise have been a busy month. On the 12^th February 2010 Mr. Patel sent the Claimants a cheque for £1,157.50 in respect of a leak which occurred in November 2009.

The statement for each of the following two months again showed a number of items being returned unpaid.

Whilst the building works were going on the quarterly rent had been reduced to £16,025.25 per quarter. On the 3^rd February 2010 Kidd Rapinet wrote to the Claimants saying that the rent due on the 25^th December 2009 was still unpaid as well as £1,000 outstanding from the 29^th September 2009.

On the 22^nd February 2010 the fire occurred. The restaurant has not traded since. No rent has been paid by the Claimants for the period from the fire until today.

The building works started in about October or November 2009. Thereafter there were a number of water leaks into the restaurant. The details in this section of this judgment come from the report dated 22^nd March 2010 of Messrs. Hawkins, fire investigators instructed by Aviva, Mr. Patel’s building insurers, which was put before me.

One leak occurred on the 19^th February 2010 causing damage to the restaurant ceiling. On the 22^nd February MPB attended to repair the leak. On that day it was raining in the morning. Rainwater continued to leak into the restaurant. Because of that, it was agreed between Mr. Khan-Sherwani and MPB that repairs to the flat roof above the restaurant would be carried out before repairing the restaurant ceiling.

Accordingly, on the 22^nd February 2010 employees of MPB were working on the flat roof above the kitchen of the restaurant. They were using a blowtorch to lay roofing felt. The existing roofing felt was damp and was apparently dried using a gas blow torch before the new felt was fitted – in the course of the work they set fire to cork insulation. The likelihood is that the fire was a slow smouldering fire which went undetected until it later became a flaming fire. The fire spread to the roof structure and joists. The joists burnt through, resulting in fire and smoke damage to the restaurant. Further damage was caused by the fire fighting activities of the London Fire Brigade.

It is now accepted by Mr.Patel that he is responsible for the consequences of that fire, although for reasons set out below the conduct of MPB’s insurers clouded the issues of responsibility for the fire, and the precise basis of that responsibility has to be considered in order to determine the damages (if any) to which the Claimants may be entitled.

Primarily because of the Claimants’ claim for exemplary damages, but also in respect of the Claimants’ claim for loss of profits, it is necessary to set out in some detail what happened after the fire. The history is made a little more complicated because the restaurant premises suffered not only from the consequences of the fire but also from leaks caused by MPB’s building works.

In the aftermath of the fire, Mr. McLeish prepared a short schedule of reinstatement works necessitated by the fire. Thereafter MPB carried out some repair works outside the restaurant area. Mr. McLeish’s notebook records a meeting between himself and MPB’s loss adjusters on the 24^th February 2010 when they gave approval to MPB to proceed and make the premises watertight. MPB’s Contractor’s Report for the period to 13^th April 2010 (a period of about a calendar month) records MPB making the works watertight.

At the time of the fire Mr. Patel had an insurance policy in respect of 35 Upper Street taken out with Aviva. The policy covered both the risk of loss or damage to the building and loss of rent in the event of a fire.

The Claimants instructed F S Law to assist them.

On the 26^th February 2010 F S Law wrote to Kidd Rapinet as follows:

Aviva instructed loss adjusters, QuestGates, to protect Aviva’s interests.

The Claimants also engaged the services of a loss assessor, Mr. Rosenthal of als-claims. MPB put the matter in the hands of its liability insurers, Zurich Insurance plc, who instructed loss adjusters, Cunningham Lindsey Construction.

Understandably, Mr. Rosenthal corresponded directly with Cunningham Lindsey rather than corresponding with Mr. Patel as landlord.

Mr. Patel instructed Kidd Rapinet to represent his interests.

The multiplicity of advisers did nothing to hasten a solution to putting the restaurant back into a usable condition.

On the 6th April 2010 F S Law wrote to Kidd Rapinet saying that they had received no acknowledgement of their letter of the 26^th February 2010.

On the 7^th April 2010 Mr. Fuller of Cunningham Lindsey wrote to MPB and Mr. McLeish as follows:

Mr. McLeish responded the same day confirming that insurance of the existing building and the works as they were built was by the Employer, clause 5.4C of the Contract applying.

On the 8^th April 2010 Mr. Mather of Kidd Rapinet emailed Mr. Fuller as follows:

On the 15^th April 2010 Mr. Fuller wrote to MPB saying:

It is clear that by this stage Mr. Patel and Cunningham Lindsey had begun to distrust the Claimants.

On the 21^st April 2010 QuestGates (on behalf of Aviva as buildings insurers) wrote to Mr. Patel:

On the 23^rd April 2010, Mr. Rosenthal wrote to Cunningham Lindsey as follows:

As will be seen from my findings in respect of the profits of the business below, the claim for lost profits was far in excess of any figure which could reasonably have been claimed.

On the 29^th April 2010 Kidd Rapinet wrote to F S Law as follows:

On the same day Kidd Rapinet wrote to MPB holding them liable for the Claimants’ claim against Mr. Patel arising out of the fire and water damage.

I have little doubt that these letters were prompted by the scale of the claim which had been put forward on the Claimants’ behalf a few days earlier.

On the 30^th April 2010 Mr. McLeish wrote to Mr. Patel and his advisers recording that:

On the 6^th May 2010 Mr. Fuller wrote to Mr. Rosenthal asking for the actual account records for the past three years submitted to Companies House as well as other information.

By this stage the Claimants had made clear to Mr. Fuller that they believed that there had been very substantial damage to the contents of the restaurant by soot and water. Mr. Fuller arranged for specialists in dealing with cleaning after fires (Belfor) to attend.

On the 18^th May 2010 F S Law wrote to Kidd Rapinet:

On the 20^th May 2010 Mr. Fuller wrote to Mr. Rosenthal:

On the 27^th May Mr. Fuller sent Mr. Rosenthal a report from Belfor. By return he emailed that he had no objection to Belfor carrying out the deep clean as per their report.

On the 28^th May 2010, Mr. McLeish sent an email to Mr. Khan-Sherwani recording that the scaffolding to the front elevation had come down but that MPB still needed access to the restaurant to complete ceiling repairs, test replaced SVP and RWP, carry out a CCTV survey of the existing drains and complete first floor lobby works adjacent to the dough cupboard amongst other works.

Although Mr. McLeish believed that the problems of water leaks had been solved, he was wrong. Leaks continued to affect the Claimants’ premises.

On the 2^nd June 2010 Mr. Ehrlich of QuestGates (Aviva’s loss adjuster) wrote to Mr. Fuller:

In an undated letter which appears to have been written in about the third week of June, Mr. Patel wrote to Mr. McLeish:

The Claimants place considerable reliance upon this letter as indicating Mr. Patel’s knowledge that he was liable for the leaks. Mr. McLeish responded on the 21^st June:

On the 22^nd June Mr. McLeish wrote to MPB saying:

On the 6^th July 2010 Mr. Patel emailed Mr. Fuller:

Mr. Fuller responded:

On the 6^th July 2010 Belfor submitted proposals for dealing with structural decontamination of the restaurant seating area, serving area and kitchen at a cost of £9,633.22 plus VAT. However when Belfor attempted to gain access to do this work, accompanied by an electrician to test the electrics, the Second Claimant denied them access.

On the 15^th July 2010 MPB wrote to Mr. McLeish as follows:

An email from Mr. Fuller to QuestGates dated 23^rd July 2010 supports this analysis of the situation, however on that same day access was given by the Claimants to electrical contractors to test.

On the 28^th July 2010 the electrical contractor supplied an estimate of £3,750 to carry out work to remedy fire damage and £2,350 to remedy non-compliant electrical works not connected with the fire.

On the 29^th July 2010 Mr. Rosenthal wrote enclosing accounts for The Sequel Ltd for the year ended 31^st March 2008 (which showed also the figures for the previous year) and asking for an interim payment of £60,000.

On the 3^rd August 2010 Kidd Rapinet wrote to F S Law drawing attention to the Claimants’ failure to provide properly documented evidence of their losses.

On the same day Kidd Rapinet wrote to Mr. Fuller saying

On the 10^th August 2010 Mr. Fuller wrote to Mr. Rosenthal offering £16,550 in respect of outstanding rectification works. As to the loss of profits claim, Mr. Fuller pointed out that the accounts received were for a different restaurant two years prior to the incident – in fact it related to the same restaurant run by a different company in the same ownership and under a different name.

On the same day Mr. Fuller replied to Kidd Rapinet’s letter of the 3^rd August 2010:

On the 12^th August 2010 Mr Mather of Kidd Rapinet asked Mr. Ehrlich of QuestGates

Mr. Ehrlich responded to Mr. Patel:

Mr. Mather replied on behalf of Mr. Patel:

At the beginning of September it appeared that there was some measure of agreement as to remedial works emerging between Mr. Fuller and Mr. Rosenthal: Mr. Rosenthal had obtained a quotation from contractors, Marrtons, but wanted a payment on account to enable works to start. Mr. Fuller accepted that much of the work had to be done, but was not prepared to authorise work to start until he had been provided with a breakdown of the fire damage part of the quotation.

On the 6^th September 2010 Mr. Patel wrote to Mr. Fuller saying:

On the 7^th September 2010 Mr. Fuller sent Mr. Rosenthal a very detailed offer in respect of all items of the Claimants’ claim except the loss of revenue claim. The offer was expressed to be made pursuant to Part 36 of CPR.

On the 13^th September 2010 Kidd Rapinet wrote to Mr. Fuller insisting on reinstatement works being carried out as soon as possible.

On the 14^th September 2010 QuestGates wrote to Mr. Patel increasing Aviva’s offer for lost rent to 6 months on the basis that reinstatement works should have been completed in that period.

The already complicated position was now rendered more complicated by the fact that in late August and the first three weeks of September there were more leaks into the restaurant. Kidd Rapinet said in a letter to Mr. Fuller dated the 23^rd September 2010 that these appeared to be the responsibility of MPB because the cause of the leaks was either from the ventilation ducts damaged by the fire or by the Fire Brigade, or from dough cupboard works undertaken by MPB. It appears from an email from Mr. Fuller to Mr. Patel dated the 21^st September that prior to the further leaks he had finally agreed a figure for remedial works with the Claimants. In a letter dated the 24^th September 2010 Mr. Fuller on behalf of MPB rejected liability for the fresh leaks.

On the 19^th October 2010, Mr. Patel received a report from RS Specialist Services Ltd (“RSS”) which reported that as a result of defects in the flat roof above the kitchen and dough store of the restaurant and a defective rain water pipe, there were leaks into the kitchen and the dough store. The report recommended remedial works. I find that these defects were a result of bad workmanship on the part of MPB (the contrary is not suggested on behalf of Mr. Patel).

On the 27^th October 2010 Mr. Fuller wrote to Mr. Rosenthal saying:

Unsurprisingly, Mr. Rosenthal responded on the following day:

On the 8^th November 2010, Zurich wrote to Mr. Rosenthal, taking the matter into their own hands. The letter said:

It is not at all clear what were the “concerns [which had] arisen specifically regarding the extent of the alleged damage ....” to which reference was made, but Zurich were clearly linking physical damage and business interruption losses in considering whether to settle the claims made.

On the 24^th September 2010 Kidd Rapinet wrote to F S Law alleging that on the basis of RSS’s report the leakages had been caused by various failures by the Claimants to keep the premises in good repair. This suggestion was refuted by a letter in reply from F S Law dated the 25^th November 2010.

On the 3^rd December 2010 Zurich wrote to Mr. Rosenthal requesting a large amount of information which had never been requested before.

Mr. Patel’s architect, Mr. McLeish, prepared a specification for necessary repair works to be carried out. The necessary works were the subject of an Architect’s Instruction to MPB dated 16^th December 2010.

On the 6^th December 2010 1^st Express Maintenance Ltd sent Mr. Patel a quotation for dealing with problems with the foul drainage system at the premises. This would involve excavating within the kitchen floor through the tiles and concrete slab to get to the cast iron drain.

On the 23^rd December 2010 Kidd Rapinet sent a letter holding the Claimants liable under the lease for the blockage to the cast iron drain.

On behalf of the Claimants, F S Law rejected the suggestion that the Claimants were responsible for the drainage problem. Both Kidd Rapinet and Zurich refused to accept that the blockage was MPB’s responsibility and therefore, as between landlord and tenants, Mr. Patel’s responsibility. However, Mr. Patel did agree to carry out necessary remedial works on a without prejudice basis.

In February 2011, a specialist contractor, Joyce Development Ltd., reported on the blocked drain within the restaurant, recording that it was blocked by brick debris, concrete pieces and sand washed down from the main roof.

The drain was repaired between the 14^th and 16^th February 2011.

In an email from Mr. Patel to Mr. McLeish which is undated but dates from either the end of February 2011 or the 1^st March 2011, Mr. Patel appears to have accepted that the blocked drain and the unsatisfactory state of the roof above the dough cupboard were not the Claimants’ responsibility. In his response, Mr. McLeish suggested that part of the leakage around steel beams was the Claimants’ responsibility under the lease.

Zurich now instructed solicitors, Barlow Lyde & Gilbert, to represent MPB. They wrote to Mr. Rosenthal (now with Claims Management Loss Assessors Ltd) on the 25^th March 2011. This letter demanded further information. Barlow Lyde & Gilbert wrote again on the 6^th July and 6^th September 2011 reiterating their request.

That letter was understandable, given the inadequacy of the information which the Claimants had given in respect of its business interruption loss. What was much more surprising was a second letter written by Barlow Lyde & Gilbert on the 25^th March 2011 in which the previous admission of liability on behalf of MPB was withdrawn. The letter in effect contended that Mr. Patel should have looked to his building insurers (Aviva) to indemnify him in respect of any loss arising out of the fire, only turning to MPB if the fire was caused by negligence on the part of MPB, which negligence was not admitted. The letter criticised Mr. Patel for having gone through the Party Wall process with the Claimants. Finally, for good measure, the letter concluded:

In the light of that letter Kidd Rapinet wrote to QuestGates on the 12^th May 2011 notifying a claim under the Aviva policy for all Mr. Patel’s losses.

On the 17^th May 2011 Kidd Rapinet wrote a long reply to Barlow Lyde & Gilbert. The letter included the following passage:

The above passage seems to me entirely appropriate.

On the 24^th May 2011 QuestGates wrote to Kidd Rapinet making the point that the Aviva policy was restricted to the buildings and rental loss aspects only and did not extend to tenants’ fixtures and fittings. The letter asserted that it was damage to the tenants’ fixtures and fittings which represented the majority of the material damage.

On the 6^th June 2011 Barlow Lyde & Gilbert replied to Kidd Rapinet:

On the 7^th June 2011 F S Law wrote to Kidd Rapinet noting that a further leak had been discovered that day.

Kidd Rapinet responded on the 13^th June 2011:

The letter enclosed a copy of the RSS report. Correspondence continued between the two solicitors’ firms with Barlow Lyde & Gilbert resisting any suggestion that MPB was responsible for the water leaks which had occurred.

On the 27^th June 2011 Kidd Rapinet wrote to MPB saying that Mr. Patel was going to exercise his right to withhold monies against a final certificate for the building works which had been issued by Mr. McLeish in the sum of £83,088.62.

On the 7^th September 2011 F S Law wrote to Kidd Rapinet notifying them that there had been two further leaks.

On the 15^th September 2011 Barlow Lyde & Gilbert wrote to Kidd Rapinet stoutly denying any liability on the part of MPB for the fire. The letter ignored the significant fact that MPB had been carrying out hot work on the roof not long before the fire broke out:

On the 16^th November 2011 QuestGates wrote to Kidd Rapinet continuing to deny liability on the part of Aviva for the full loss of rent. They also suggested that Mr. Patel should serve notice on the Claimants terminating the lease – the argument had the following steps:

On the same day QuestGates wrote to Barlow Lyde & Gilbert saying inter alia:

I share the view that Mr. Patel was placed in a quite unfair position vis a vis the interested insurers, but in my view it was not just Zurich who was responsible for this, although Zurich certainly bore a great share of responsibility for the position in which Mr. Patel found himself. However it is a separate matter as to whether Mr. Patel was at this stage recognising his responsibility under the Lease to the Claimants.

On the 7^th February 2012 a new firm of solicitors, DAC Beachcroft, wrote to QuestGates saying that they were now instructed in place of Barlow Lyde & Gilbert. The letter now confirmed that MPB would no longer dispute that the cause of the fire was the hot work carried out by them. DAC Beachcroft now took the position that

On the 17^th February 2012 DAC Beachcroft wrote to Kidd Rapinet making much the same points as they had made to QuestGates but also picking up the point which had been made by QuestGates in their letter of 16^th November 2011 (see paragraph 179 above):

On the 29^th March 2012 Kidd Rapinet wrote to DAC Beachcroft rejecting this suggestion. On the same day they wrote to QuestGates rejecting an offer of one year loss of rent and a very small contribution to building costs.

Meanwhile, on the 4^th March 2012 Mr. Brown of Copping Joyce (Chartered Surveyors) on the instructions of the Claimants had prepared an extensive schedule of works to deal with the fire and smoke damage. Whilst this schedule was extensive, it is now agreed that it was not a sufficient schedule to deal with all the problems affecting the demised premises.

On the 2^nd April 2012 F S Law wrote to Kidd Rapinet:

On the 23^rd May 2012 Mr. Rosenthal wrote to DAC Beachcroft asking “what, in your view, is the current status of our client’s claim against MP Building Ltd/Zurich Insurance plc, and confirm what documentation or information is required to move this claim forward?” As far as I can tell, this was the first sign of interest on the part of the Claimants in their business interruption claim for about 18 months.

On the 6^th June 2012 Kidd Rapinet sent QuestGates an estimate for works to the restaurant in the sum of £84,600.

Given the impasse it is no surprise that proceedings were now commenced. What is, perhaps, surprising, is that it took so long for proceedings to start given the intransigence of the parties.

On the 25th April 2012 Mr. Patel started proceedings in the County Court against MPB. The proceedings alleged breach of contract, breach of statutory duty and negligence. Mr. Patel claimed £34,530 in respect of necessary repair works and loss of rent in the sum of £215,834.88 and continuing. Paragraph 24 of the Particulars of Claim pleaded (emphasis added):

On the 22^nd June 2012 MPB’s Defence was served. By that Defence MPB admitted that the fire was caused negligently but alleged inter alia that the resultant damage was limited and that under the Lease Mr. Patel’s obligation was to make a claim upon the insurers insuring the premises pursuant to insuring obligations in the Lease. It is not easily understood how this latter point amounted to a defence by MPB against the claim made. The following points were also made:

On the 27^th June 2012 the Claimants started proceedings in the Chancery Division against Mr. Patel. Claims were put forward under the following heads:

Under head (a) the claim was for the cost to repair the premises in the sum of £255,600 plus VAT. Under head (b) the claim was for loss of profits in the sum of £197,416 and continuing, for loss of goodwill pleaded in the sum of £34,095 and the cost of replacing of repairing the Claimants’ property in the sum of £144,892. Under (c) the claim was for an amount not exceeding the passing rent for the property. Under each of these heads there was a claim also for exemplary damages.

Under head (d) was a claim for £2,190 in respect of Party Wall Damages Awards made by Mr. Glaze but in addition for the costs of remedial works, damage to property, loss of goodwill and loss of profits referred to above. All these amounts (including the £2,190) were also claimed as damages for negligence and nuisance.

On the 13^th August 2012 Kidd Rapinet served Mr. Patel’s Defence. The Defence raised a number of points including the following:

On the 10^th September 2012 MPB’s Defence in the Part 20 Proceedings was served.

On the 24^th September 2012 Kidd Rapinet made the sensible suggestion to F S Law and DAC Beachcroft that a joint surveyor should be appointed to produce a report on the subsisting fire damage to the premises, the works required to reinstate them and the likely cost thereof. F S Law rejected this suggestion on the basis that the Claimants had already instructed their own surveyor whose work was already advanced. However it was indicated that F S Law on behalf of the Claimants were amenable to a joint inspection with other appointed experts.

Kidd Rapinet passed this suggestion on to DAC Beachcroft saying that they were of the view that this step would be likely to facilitate an early resolution of part or all of this dispute.

On the 18^th October 2012 DAC Beachcroft indicated their view that each party would require their own expert. They said:

On the 26^th October 2012 QuestGates indicated that Aviva was still unwilling to pay more than a year’s loss of rent, but were now willing to pay £22,900 on an indemnity basis in respect of the buildings claim.

On the same day in a letter to DAC Beachcroft, QuestGates now accepted that the fixtures and fittings of the restaurant were insured under the Aviva policy.

On the 2^nd November 2012 DAC Beachcroft proposed to Kidd Rapinet the appointment of a single joint forensic accounting expert. The expert proposed was Forensic Accounting Solutions (FAS).

On the 3^rd December 2012 Akenhead J. ordered that this case be transferred to the Technology and Construction Court. A Case Management Conference took place before him on the 20^th December 2012. He ordered that the trial should take place on the 21^st October 2013. He gave permission for each party to rely upon expert evidence from a forensic accountant and directed that the parties should agree, if possible, the joint instruction of such an expert.

On the 14^th February 2013, on the instructions of the Claimants, Sandberg LLP prepared a report on fire damage and water ingress.

This report drew attention to problems of water ingress, breaches of Building Regulations and of the Fire Safety Order 2005..

Also on the 14^th February 2013 the Claimants served an extensively Amended Particulars of Claim. Amongst the new points made were the following:

On the 12^th March 2013 F S Law indicated their agreement to Mr. Segal of FAS being appointed as jointly instructed forensic accountant. Thereafter the Claimants supplied Mr. Segal with a letter of instruction and Mr. Pstel and MPD jointly did likewise.

On the 22^nd April 2013 Mr. Patel served an Amended Defence. This now admitted that the blocked drain was caused by MPB. It pleaded that this blockage was repaired in February 2011. It was also admitted that Mr. Patel was “in breach of his obligation to procure that the Works were carried out in a good and workmanlike manner in that on 22 February 2010 [MPB] carried out the roof works referred to above negligently and thereby caused the fire”. Mr. Patel no longer put forward any positive case as to the cost of remedial works. Further, the Defence put the Claimants “to strict proof that, had the fire not occurred, Zigo Restaurant Limited would have continued to operate the business and that the lease and/or business would not have been sold.”

On the following day Amended Particulars of the Part 20 Claim were served. The Defence to this was served on the 13^th May 2013. Negligence was again admitted in respect of starting the fire. It was pleaded in terms that “the Claimants’ claim for damages is excessive: the scope of works claimed to be consequent on the fire does not correspond with the damage caused by the fire, or the works that could reasonably be said to be consequent upon that damage.“ MPB also pleaded that “the Defendant is put to strict proof that any such [water] ingress is due to poor workmanship on the part of the Third Party as opposed to defective or inadequate detailing by Mr. McLeish”. MPB continued to deny responsibility for the blocked drain.

A Schedule was served by MPB with the Amended Defence taking issue with the vast majority of the works which the Claimants claimed (and claim) were necessary. The nature of MPB’s pleading put in issue the minutiae of the quantum of the claim.

On the 18^th June 2013 Mr. Birchall, a building surveyor instructed on behalf of Mr. Patel, reported. He was prepared to accept the findings of the Sandberg report. In paragraph 1.4.5 of his report he said:

I have been provided with an Agreed Expert Statement concluded by the building surveyor experts appointed by all three parties to the action (MPB still being a party at that stage). There was agreement in respect of many items of work, but a significant difference between the surveyors as to the extent to which remedial works were necessary to the roofs over the restaurant premises.

On the 10^th October 2013 a Pre Trial Review was held before Edwards-Stuart J. in anticipation of a trial due to start on the 21^st October 2013. He adjourned the trial. As I understand it, the principal cause of the adjournment was a successful late application by MPB for disclosure of the Claimants’ solicitors’ conveyancing files. It was also indicated shortly before the PTR that Mr. Patel now intended to carry out reinstatement works.

Shortly after the PTR the trial was relisted for the 13^th January 2014.

Experts’ reports were exchanged in October 2013, after the PTR. The surveyors’ reports reflected the differences already identified in the discussions between the experts.

The surveyor for the Claimants, Mr. Gregory Moor, advised in paragraphs 1.5.9 to 1.5.11 of his report:

Mr. Birchall supplied a report for exchange dated the 17^th October 2013 (his previous report, I infer, was primarily intended for the benefit of advising Mr. Patel). His views were generally not inconsistent with those he had previously expressed, but the last paragraph I have cited was preceded by a new paragraph and the paragraph I have cited was significantly amended:

His view in respect of what he referred to as the large roof was that it should be stripped and recovered but that

A report was also filed by a surveyor instructed on behalf of MPB, but as the case between MPB and Mr. Patel settled, his reports were not formally put in evidence, although they remained in the trial bundles.

On the 4^th December 2013 a Re-Amended Defence was served. As Re-Amended, paragraph 45 pleaded as follows:

As recorded in the third witness statement of the Claimants’ solicitor, Mr. Farrukh Khan-Sherwani, there was a major flood at the premises on the 17^th December 2013. He exhibits photographs of the flooding. The Defendant was shown the flooding a couple of days later.

On the 13^th January 2014 the case was listed for trial before Akenhead J. The Claimants applied to adjourn the trial. That application was refused, but because of the time taken in that regard the case could not start until the following day.

However on the 14^th January 2014 the learned judge found himself faced with a large number of procedural issues. Once those had been sorted out the day had gone, with the result that two days of a six day trial slot had been used up. In consequence the case was adjourned to be heard before me on the 4^th February 2014.

Mr. Birchall provided a further report dated the 24^th January 2014 in which he accepted that the “large roof” was leaking. He reaffirmed his view that it should be stripped and recovered. Whether he took the view that his previous view as to responsibility still held good is unclear.

In the event, during the course of the trial before me, Mr. Moor and Mr. Birchall reached agreement as to what building works are necessary (the agreement does not extend to necessary Mechanical and Electrical works, which are outside their remit). There remains some disagreement as to what the cost of the remedial works would be if I were to hold that the proper remedy for the Claimants is a monetary award. However, the history which I have set out in this and the previous sections of my judgment is relevant for reasons which I explain below.

On the 24^th January 2014 a settlement was reached between Mr. Patel and MPB which was recorded in a Consent Order of that date. I have not been informed of the terms of that settlement. After that date MPB ceased to have any part in the proceedings.

The case started before me on the 4^th February 2014 with a time estimate of 6 days. During the course of the hearing much time was taken up with procedural matters which slowed the case down significantly. Cross-examination of the parties was extensive (but not unreasonably so) with the result that the case had the prospect of significantly overrunning the time estimate. In the end in an attempt to try to curb the dramatically increasing cost bill on both sides I ordered that the bulk of the expert evidence should be dealt with by “hot-tubbing” in one day. With the benefit of hindsight it might have been better to have had more time devoted to expert evidence and less to the factual disputes, but I am satisfied that in the event the issues were properly explored before me.

The time estimate did not include time for oral submissions. Closing submissions were dealt with by written closing submissions supplemented by answers to some specific points which I raised during the course of a hearing on the 1^st July 2014.

Both before and after the fire, and before and after these proceedings were commenced, the Claimants made substantial efforts to assign the Lease.

Before the fire the Claimants had instructed agents, Turner Butler, to try to find a purchaser for the restaurant business.

In October 2009 a potential buyer for the business was Mr. Viet Ahh Nguyen. Both the Claimants and the prospective purchaser instructed solicitors.

Under the Lease Mr. Patel’s consent to an assignment of the Lease was required, subject to the usual provision that such consent should not be unreasonably withheld.

On the 10^th December 2009, F S Law wrote to Mr. Nguyen’s solicitors as follows:

In January 2010 Mr. Patel instructed solicitors, Goodwin & Co., to act on his behalf in respect of the proposed assignment of the Lease to Mr. Nguyen. On the 21^st January Mr. Goodwin questioned whether the purchaser was to be Mr. Nguyen or a company owned by Mr. Nguyen, Que Viet Limited. Mr. Goodwin sought further information to ascertain the financial standing of the proposed assignee.

On the 3^rd February 2010 Mr. Nguyen’s solicitor confirmed that the assignment was to be to Mr. Nguyen personally. As to Mr. Nguyen’s business record, it was confirmed that he had previously traded through the company, but that because the company was fairly new there were no tax returns for the company available.

Despite the fire, Mr. Nguyen remained interested in taking over the restaurant. However, on the 14^th April 2010 Mr. Goodwin wrote on behalf of Mr. Patel saying:

In March 2011 a fresh potential purchaser for the business came forward, Katsumago Ltd.

In December 2011 a further potential buyer for the business emerged, Wok to Walk Leicester Ltd.

On the 7^th March 2012, the Claimants’ agent, Cedar Dean Gilmarc, wrote to Mr. Patel:

Despite this letter, it was not until the 1^st May 2012 that F S Law wrote to Kidd Rapinet asking for Mr. Patel’s requirements in respect of an assignment to Wok to Walk.

In May 2012 Mr. Patel’s solicitors indicated that he wanted a personal meeting with the proposed assignees.

On the 21^st June 2012 F S Law notified Kidd Rapinet and the proposed assignees’ solicitors that the Claimants did not wish to proceed with the proposed sale and assignment of the lease.

In November 2012 a further potential purchaser for the business emerged, Honest Burger Ltd. The indication was that Honest Burger were willing to move very fast.

F S Law set about obtaining the necessary information to apply to Mr. Patel for a Licence to Assign the lease to Honest Burger Ltd. On the 11^th December 2012 they were in a position to apply formally to Kidd Rapinet on Mr. Patel’s behalf for the Licence to Assign. However on the 20^th February 2013 F S Law wrote to Kidd Rapinet saying that the Claimants had decided to withdraw from the transaction.

The parties have provided me with an Agreed List of Issues. It starts, very helpfully, with a statement of matters which are common ground between the parties:

Perhaps less helpfully, given the task it imposes upon the Court, the parties have agreed a list of no less than 76 issues for determination, qualified by 19 footnotes recording disagreement as to whether the matters listed are issues arising on the present state of the pleadings.

The first 11 issues relate to the repairing covenants in the Lease.

I start by considering the relevant provisions of the lease.

Clause 1 contains various Definitions:

Clause 3 provides:

The proviso reflects the fact that from the time that the Premises were demised it was Mr. Patel’s intention to build above part of the demised premises. It was the execution of those works in 2009 and 2010 which have led to the present dispute.

Clause 4 contains the Tenant’s Covenants:

Clause 5 contains the Landlord’s Covenants:

Clause 6.2 makes provision for suspension of rent “if and whenever during the Term the Premises or any part thereof shall at any time during the Term be destroyed or so damaged by any of the Insured Risks as to be unfit for occupation or use”.

The Third Schedule provides for the rent to be reviewed.

I have already mentioned that the Lease anticipated that building works might take place above the demised Premises. This is reflected in Clause 5.5 which provides:

Clause 3 provides:

The Second Schedule reserves to the Landlord

The Sixth Schedule contains the following provisions:

“Works” means the works to be carried out in the construction of flats above the Premises.

2.1

The Landlord shall procure that the Works are carried out and completed at his sole cost and expense in a good and workmanlike manner using good and sound materials in accordance with the Necessary Consents Planning Law and the terms of this Schedule and any applicable codes of building practice.

.....

3 Defects in the Works

The Landlord will (if acting reasonably the Landlord considers it prudent to do so having regard to the interests of the Tenant and other occupiers of the Building) at his own cost and expense enforce all rights and remedies which he may have against the building contractor appointed in relation to the Works within the defects liability period under the Building Contract between the Landlord and the building contractor in respect of the Works (which shall not be less than six months in respect of mechanical and electrical defects from the date when the works are practically completed and accepted by the Landlord from the building contractor) in respect of any defects or faults in the Works which are due to bad workmanship or the use of faulty materials or otherwise fall within the defects liability provisions of the Building Contract between the Landlord and the building contractor in respect of the Works.

.....

6.

Indemnity

The Landlord hereby agrees to indemnify and keep indemnified the tenant from and against all costs expenses damages obligations and liabilities whatsoever or howsoever arising and incurred by the tenant as a result of the breach or non-performance by the Landlord of all or any of the agreements covenants or conditions to be observed and performed by the Landlord as set out in this Sixth Schedule.

Because of the Defendant’s concessions recorded as being common ground, these issues are of somewhat academic interest. Nevertheless, because the Claimants in particular regard their resolution as being of importance I set out my conclusions.

The first two issues concern the extent of the premises demised under the Lease. I have set out Clause 1.12 at paragraph 249 above. That Clause starts by defining “Premises” as “the premises shown edged in red on the Plan on the ground floor and first floor of the Building”. The plan attached is not, as would be usual, a plan of the building as constructed at the time of the demise, but an architect’s plans and sections of the originally proposed development project.

The ground floor area marked in red is the whole of the ground floor except the entrance to the flats and on the first floor it is the first floor rear built structure containing the lavatories and the dough cupboard and the link building.

The Clause then continues by providing that the premises include “the whole and each and every part of the Premises (including the roof of the part of the Premises hatched green on the plan)”. The area hatched green is the roof of the first floor rear built structure and the link building. It does not include the area marked “roof” which is shown on the plan between that rear structure and the proposed new first floor flat.

The Clause finally excludes “the upper surface of the concrete slab forming the present roof of the Premises not hatched black on the Plan ...”.

Turning to Issue 2, which seems to me to be the real issue rather than Issue 1, the main rear roof above the ancillary accommodation on the first floor and the roof above the link building are clearly demised as being both within the area edged in red and within the green hatched area. As I understand the position, the lower roof above the kitchen/restaurant is not directly demised as being within either the red-edged or the green-hatched areas, but is caught by Clause 1.12 as being part of the premises edged red below. Thus my answer is that each of the areas referred to in sub-issues 2(a), (b) and (c) was demised under the Lease.

More difficult is the question whether the roof above the new dough cupboard was demised. The location of the dough cupboard is shown on a construction drawing (trial bundle 13-120). It is a structure built in the corner of the flat roof bounded on one side by the first floor rear structure and on another side by the link building. It is thus in the area referred to in issue 2(c).

The question is whether there was a demise of the roof of a building which was not constructed or even contemplated at the time of the Lease. Counsel for the Claimants in his submissions says, correctly in my view, that a variation to the lease is necessary or at least desirable to reflect the construction of this new element of the premises. However in my view the roof of the dough cupboard is caught by Clause 1.12.2 which demises “all alterations additions and improvements thereto”. Thus the area referred to in issue 2(d) was also demised under the Lease.

It is convenient next to consider together issues 3, 4 and 5.

I have set out Clause 4.5 at paragraph 252 above. On its face it undoubtedly imposes an obligation upon the Tenant to keep all the areas referred to under Issue 2 in good and substantial repair, and, if necessary, to bring them up to that standard if not in good and substantial repair.

However, it is said that this is in conflict with Clause 5.3 which requires the Landlord to “put and keep in good and substantial repair and condition at all times during the Term the roof common parts foundations and all parts of the Building” (my emphasis). This, it is said, imposes an obligation upon the Landlord the obligation to repair all parts of the building including those I have identified in answering Issue 2. In my submission this construction of the Lease produces an unrealistic result, leaving both Landlord and Tenant liable to repair the same parts of the building. In my judgment, the proper construction of the Lease is that the more particular provision takes precedence over the more general, so that Clause 5.3 must be read as subject to an implied exclusion of liability on the part of the Landlord to put and keep in good and substantial repair those parts of the building which the Tenant is obliged to put and keep in substantial repair under Clause 4.5.

Accordingly the answer to issue 5 is that on the correct interpretation of Clause 5.3 it does not extend to the demised premises.

This conclusion answers issues 6 and 7 in that the answer to issue 6 is accordingly “no” and to issue 7 that the issue does not arise.

It also answers issue 8 so far as any claim under Clause 5.3 is concerned since the Defendant was under no liability under Clause 5.3 as regards the leaks prior to the fire are concerned: accordingly any issue as to compromise is irrelevant to that way of putting the claim (I return to this topic below).

Issues 9 to 11 are likewise and for the same reason irrelevant insofar as the claim is framed under Clause 5.3.

Issues 12 to 21 relate to Clause 5.2.2 of the Lease which I have set out at paragraph 253 above:

As with many other issues raised, it is hard to see what advantage the Claimants believe they will gain by succeeding on these issues in addition to the concessions made as to liability in the common ground.

It is necessary to consider first the Claimants’ contention that issue 21 is not pleaded. It seems to me that this is strictly right, however the terms of the Amended Defence and issues 12, 15 and 16 require analysis of the obligations imposed by Clause 5.2.2 and, in any event, as the issue is a pure point of law upon which the Claimants have had an opportunity to make submissions, no injustice is caused by my consideration of that issue. I should say that insofar as pleading points are taken as to other Issues in this group of Issues, I regard them as being unfounded, as the Issues seem to me sufficiently thrown up by the pleadings.

Accordingly I start by considering Clause 5.2.2.

I have already concluded that Clause 4.5 of the Lease places repairing obligations in respect of the demised premises upon the Tenant which are not duplicated by a repairing obligation upon the Landlord in respect of the same areas. It would be inconsistent for the Tenant to have an obligation to repair under Clause 4.5 concurrent with an obligation on the Landlord under Clause 5.2.2 to pay for the same repairs. Accordingly in my view Clause 5.2.2 creates an exception to the Clause 4.5 repairing obligation where the disrepair consists of destruction or damage caused by an Insured Risk (in this case most relevantly damage by fire). In that case the parties are agreed that the Landlord will gather in the insurance monies and lay them out in rebuilding repairing or reinstating as the case might be.

If the fire causing damage is caused by the negligence of the Landlord or his servants or agents, the issue arises as to whether Clause 5.2.2 has the effect of limiting or excluding the Landlord’s liability in respect of the consequences of the fire.

It is well established that any exclusion of liability for negligence has to be clearly expressed. Here there is no exclusion carved out of any kind of liability. Accordingly, were it necessary so to decide, I would take the view that Clause 5.2.2 does not provide an exclusive remedy in respect of damage to the demised premises caused by an insured risk, and would so answer Issue 21. However, having regard to the terms of the Second and Sixth Schedules, which I consider below, the issue seems to me irrelevant.

Issue 12 asks whether the Defendant made and pursued with reasonable speed a claim under the Aviva policy. In my view, that issue is inseparable from Issues 13 and 14.

On my reading of events the Claimants, acting as far as I can tell on the advice of their Loss Assessor, Mr. Rosenthal, did indeed elect to pursue MPB’s insurers, Zurich, and led Mr. Patel to believe that was how the matter was to be resolved. For his part, Mr. Patel and his advisers clearly regarded this as a sensible and satisfactory way to proceed.

One feature of the case upon which I sought further assistance from counsel for the Claimants was my impression that the Claimants really did not pursue a claim for reinstatement of the premises with any energy at all. The impression which I gained from the papers and the oral evidence was that the Claimants were content for the premises to remain in disrepair, doubtless because whilst that situation prevailed they were relieved of the obligation to pay an onerous rent, could continue to market the premises, and pursue a claim against the Zurich/MPB in an unrealistic amount for loss of rent.

I raised this point with counsel for the Claimants at a hearing on the 1^st July 2014 and invited him to make submissions on the point. In response the Claimants filed further written closing submissions and further witness statements from each Claimant. I have considered these with care and have re-read each piece of correspondence referred to. This has not altered my impression: it is true that at a relatively early stage the Claimants obtained quotations for some remedial work to be done and it is true that from time to time they or their solicitors reported fresh leaks to the Defendant, insurers and/or Mr. Patel’s solicitors. However what is striking is the absence of any clear demand for reinstatement works to be carried out in respect of the fire damage until April 2012, which is what one might have expected had the Claimants truly believed they were suffering very substantial business interruption losses. Nor is there any indication that the Claimants themselves would carry out remedial or reinstatement works, although considering their financial position this is much less surprising.

Whilst Zurich looked likely to pick up the bill, I think it was understandable that Mr. Patel did not press Aviva. That changed when Zurich changed its position after taking the file back from its loss adjuster and then denied liability in March 2011. At that point Mr. Patel did start to chase Aviva through Aviva’s loss adjuster, but Aviva was reluctant to accept its responsibilities.

What Mr. Patel did do was to start to pursue MPB through the courts.

It seems to me that the only way that Mr. Patel could have persuaded Aviva to come up with a realistic offer earlier would have been to threaten it with legal proceedings. Given the clear case against MPB in respect of the fire, I do not think it was unreasonable for him to concentrate his fire principally upon MPB, but he remained under an obligation to pursue Aviva with reasonable diligence.

What would have been a reasonable speed at which to pursue the claim under the Aviva policy? In my view that claim could not have been pursued faster than the legal proceedings involving the Claimants, Mr. Patel and MPB, because in those proceedings the extent of necessary repair works was being debated, and I do not think a claim by way of legal proceedings under the Aviva policy would have been resolved more swiftly than these proceedings (not least because the sensible course would have been for such proceedings to be heard together with these proceedings) and outside any such legal proceedings Aviva was dragging its feet and no earlier resolution was possible.

Accordingly, in answer to Issues 13 and 14 (and subject to my conclusion in respect of Issue 16 below) I hold that there was a waiver until March 2011 and in answer to Issue 12 I hold that after March 2011 Mr. Patel pursued Aviva as rapidly as was possible in the circumstances, or, to put the answer differently, I am not persuaded that an earlier resolution could have been achieved with Aviva by Mr. Patel.

I turn now to Issue 15. In my view the answer to this is very simple: it was not until the 24^th October 2013 that Aviva’s loss adjusters offered £50,727.90 in respect of Aviva’s liability under its policy. This was accepted on Mr. Patel’s behalf on the 24^th January 2014. Thus Mr. Patel did not have the policy proceeds in his possession until a date after the 24^th January 2014.

However, before that offer was accepted, and at about the same time that the offer was made, Mr. Patel had altered his position and offered to carry out remedial works. At that time there was still a dispute about what remedial works were necessary, and Mr. Patel’s offer was not accepted by the Claimants.

Even now, Mr. Patel is offering to carry out remedial works, and the Claimants contend that I should reject that offer and make a monetary award of damages. I deal with that dispute below, but there seems to me to be an air of unreality about the Claimants’ case on the one hand that Mr. Patel should be condemned for not carrying out remedial works and on the other that he should not be permitted now to carry out the works agreed to be necessary. At all events, by the time that Mr. Patel was in possession of the insurance monies, the Claimants did not want him to execute the works. Moreover the amount for which the claim against Aviva was settled falls very far short of the amount on either party’s case would be necessary to remedy the damage to the premises and the scope of the work to be done and the amount it will cost are both very much still in dispute, quite apart from the question as to who should carry out that work.

Given the inadequacy of the amounts offered by Aviva on the 13^th July 2002 and the 4^th January 2013, it seems to me difficult for the Claimants to suggest that rejection of those offers was unreasonable. As to the offer made on the 24^th October 2013, I do not understand in what respects the Claimants suggest that the position would have been materially different if the offer had been accepted in (say) November 2013 rather than January 2014. Accordingly, my answer to Issues 15 and 16 is that Mr. Patel was not in any material respect in breach of Clause 5.2.2 by his failure to accept either of the first two offers or his delay in accepting the third offer.

In those circumstances issues 17 to 20 do not arise in respect of alleged breach or breaches of Clause 5.2.2.

I have set out the relevant parts of the Sixth Schedule at paragraph 259 above.

The starting point is that by paragraph 2.1 the Landlord covenants he will procure that the new build works “are carried out and completed .... in a good and workmanlike manner”.

Paragraphs 4 to 10 of the Common Ground accept that there were breaches of this covenant in that the fire was carried out by MPB’s negligence, that there was a defect in a box gutter, and that there were deficiencies in relevant fire protection works.

It has never been suggested, and is not now suggested, that any provision in the Lease protects the Landlord against liability arising out of these breaches on the part of the Landlord, and it is accepted that paragraph 6 of the Sixth Schedule obliges Mr. Patel to indemnify the Claimants against the consequences of those breaches.

In the circumstances, Schedule 6 (and Schedule 2 which I consider below) provided the Claimants with a straightforward route to recover damages for the fire and the leaks in the building resulting from the building works. Notwithstanding that, the claim was only put forward in the Amended Particulars of Claim, and the alternative ways of putting the claim, which for reasons discussed elsewhere in this judgment face substantial difficulties, have been maintained.

The issues in respect of the Sixth Schedule are issues going to quantum. In my judgment these are the central issues in the case, and much time and money has been expended in investigating alternative cases which in the event have been of little utility to the Claimants:

I have some difficulty in understanding the reference in Issue 22 to “other than damage to the demised Premises”. On my understanding of Schedule Six, if the carrying out of the new build works causes any damage at all to the Claimants’ property, whether demised or not, then the Landlord “must make good such damage at its own cost and expense”. Moreover, as the parties are agreed that all the work listed by the building surveyors is not only necessary, but also results either from the fire or from the leaks caused by the building works, the qualification appears to me to be otiose.

Issue 25 relates to an issue whether there was a compromise in respect of leaks prior to the date of the fire. I am inclined to think that there was, but I am totally unclear what difference this is said to make where all extant defects are to be put right either by the Defendant or an award made of damages in lieu, and where no separate business interruption loss is claimed in respect of these early leaks.

I also have some difficulty in understanding in the circumstances of agreement that there were such breaches of the Second and Sixth Schedules as to require Mr. Patel to carry out all necessary remedial works as agreed between the building surveyors, where Issue 30 fits into the picture. This issue has given rise to extensive discussion as to when and in what circumstances the local authority inspected the works at the premises. It is the Claimants’ case that the Council did not inspect with the consequence that the lack of fire protection was not observed.

As the Defendant now accepts all responsibility for any damage caused by fire, the issue appears to me completely irrelevant. However, the issue having been raised, I would say that the probability is that the local authority carried out its statutory duty. Certainly, in respect of the 2009/2010 works, the site diaries confirm inspections of the type to be expected being carried out, and Mr. McLeish, the Defendant’s architect, confirmed that they were. Accordingly the investigation which took place during the trial as to the role of the local authority appears to me to have been unnecessary and in any event unproductive as I decline to find that the local authority did not carry out inspections in accordance with its statutory duties.

Beyond those comments, it seems to me appropriate to defer discussion of issue relating to quantum until I have considered all issues relating to liability.

The issues agreed in respect of the Second Schedule are as follows:

Once again, I am left in some doubt as to what turns upon this as a separate set of issues, given the acceptance in the Common Ground of a responsibility on the part of the Defendant to carry out any necessary remedial works.

I have set out the relevant provisions of the Second Schedule at paragraph 258 above.

In construing the Second Schedule, it is important to keep in mind that a fundamental aspect of this Lease was that it conferred upon the Landlord a right to carry out potentially very valuable redevelopment works whilst keeping the ground floor commercial tenant in situ continuing its business and paying rent, albeit at a somewhat reduced rent during the period of any redevelopment project.

Given the value of that right it is entirely understandable that the whole of the risk of any damage eventuating from the redevelopment was placed firmly upon the Landlord. In my view it would have taken strong language to water down that obligation by reference to the Clause 5.2.2 insurance machinery, and in the absence of any such language I decline to construe Clause 5.2.2 as restricting the breadth of the Landlord’s liability under the Second Schedule.

Similarly, it seems to me that there is no reason to regard the breadth of the Second Schedule as being cut down by the Sixth Schedule (or vice versa). In my view both the Second and Sixth Schedules contain distinct and cumulative obligations upon the Landlord and rights enjoyed by the Tenant.

Thus the answer to Issue 31 is “Yes”. I should record that the Claimants object to this Issue upon the basis that it is unpleaded, but it seems to me to be a pure point of law upon which the Claimants have had an opportunity to make submissions and therefore, even if I had ruled against the Claimants on the point I would not have regarded the pleading objection as having any substantial weight. Given that I have decided the issue in favour of the Claimants, the pleading point seems to me to be entirely academic.

I turn now to Issue 32. I have already held in answering Issues 12 to 14 that there was a waiver as between the Claimants and Mr. Patel such that until March 2011 the mutual understanding was that certainly as regarded the most important problems, those arising out of the fire, the parties would look to Zurich for the monies to carry out remedial works. After March 2011 that expectation had been dashed by Zurich’s retraction of acceptance of liability.

After March 2011, whilst Mr. Patel was being led a merry dance by the insurance market, there was nothing to relieve him on a continuing basis of his obligations under the Second and Sixth Schedules.

The evidence does not clearly identify how long it would have taken to assess the necessary works, go out to tender as appropriate, and have the works completed. However, by March 2011 there should have been some urgency on Mr. Patel’s part. The required works were and are relatively simple as building works go. In my judgment I should allow 2 months for initial investigations and getting a contractor to site followed by at most 6 months to execute the works. On this basis, if Mr. Patel were to have carried out the necessary works, he should have completed them by the end of November 2011 at the latest.

Beyond those findings, the other Issues relate to quantum, which I discuss later, although I am unclear why Issue 29 arises in respect of the Sixth Schedule claim, but not in respect of the Second Schedule claim.

The Issues agreed under this heading are as follows:

The significance of these issues are that the Claimants claim that the Party Wall etc. Act 1996 gives them a right to carry out any necessary remedial works. In response Mr. Patel says that the Party Wall Award made by Mr. Glaze was outside his jurisdiction and therefore invalid.

I have set out the terms of the Party Wall Award at paragraphs 38 and 39 above. In particular it is important to note the terms of paragraphs 2 and 4 of the Award.

Mr. Patel’s case is set out at paragraphs 204 to 208 of Mr. Patel’s Closing Submissions:

The Claimants have dealt comprehensively with these submissions in their Further Closing Submissions. I quote part of those submissions:

I reject the argument that the Party Wall Award was invalid. I can see that there are grey areas as to whether some of the works fell within the 1996 Act, but it seems to me for the reasons given by the Claimants, at least part did. Moreover some sort of agreement between the parties was necessary for the works to proceed as the works as executed were different from those which the Landlord had preserved the right to execute under the Lease. It made sense for the parties to go through a Party Wall process, whether strictly necessary under statute or not, so as to agree the scope of works to be executed and the existing condition of the premises.

The situation is different from that in Gyle-Thompson v Wall St. (Properties) Ltd[1974] 1 WLR 123. In that case one group of parties to the Award had not even seen it, and had not authorised their surveyor to agree to it. Here the process was conducted by Mr. Glaze with the full knowledge and consent of both parties. It was relied upon by both parties in respect of the early leaks and was only challenged by Mr. Patel at a relatively late stage, even though it was he who had initiated the process.

Whether or not the Award was an Award under the Act, it seems to me that it was at least an agreement between the parties as to the terms upon which the reconstruction works would be executed, and that the Award would be treated as though it were an Award under the Act. For these reasons, I do not think it is strictly necessary for me to resolve Issues 37 and 38, but if I had to do so, I would resolve them in the Claimants’ favour.

As to Issue 39, the Claimants’ submission in their Further Closing Submissions is as follows:

In consequence of my decision on Issue 39, the answer to Issue 40 must be “Yes”.

In answer to Issue 41, I give the same answer as to Issue 32, namely that the works should have been completed by the end of November 2011.

In answer to Issue 42, I give the same answer as to Issue 25 – see paragraph 303 above, namely that there may well have been a compromise, but it is hard to see why it matters one way or the other.

However I return to my starting point in respect of this set of issues, namely the reason why they have been pursued. On the 1^st July 2014 in answer to a question from me, Counsel for the Claimants told me that the significance of these issues is that the 1996 Act gives the Claimants a right to execute the necessary remedial works.

In this context it is necessary to return to paragraph or clause 4 of the Award which provides:

Section 11(8) of the 1996 Act provides:

Section 10 of the Act provides machinery for disputes to be resolved by surveyors.

Those provisions have been considered by the Court of Appeal in Blake v Reeves [2009] EWCA Civ 611; [2010] 1 WLR 1, in which Etherton L.J. said in respect of an attempt to recover legal costs through a court process at paragraphs 21 and 22:

Construing Section 11(8) in accordance with this guidance from the Court of Appeal, Section 11(8) provides a right for the Adjoining Owner to seek a Section 10 determination of expenses as an alternative to having the Building Owner carrying out works but such determination is a determination by a dispute resolution mechanism outside the courts, not determination of a claim for damages by the courts.

Paragraph 4 of the Award is to be construed against that background: the alternatives in paragraph 4(c) are not works by the Building Owner or a claim for damages assessed by a court, but rather works by the Building Owner or assessment of expenses under section 10 of the 1996 Act.

In this case the Claimants operated the Party Wall Act machinery in respect of the early leaks, as they were entitled to do, and obtained assessments by Mr. Glaze which have been honoured by Mr. Patel. However in respect of the matters with which I am concerned they have elected to pursue a claim for damages in this Court with a claim for specific performance in the alternative.

As is usual practice, a draft of this judgment was circulated to the parties. After the draft had been sent out the Court received no less than 25 pages of further submissions from the Claimants deal with various issues. I decided to look at these submissions, irregular and unsought as they were, in order to do justice to the Claimants. One issue raised is that (it is said) the parties agreed to confer upon me the power to act as if I were a Party Wall Act Surveyor. I am not conscious that this point has been raised before. However, I am prepared to act upon that basis without having sought submissions from Mr. Patel on the point, even though in the original draft of this judgment I had formed the view that I have no jurisdiction to assess expenses as though a Party Wall Act surveyor.

With this in mind I have returned to look at the pleading to see if this is how the case is pleaded by the Claimants: it is not. The pleaded claim is for damages for breach on the part of Mr. Patel in not carrying out works himself. Thus the Party Wall Act claim, as with the other claims, is a damages claim seeking an award of damages under the Court’s common law or equitable jurisdiction, which the decision of the Court of Appeal in Blake v Reeves (supra) has made clear is a different claim from a claim under Section 10 of the Act, whoever is appointed to carry out the dispute resolution under that Act. That that is a damages claim not an assessment of compensation under the Act is supported by the decision of His Honour Judge Thornton Q.C. in Crowley v Rushmoor Borough Council [2009] EWHC 2237 (TCC) to which the Claimants refer in their latest submissions.

Accordingly, insofar as the Issues relating to the Party Wall Award are deployed by the Claimants to require an award of damages rather than accepting an offer by Mr. Patel to carry out works, I reject the submission. However, I consider below the wider issues raised as to whether an award of damages is the appropriate remedy in this case. I consider Issues 43 to 45 below when considering Issues as to quantum.

The Issues in respect of this part of the case are as follows:

Yet again, the issue arises as to what the Claimants seek to gain by this way of putting the case. In their opening Skeleton Argument the Claimants appear to have deployed this as an alternative basis for claiming loss of profits.

In their closing submissions at paragraph 11 the case is put in this way:

I am prepared to assume that the answer to each of Issues 46 to 48 is “Yes”, although this is contested on behalf of Mr. Patel.

Issue 49 only arises “if there is a valid claim under this head not compensated for under other heads of claim”.

No authority is cited by the Claimants to support a favourable answer to this Issue other than Connaught Restaurants Ltd v Indoor Leisure Ltd.[1992] 2 EGLR 252, which I did not find of any assistance in answering the question before me which is whether the Claimants can recover damages for breach of the covenants if their claims for costs of remedial works and loss of profits fail.

The starting point in discussing this head of claim is that the Lease was and is a lease of commercial premises let to the Claimants for the purpose of enabling them to conduct a profitable business from those premises.

If the business was profitable, then I find it hard to see upon what basis the Claimants could recover more than loss of profits and wasted expenditure if not adequately allowed for in the calculation of lost profits.

If the business was not profitable, and if the Claimants were continuing to pay rent whilst the business was unable to continue, then a recovery of the rent thrown away plus any other wasted expenditure might be recoverable.

If the business was not profitable, and in a situation where no rent was payable, I find it difficult to see the conceptual basis upon which damages for breach of a covenant for quiet enjoyment could be recoverable.

Accordingly, my answer to Issue 49 is that there are no damages recoverable under this head which are not otherwise recoverable particularly under the Second and Sixth Schedules of the Lease.

The Issues arising under this heading are as follows:

As I understand the Claimants’ position, they do not contend that there is a route by which they could recover damages which could not be recovered in respect of their claim for damages for breach of the covenant for quiet enjoyment.

Accordingly, whilst I am prepared to assume answers favourable to the Claimants in respect of Issues 50 to 52, my answer to Issue 53 is that there are no damages recoverable under this head which are not otherwise recoverable particularly under the Second and Sixth Schedules of the Lease.

The Issues under this heading are:

The circumstances in which exemplary damages can be awarded were considered and determined by the House of Lords in Rookes v Barnard [1964] 1129. Of the three categories of case in which such damages can be awarded, the only possible candidate is Lord Devlin’s second category as described at pages 1226 and 1227 of his speech:

I understand both parties to accept that following Rookes v Barnard an award for exemplary damages must be underpinned by tortious conduct on the part of the wrongdoer: breach of contract will not do.

When I considered the parties’ submissions it seemed to me that the Claimants had not addressed Issue 54, or at least not in clear terms. Accordingly at the hearing on the 1^st July 2014 I invited the Claimants to make further submissions on this Issue, which they have done. They still do not address Issue 54 head on.

I understand their case to be by way of analogy with eviction cases such as Drane v Evangelou [1976] 2 All ER 437. As I understand those cases, it is not simply a subjective intent on the part of the landlord to obtain eviction which justifies the award of exemplary damages, but such an intent accompanied by harassing tactics in a situation where the Landlord has no right to evict.

In this case, despite the Claimants’ attempt to cloak their claim in a mantle of tort, the claim is fundamentally a contractual one for various breaches of the Lease. Thus I am unpersuaded that the Claimants can bring themselves within Lord Devlin’s second category of cases where exemplary damages can be awarded.

However, even if I am wrong about that, I reject the claim because my answer to Issue 55 is “no”.

Insofar as it is material, I should record in this context that I did not find either Claimant a fully satisfactory witness, something I discuss further in respect of the loss of profits claim. Whilst this may not matter, since for this purpose it is the subjective intent of Mr. Patel which is relevant, where the Claimants gave evidence at odds with Mr. Patel’s in support of this claim, I prefer Mr. Patel’s evidence.

More importantly, having heard and seen Mr. Patel in the witness box, I reject the attack made upon him that his conduct was intended to force the Claimants to surrender the Lease.

I accept that there are documents particularly passing between himself and Mr. McLeish which show that he was aware that it was his responsibility to procure the rectification of the defects and damage in the premises. I also accept (and have held above) that he did not fulfil his obligations as fast as he should have done. However, those findings fall some way short of establishing that he delayed with the motive attributed to him.

It seems to me most likely that he did not wish to dig into his own pocket to execute works which ultimately were the responsibility of MPB and which should have been done by them or paid for by MPB and/or their insurers. It is also relevant that from time to time he was being given assurances by Mr. McLeish and/or MPB that problems had been fixed whilst at the same time facing a barrage of generally bad points from Zurich and Aviva as to why they should not pay. (This included a suggestion on behalf of Aviva in QuestGates’ letter of the 16^th November 2011 that Mr. Patel had grounds for terminating the Lease – see paragraph 179 above, a suggestion which Mr. Patel rightly did not take up and act upon, even though it was also deployed by DAC Beachcroft – see paragraph 183 above). All this came during a period when, as I have held, the Claimants were not pressing with any urgency for works to be done but were instead presenting unrealistic business interruption claims.

It is also fair to say that the Claimants had themselves given Mr. Patel good material upon which to try to terminate the lease by their appalling track record in failing to pay rent on time – but even faced with this Mr. Patel made no attempt to bring the Lease to an end.

Accordingly, I firmly answer Issue 55 in the negative. Accordingly in my judgment this is not a case for the award of exemplary damages.

The Issues under this head are as follows:

Having regard to the answer which I have given to Issue 55, rejecting the claim for exemplary damages on the facts, it seems to me irrelevant whether a claim could be put in tort as a claim for negligence and/or nuisance as well as under the Lease. The importance of these Issues was only in the event either that I rejected the claim under the Lease or the claim in tort could have founded a claim for exemplary damages.

For what it is worth, it seems to me that the claim in negligence faces considerable difficulty following the decision of the Court of Appeal in Biffa Waste Services Ltd v Maschinenfabrik Ernst Hese GmbH [2008] EWCA Civ. 1257; [2009] Q.B. 725, and both ways of putting the case faced substantial difficulties in the light of the Court of Appeal decision in Gavin v One Housing Group (Formerly Community Housing Association) Ltd [2013] EWCA Civ. 580; [2013] 2 P. & C. R. 332. However in my judgment it is not necessary for me to grapple with these not insubstantial legal difficulties (accompanied here as in respect of so many Issues with arguments as to what is covered by the pleadings).

I now pause to see where we have got to so far.

We start with Common Ground that Mr. Patel is liable to carry out all necessary remedial works (most of which have been agreed between the building surveyors, but some of which remain to be determined), but there is a dispute as to whether that liability should be reflected in an award of damages or not.

I reject any claim based upon breaches of repairing covenants in the Lease – see Issues 1 to 8.

I accept a responsibility on the part of Mr. Patel to lay out the Aviva insurance monies in remedial works, but those monies have only been received relatively recently and are not sufficient to pay for all the works. By about the time that Aviva made an acceptable offer, Mr. Patel had offered to carry out any necessary works – see Issues 12 to 16.

I accept Mr. Patel’s case as to waiver to the extent that I accept that until March 2011 the parties were both looking to MPB and/or its insurers to carry out necessary remedial works – see Issues 12 to 14 and 31.

I accept that under the Second and Sixth Schedules Mr. Patel should after March 2011 have carried out necessary remedial works and find that these should have been completed by November 2011 – see Issues 22 to 25, and 31 and 32.

I reject the Claimants’ case that there are any materially different rights to insist upon payment of monies to them under the Party Wall Award or the 1996 Act – see Issues 37 to 42.

I reject any suggestion that a separate route to recovery of damages exists in respect of breach of covenant of quiet enjoyment, derogation from grant or in tort – see Issues 46 to 53, 56 and 57.

I reject the claim for exemplary damages – see Issues 56 and 57.

One of the biggest divides between the parties is whether I should award the Claimants damages to reflect the cost of carrying out remedial work or whether I should accept Mr. Patel’s offer of an undertaking to do the work. A third possibility is that I could make an order of specific performance requiring Mr. Patel to do the work.

As I have already indicated, the Claimants contended that they were entitled to an award of damages under the Party Walls etc Act 1996 and/or under the Party Wall Award. I have rejected that argument for the reasons given at paragraphs 319 to 333 above.

Apart from that argument, the Claimants argue fiercely that, given the Defendant’s track record, to leave the matter in Mr. Patel’s hands is likely to lead to the work not being done, being done slowly and/or being done to an inappropriate standard.

There are solid grounds for the Claimants’ position: I have held that the works should have been completed by November 2011. The necessary works were relatively simple. There is no doubt that there have been a number of attempts to carry out repair works which have been unsuccessful. It is also right that at times there appear to have been failures on the part of Mr. Patel and those engaged by him to comply with the requirements of the building control department of the local Council.

At the hearing on the 1^st July 2014 I asked for evidence as to what, if any, steps had been taken by Mr. Patel since he offered to carry out remedial works towards doing so. Both parties filed evidence going to this question. The effect is, in my view, that Mr. Patel has taken some preliminary steps towards that objective, but has not gone very far. In my view this is understandable given first the delay in the parties’ surveyors agreeing the scope of the works, then the delay in the parties receiving this judgment. Accordingly, whilst little has been done, it does not seem to me to be a fair measure of Mr. Patel’s likelihood of complying with an undertaking given by him to this Court. I have already referred at paragraphs 338 and 339 above to late submissions made by the Claimants. Much of those submissions was directed to the steps which Mr. Patel has or has not taken to progress remedial works since offering to give an undertaking to do so. I have taken those submissions into account but do not find that they alter the view which I have taken as to the just result in this case: as I have said above, I had already taken the view that Mr. Patel has not gone very far towards implementing the remedial works.

In deciding this question, it is important, but not determinative, that whether under Clause 5.2.2, the Second Schedule, the Sixth Schedule, the Party Walls etc Act 1996 or the Party Wall Award, the expectation is that the Landlord will put right any defects. This is doubtless, in the first place, because under each of those provisions, except Clause 5.2.2, the liability arises out of a situation where the Landlord is carrying out works. Secondly, so far as Clause 5.2.2 is concerned, it is the Landlord who receives the insurance monies for the purpose of carrying out remedial works.

There is another factor also, which is that in this case, as doubtless in many other cases, the Landlord has an active interest in the works being carried out in order to protect his interest in the building and to restart the rental income stream. It would be unsatisfactory, and in my view unjust, were it to happen that he was required to pay damages in respect of the cost of remedial works to the Claimants only to find that by choice or by the exigencies of the Claimants’ financial position the works were not carried out.

This is not a small risk in this case: as I have set out above and return to below, the Claimants’ finances were not in good order before the fire and there is nothing on the evidence before me to suggest that anything has happened which has done anything to improve their position, which will not be assisted by the fact that for the reasons set out below there will be no award in respect of loss of profits in this case. Whilst I am not in a position at present to judge what the final award on costs will be, I do know that there have already been some cost orders made adverse to the Claimants, and that the amount of costs said to have been incurred by the Claimants is enormous and applying the usual expectation of recovery of costs even on an indemnity basis the shortfall on assessment of costs could easily run into six figures, and would of course be more were the costs to be assessed on the standard basis.

This problem could possibly be resolved by taking an undertaking from the Claimants to keep the monies in an escrow account and only to apply it in respect of the execution of remedial works. I am unaware of any precedent for this course of action which would in my experience be unique and contrary to the usual principle that a claimant is free to spend damages received as he wishes.

Even were this a permissible course of action this would leave the Court with a choice between policing an undertaking given by the Claimants or policing an undertaking given by the Defendant, which in a sense brings the matter back to where the debate started.

I take on board the difficulties presented by the prospect of policing an undertaking given by either of these parties who have proved themselves both capable of arguing about a very surprising range of matters, perhaps more so in the case of the Claimants, but not exclusively on the part of the Claimants.

As I explain below, in respect of the mechanical and electrical works, a significant part of the differences between the parties arises out of uncertainties at present as to exactly what work will be necessary. This is another factor which weighs in the balance favouring an approach which leads to the work being done pursuant to the undertaking proffered by Mr. Patel.

Weighing up these factors I have come to the conclusion that the right answer is to adjourn assessment of the cost of remedial works to a date to be discussed with counsel for the parties on the basis of the undertaking proffered, the precise terms of which will need to be considered. I have in mind an adjournment of the order of six months.

During this period Mr. Patel will be under an obligation to this Court to execute or procure the execution of the works with due diligence. I have noted that Mr. Moor, the Claimants’ building surveyor, has reached a large measure of agreement with Mr. Birchall, the Defendant’s building surveyor, so that if he is involved in the process I have no doubt that there will be a substantial assurance to the Claimants that the works are being carried out to an appropriate standard.

I would have in mind, subject to submissions, that the Court will receive a monthly report from both surveyors (hopefully agreed) as to the progress of works.

On this basis, my hope would be that there would be no adjourned hearing for assessment of damages in respect of the cost of remedial works because the works would have been carried out to joint satisfaction.

On the basis that this Court is accepting the proffered undertaking, any issue as to grant of an order for Specific Performance drops away.

Issues 58 and 59 are as follows:

The experts gave evidence before me by “hot-tubbing”. I found this extremely useful, and pay tribute to the professional assistance I received from all the experts.

The mechanical and electrical experts were Mr. Wilkinson on behalf of the Claimants and Mr. Axten on behalf of the Defendant.

In respect of item 3.1, the transcript records the explanation given to me by each of these gentlemen:

Mr. Wilkinson then explained that although some tests had been carried out on the disputed wiring, the tests were inconclusive.

In my judgment the solution to this dispute is that an independent electrical contractor should be commissioned to carry out all necessary tests and to advise which parts of the wiring can be safely re-used and which not. Unless the wiring can be re-used and be the subject of appropriate certification in accordance with current regulations it is to be replaced as part of the works which Mr. Patel is undertaking to carry out.

In respect of item 3.4, the audio system, the difference between the parties relates to the particular audio system to be installed. In my view the system suggested by the Claimant should be installed, it seeming, so far as I can tell, to be closest in type to that which was there before.

In respect of items 3.5 (hot water and heating plant) and 3.6 (roof plant ventilation and ducts) the problem faced by the experts and therefore also by the Court is assessing before the works start what the actual scope of the work will be, hence there is a significant contingency element in the costings put forward.

There are, in my view, two solutions to this: either a contractor is found who will carry out this work on a lump sum basis, or it could be done on a cost plus basis. It will be for Mr. Patel to decide which method he prefers, as the work will be done at his expense. What I order is that he carries out or procures the carrying out of all necessary works to restore the hot water and heating plant and the roof ventilation and ducts to full working order certified as such by an independent contractor. If necessary, I will hear submissions as to the precise terms of this part of the order, but in principle at the end of the remedial works these systems must be in full and reliable working order.

As to item 3.7, the kitchen extract, the difficulty is that it is impossible to say what was the state of the extract before the fire, but there is good reason to suppose that it had not been maintained to the highest standards. Whilst accepting that there is some strength in those points, the stalemate over the last four years can have done nothing to improve the state of the extract and will in all probability have made it much worse. It seems likely that the other works will necessitate removal or disturbance of the extract in any event. In my view the works to be carried out by Mr. Patel should include putting the extract into good clean working order. If there is an element of betterment in that, it will be small and it is right, in my judgment, to err on the side of the Claimants on this issue.

Issues 60 to 63 are as follows:

For the reasons given above, the answer to Issue 60 is, at present, “No”.

In consequence, Issues 61 and 62 do not presently, and hopefully will never, fall for determination.

Likewise, it is not necessary for me to determine Issue 63, which is at heart a procedural issue.

The agreed Issues are as follows:

Before discussing these Issues further, I must first touch upon the position of the jointly instructed forensic accountant, Mr. Segal.

As set out above, the three parties to these proceedings agreed to appoint Mr. Segal of FAS to provide joint forensic accounting evidence.

On the 1^st August 2013 the parties received his report. At that time the parties had not exchanged witness statements.

In a letter dated the 22^nd August 2013 F S Law indicated that they had sought independent accountancy advice. They also indicated that there were matters in Mr. Segal’s report which the Claimants wished to address in their witness statements.

On the 6^th September 2013 DAC Beachcroft wrote to Mr. Segal referring to information which they thought Mr. Segal might not have seen and asking him to clarify a number of matters.

On the 12^th September 2013 F S Law provided Mr. Segal with various materials including comments on his report and revised profit calculations.

The comments provided have been placed before me and run to 12 pages. They projected profits of £74,901 in 2010/11, £70,494 in 2011/2012 and £89,451 in 2012/2013.

On the 23^rd September 2013 F S Law wrote a long letter to Mr. Segal raising a large number of points on the manner in which Mr. Segal had gone about his task. In particular they complained that Mr. Segal had set aside what had been sent by them on the 12^th September as not being new evidence.

On the 19^th September 2013 DAC Beachcroft had also asked Mr. Segal to reconsider his report in certain respects.

On the 24^th September 2013 Mr. Segal produced supplementary replies to questions from MPB, comments on correspondence from the Claimants and on new documents provided. That document is headed “prepared with the consent of the parties”.

On the 10^th October 2013 there was a Pre Trial Review before Edwards-Stuart J.. No application was made at that hearing for permission for any party to call a party-appointed accounting expert, nor any application to exclude Mr. Segal’s evidence.

On the 14^th January 2014, the second day of the trial before Akenhead J., the case was adjourned and case management directions agreed between all parties. No direction was sought by the Claimants in respect of the evidence of Mr. Segal.

Before me, the Claimants firstly objected to the admission of Mr. Segal’s evidence at all, on the basis that he had had inappropriate contact with one of the parties’ solicitors, then sought leave to call an independent forensic accountant, Mr. Beard.

The sequence of events which has led to the Claimants challenging Mr. Segal’s conduct is set out accurately in the Defendant’s note dated the 18^th February 2014, which in turn is based upon a fuller note provided to the Court by Mr. Segal:

In my view, what Mr. Segal did was entirely understandable given the time pressures which the parties had placed upon him in late September 2013, and I do not regard there having been anything improper in what he did. Of course, as a matter of general principle, a jointly instructed expert should not communicate unilaterally with a party, save where that has been agreed by all the appointing parties, but this general principle has to be tempered by common sense. The attack upon his independence and impartiality was unfounded and unjustified.

Even were that not so, the perceived problem should have been brought to the attention of the Court at latest at the Pre Trial Review before Edwards-Stuart J. in October 2013. To raise the matter as late as it was raised was entirely inappropriate, as also was the attempt to introduce Mr. Beard’s evidence as late as the 10^th March 2014 (without, so far as I can tell, any prior warning to the Defendant’s solicitors or counsel).

Accordingly, I have no hesitation in admitting Mr. Segal’s report and oral evidence. I record that I found him impressive and reliable.

I have set out at paragraphs 44 to 92 above the facts as to the trading history of the business. What I have set out there is entirely based upon the documentary evidence. In the course of his oral evidence, Mr. Stratton in particular tried to make light of the banking record and the other matters set out, but I did not find him a convincing or reliable witness. Without having taken on board Mr. Segal’s evidence, I had formed the view that this was an unprofitable business.

However, I am not an accountant. I turn to Mr. Segal’s report. He produces at paragraph 117 of that report figures for the business (bearing in mind that the business changed hands from one company to another in the middle of 2009) for years ending 31^st March:

At first blush this might suggest that there was a profitable business at least in 2008 and 2009. However, Mr. Segal comments at paragraphs 119 to 121:

The Claimants have tried in a number of ways to displace or alter this evidence. First, they made submissions to Mr. Segal, as recorded above. Then they sought to have Mr. Segal’s evidence excluded. Then they attempted to introduce the evidence of Mr. Beard. They cross-examined Mr. Segal, and finally submitted lengthy written submissions to persuade me to reject his evidence or to accept it in a highly modified form.

As I have said, I found Mr. Segal to be a reliable witness, whose evidence I accept. I am supported in that view by the fact that the business track record to which I have referred supports the view that this was a loss making business. Further, as Mr. Segal said, there is no evidence to verify the 2008 and 2009 Sequel accounts which appear inconsistent with the position before and after those years. Then there is the mystery as to why the Sequel Limited went into liquidation if the business was profitable – the attempt to blame this on incompetence of the Claimants’ then accountants was unconvincing. Next, there is the fact that before the fire the Claimants were attempting to sell the premises at a value which in no way reflected an ongoing profitability of £60,000 p.a.

For these reasons, I hold that the Claimants have failed to establish that this was a profitable business before the fire, or that it would have been profitable but for the fire.

I have considered whether there is another way in which this claim might be supported: it is apparent particularly from Mr. Stratton’s evidence that this business operated on a cash basis with the two Claimants taking what they needed as and when they needed it. I have wondered whether this could be reflected in an award of damages at least to the amount of directors’ drawings shown in the company accounts. However, in the end I have rejected this way of approaching the claim. Firstly, it is far from certain that this could or would have continued even had the fire not occurred. Secondly, whilst there were drawings (the precise amount of which was unclear) this was more than matched by the amount of money the Claimants had had to inject into the business before the fire to stave off the judgments entered against them

Accordingly my answer to Issue 64 is that the Claimants have not established any loss of income as a result of the matters for which Mr. Patel is liable.

The Issues under this heading are as follows:

I think it is helpful to start by considering Issue 67 first, but to invert the question, so that it becomes, would it be unreasonable for the Claimants to re-launch the business at the premises.

I cannot say that it would be unreasonable for them to do so: they are the tenants of premises let to them as restaurant premises, which they are entitled to have restored to useable condition for that purpose. If they wish to use the premises for a re-launched business, that is entirely their prerogative.

As to whether they will re-launch the business, this is a much more difficult question. Before the fire, as I have set out at paragraphs 229 to 244 above they had resolved to sell and were taking steps to do so. Mr. Stratton in particular wished to retire from the business. It seems to me highly unlikely, but not impossible, that they will re-launch the business. As to whether they can do so, this must depend at least in substantial measure upon their success in recovering the costs of these proceedings.

The course which I am going to adopt is to defer assessment of this claim to be determined with any other issues as to damages at the adjourned hearing to which I have already referred. At that stage the future of the business may well be clearer.

Cost of Replacement of Kitchen Equipment

The relevant issues are as follows:

The background to these Issues, which the Claimants say are not covered by the pleadings, is considerable uncertainty as to what parts of the equipment were owned by each of the companies and which by the Claimants personally.

This has led to considerable sophistication in the submissions and a minute examination of what property was owned by whom when.

I regard this investigation as being irrelevant. I accept that by the date of the fire the equipment was old and of little resale value. However I accept also that insofar as the Claimants had not retained ownership personally of the equipment but had given the property to The Sequel Limited (or that company had acquired the property in the marketplace) the Claimants had agreed to buy the equipment from the liquidator of The Sequel Limited and, but for the fire, would have had the equipment available for use.

In my view the Claimants are entitled to be placed in the position they would have been in had the fire not occurred, namely in occupation of restaurant premises with a working kitchen.

I accept that there was a strong possibility that an incoming purchaser might well strip out the existing kitchen: however it seems to me that the Claimants were entitled to have a functioning kitchen, if only as a bargaining chip.

On the basis on which I am determining this case, namely that I am accepting Mr. Patel’s offer of an undertaking to carry out necessary works, I am not going to assess damages on this area of claim, but rather indicate that the works to be carried out must include the restoration of a kitchen in fully functioning mode suitable for use as a pizza restaurant. I am conscious that in the event some other form of restaurant other than a pizza restaurant may be conducted from the premises - any resultant difficulties can be referred to the Court. I regard this as a further reason to defer assessment of damages until matters are a little clearer.

For the reasons given above, the answer to Issue 73 is “Nil”, to Issues 74 and 75, “nil until damages are assessed” and to Issue 76, “No”.

As I have said at paragraph 338 above, at a late stage the Claimants submitted their Fifth Further Closing Submissions. They sought no permission to do so, and they were objected to by Mr. Patel’s solicitors. In order to ensure that justice was done to the Claimants I read and considered these submissions which has resulted in some changes to paragraphs 338 to 240 and 384 of this final version of the judgment compared to the draft which was circulated. However they have not changed the conclusions which I have reached as to the just disposition of this case.

I welcome submissions from the parties as to the appropriate orders to give effect to the above. My clerk has already set out directions in that regard, with which on this occasion I expect strict compliance.