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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Kingsway Hall Hotel Ltd. v Red Sky IT (Hounslow) Ltd. [2010] EWHC 965 (TCC) (06 May 2010) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2010/965.html Cite as: [2010] EWHC 965 (TCC), (2010) 26 Const LJ 542

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		6th May 2010

 


His Honour Judge Toulmin CMG QC :

1. This is a claim by Kingsway Hall Hotel Ltd (Kingsway), a company which operates Kingsway Hall Hotel, a four star, 170 bed hotel located at 66 Great Queen Street, Covent Garden in the centre of London.
2. The defendant, Red Sky IT (Hounslow) Ltd (Red Sky), is a limited company carrying on business as a supplier of information technology systems, inter alia, to the hotel trade, including front and back office reservations and point of sale systems. These systems include advance reservations for both individuals and groups who wish to book rooms at the hotel and systems for checking in and checking out of the hotel and for the payment of bills.
3. Kingsway claims that the "Entirety" front office software system supplied by Red Sky in October/November 2006 with the "Aztec" point of sale and back office software and "Kx" sales, catering and marketing software at a total cost of £49,999, with an annual maintenance support fee including software licence fee of £7,528, was not of satisfactory quality and was not fit for its purpose. Kingsway contends that Red Sky knew that its purpose would include use by the hotel's front and back office staff, in particular, in providing accurate information in respect of reservations, the checking in and out of guests and billing.
4. Kingsway contends that it gave Red Sky until 31 March 2007 to resolve the problems. Red Sky failed to do so and Kingsway contends that it was entitled to and did reject Red Sky's IT system by a letter from its solicitors to Red Sky dated 20^th April 2007.
5. Kingsway further contends that, after an extensive search, it found a replacement system, Protel, at a cost of £26,051.90 plus vat with Sage software which replaced the Aztec software at a cost of £3,840.21 plus vat. It retained the Kx sales, catering and marketing software.
6. Kingsway also claims for alleged financial loss because it claims that the Entirety software reported fewer rooms as being available for reservation than were in fact available. During the time that the system was in use this, it claims, caused fewer rooms to be available for letting than should have been available and would have been let.
7. The claim under this head is put on two alternative bases: (a) the value of the assumed lost profit is claimed at £248,703 at a reduced occupancy rate of 4% or £310,947 at a reduced occupancy rate of 5%. On the alternative basis (b) the hotel claims that it would have sold 1,700 to 1,800 rooms more than it did in the period during which Entirety was installed giving a lost profit of between £222,139 and £235,206.
8. In addition, Kingsway claims to have incurred additional staff costs in that (a) it had to employ an additional reservations manager from March 2007 to November 2007 at a cost of £13,500, (b) it incurred wasted salary costs of £29,900 and (c) it had to employ three additional shift leaders at a cost of £36,333.
9. Red Sky's case is that the Entirety package was an off the shelf package which was bought by Kingsway after a first demonstration given to six of Kingsway's employees including the General Manager, the Revenue Manager and the Conference Manager and a further demonstration to other Kingsway employees. Following the demonstrations there was a visit to the East India Club where senior Kingsway employees had a further opportunity to evaluate whether the Red Sky software, and particularly Entirety, was suitable for their requirements.
10. It is common ground that the alleged problems with Entirety related to Group Bookings. Red Sky denies that Kingsway made any specific purpose or requirement known to it before Kingsway bought the package.
11. Red Sky, also denies that the system was of unsatisfactory quality or unfit for the purpose for which was sold. Red Sky claims that, this was an off the shelf package and not a bespoke system. Kingsway had every opportunity to inspect it before purchasing it and furthermore, since Kingsway had, as its IT Manager, Mr Benson who had worked for Red Sky and knew its products, Kingsway relied on its own judgement in deciding that the Entirety system was fit for its purpose and therefore that it would purchase it.
12. In its Reply, Kingsway says that the purpose of the demonstrations, enquiries, and site visit was to demonstrate the suitability of Red Sky's software and especially Entirety and to demonstrate that it satisfied Kingsway's requirements. It further contends that before entering into the agreement the operational deficiencies of the software were not apparent from any of the demonstrations.
13. There is a dispute between the experts as to the nature and extent of the defects and what Kingsway could reasonably have expected of the Entirety system.
14. Red Sky also claims that any losses which were incurred by Kingsway were caused or contributed to by Kingsway's failure to ensure that its staff was properly trained in the use of the Entirety system and its failure to put in place and maintain adequate Standard Operating Procedures.
15. Red Sky also contends that on Kingsway's case there were widespread problems with Entirety. If this was correct, ( a proposition not accepted by Red Sky) Kingsway failed to report many problems to the Red Sky help desk where they could have been investigated and the cause could have been discovered. Further Red Sky claims that many of the alleged problems were caused by the hotel staff's failure to use the system correctly. This is denied by Kingsway.
16. Red Sky counterclaims £32,483.04 in respect of various unpaid invoices. This claim is denied on the basis that Red Sky failed substantially to perform its obligations.

Application to amend

17. There is also a further issue between the parties which I should deal with immediately. By an Application Notice dated 24^th November 2009, the Claimant sought to amend the re-amended Particulars of Claim to withdraw an admission that it was bound by Red Sky's standard terms and conditions. It wishes to delete the reference to Red Sky's standard terms and conditions as being part of the contract for the supply and installation of Entirety (Paragraph 9) and to substitute a new Paragraph 9 to set out express terms of the agreement which did not include Red Sky's standard terms and conditions. This Application followed a letter dated 18^th November 2009 from the claimant's solicitors giving notice of an intention to apply to make the amendment.
18. In his witness statement in support dated 26^th November 2009, Mr Cook, the solicitor acting for Kingsway, said that, having reviewed the witness statements of Mr Edwards and Mr Benson (both served in 2008) and following a thorough search of all the material documents in Kingsway's control, he was unable to find any record of Red Sky's standard terms and conditions sent before entering into the agreement. He said that "The claimant does not have and believes that it has never had any copies of the defendant's standard terms and conditions before entering into the agreement with the defendant to supply Entirety."
19. Mr Cook claimed that the Red Sky witnesses, Mr Edwards and Mr Benson, would be able to address the issue on behalf of Red Sky in so far as it had not already been addressed and that although the Application was very late, there was no prejudice to Red Sky. He said that the prejudice to Kingsway in being potentially bound by Red Sky's standard conditions (subject to other arguments) was obvious.
20. The objections to my permitting the amendment are set out in a witness statement from Ms Tow, a legal executive at Red Sky's solicitors who has the day to day conduct of the case. She said that until the point was raised by Kingsway, it had not been considered by Red Sky. She said further (rather surprisingly in view of his witness statements) that "Mr Benson may not be able to give evidence on the question of the parties long-standing relationship and whether the claimant had seen the defendant's terms previously, whether as a result of the specific negotiations in respect of the contract which is the subject of the proceedings, or at any other time as a result of the parties long standing relationship"
21. In cross examination Mr Benson maintained that Ms Coogan had attached the conditions as a PDF. Disclosure was ordered to be given by 26^th September 2008. Mr Benson said that in late 2008 his laptop was disposed of. If this point had been taken before that date it would have been possible to verify whether or not he had received the standard terms from Ms Coogan.
22. Ms Tow said further that the person who dealt with contracts at Red Sky was Ms Mary Coogan, who dealt with all relations relating to the business relationship between Red Sky and Kingsway. Ms Coogan had left Red Sky's employ but Red Sky had remained in contact with her, and a decision had been taken, when the question of witnesses had first been considered, not to call her to give evidence in these proceedings, on the basis of the issues which had been raised between the parties. Ms Tow pointed out that, had the point been taken earlier, investigations could have taken place as to whether the terms had been sent to Kingsway either before signature or as a part of previous dealings.
23. Ms Tow noted that Red Sky had been acquired by Micros Fidelio (UK) Ltd and that it was not possible now to find the evidence in the time available.
24. In paragraph 11 of her witness statement she said that her clients pointed out that when the contract form referred to "terms and conditions overleaf", this did not refer to the four page terms and conditions on the back of the document but to a fifteen page document which starts after the contract schedule.Ms Tow gave no particulars as to who at Red Sky was making this assertion and no evidence was given about this at the hearing. Presumably it could have been given. It is not an obvious interpretation of the word "overleaf," although Red Sky makes the point that argument loses its force if the documents are transmitted electronically.
25. Kingsway contends that the amendment is largely one of construction of documents. It is common ground that no standard terms and conditions were sent with the contractual terms and conditions and that the only part of the contractual documents which referred to the standard terms and conditions was the proposal agreement.
26. Kingsway contends further that there is no material prejudice to Red Sky in Kingsway taking the point now as opposed to in the Particulars of Claim served on the 21st April 2008.
27. In answer to Ms Tow's witness statement, Kingsway repeated that Red Sky has access to the two key witnesses on this issue. Further it contends that no attempt appears to have been made to contact Ms Coogan since the amendment was proposed and there is no claim that she could not been contacted or was unable to give the relevant information even at this late stage. Ms Coogan did not sign the agreements. They were signed by Mr Edwards. Ms Coogan's email archive was searched by Mr Edwards so there is no prejudice in relation to the search of documents.
28. Further, the point is made, correctly, that Ms Tow's witness statement is misleading in that Red Sky was acquired by Micros Fidelio in December 2006/January 2007, substantially before (not after) these proceedings were started.
29. Red Sky relies on the fact that initially, as early as 20^th April 2007 Kingsway's then solicitors Shoosmiths, presumably on instructions, were at paragraph 8 of their letter, relying on the warranty set out in clause 10.2 of Red Sky's standard terms and conditions. It also relies on the fact that there was a long standing business relationship between the parties and comments that if Kingsway had wished to raise an issue over the terms it could and should have done so at the outset.
30. Further, in relation to the pleadings, Red Sky notes that by paragraph 21 of the Particulars of Claim, dated 21 April 2008, Kingsway specifically pleaded that the parties contracted on Red Sky's written standard terms. At paragraph 9 of the Re Amended Particulars of Claim, and in previous versions of the Particulars of Claim, Kingsway set out various terms on which it seeks to rely. The re-amended Particulars of Claim made further references to Red Sky's standard terms.
31. In addition, Paragraphs 5 to 7 of the Reply and Defence to Counterclaim set out Kingsway's case in relation to clause 10.2 of the standard terms. Paragraph 27 of Red Sky's Defence and Counterclaim sets out various exclusion and limitation clauses in the standard terms. Paragraph 13 of the Reply and Defence to Counterclaim expressly admitted that these terms were contained in the contract.

The Law

32. The overriding objective, set out in Part 1 of the CPR , is that the court should deal with cases fairly and that amendments, in general, ought to be allowed so that the real dispute between the parties can be adjudicated. This is subject to the important proviso that any prejudice to the other party can be compensated in costs and that the public interest in the administration of justice is not significantly harmed. – see the note to paragraph 17.3.5 of the White Book.
33. This Application relates to an admission made both before and after the commencement of proceedings. Under Part 14.1 (5) of the CPR, a party who has made an admission after the commencement of proceedings may apply to withdraw it. Under CPR Part 14.1A (4), a party may apply to withdraw a pre action admission.
34. In Braybrook v The Basildon and Thurrock University NHS Trust (October 7^th 2004) Sumner J sets out guidance as follows:

"45. From the cases and the CPR I draw the following principals:

1. In exercising its discretion, the court will consider all the circumstances of the case and seek to give effect to the overriding objective.

2. Among the matters to be considered will be:

(a) The reasons and justifications for the Application which must be made in good faith;

(b) The balance of the prejudice to the parties and whether a party has been the author of any prejudice they might suffer;

(c) The prospect of success of any issue arising from the withdrawal of an admission;

(d) The public interest in avoiding possible satellite litigation, disproportionate use of court resources and the impact of any strategic manoevouring.

3. The nearer any Application is to a final hearing, the less chance of success it will have, even if the party making the Application can establish clear prejudice. This may be decisive if the application is made shortly before the hearing."

35. The overriding objective is that cases should be dealt with justly, which means expeditiously and fairly. To Sumner J's very helpful summary of considerations I would make two observations. First, they are rightly categorised as considerations and should not be construed as though they were a statute. Secondly I add the consideration that any application to withdraw an admission should be made reasonably promptly after the factual position is known, and that this factor may also be taken into account when considering whether permission should be given to withdraw an admission.
36. It is for the party seeking the amendment to satisfy the court that if the amendment is allowed there will be no unfairness which cannot be adequately compensated by a Costs Order. Where an amendment is sought close to the trial date the court should be particularly vigilant to ensure that the granting of the amendment will not put the parties on an unequal footing or add an unfair and excessive burden to the respondent's task of preparing for trial. It should be noted that a party dealing with a late amendment, amid other preparations for trial, may not have the same opportunity to stand back and consider the implications of the amendment and decide what action by way of witness statements, disclosure, etc it wishes to take, as it would have had if the amendment had been made at a time when it had such an opportunity.
37. There must be particular concern when, as in this case, having relied on the Defendant's standard terms to that date, the Claimant, on the 24^th November 2009, a very short time before trial, gives notice that it no longer relies on those terms and, on the contrary, contends that they do not apply.
38. Whether or not to allow the amendment must, in the end, be a matter of judgement taking into account all the factors to which I have referred and also to the justice of the case. If the evidence at trial had been entirely clear in showing that Kingsway had not received Red Sky's terms and conditions, I would have acceded to the Application on the basis that it would have been unjust to refuse it.
39. However it seems to me the position is not that clear. This is partly because I am satisfied that Ms Coogan may well be the only witness who can give cogent evidence for Red Sky on this issue. I have no evidence before me as to whether or not she could have given evidence at trial had she been contacted at this very late stage.
40. In these circumstances, taking account of all the matters to which I have referred, I have come to the conclusion that Kingsway's' proposed amendments withdrawing the admissions which have been made, ought not to be allowed. Red Sky, a few days before trial, had to consider a fundamental change to the Claimant's case, a case which Kingsway had pursued since April 2007.At that time Kingsway's solicitors, no doubt acting on instructions from Kingsway, referred explicitly to Red Sky's standard terms as being in effect. Had the position been otherwise, the litigation might well have taken a very different course.
41. In my view, to allow the amendments would be to have placed an unfair additional burden on Red Sky at the time when the preparation for trial was taking place particularly when Red Sky had been taken over and documents were more difficult to find. On the 4^th November 2009 I ordered that by 1pm on 25^th November 2009 the parties should file the bundles for trial, skeleton arguments, reading lists etc in preparation for the start of the trial then due to take place on the 30^th November 2009. This Application is dated the 24^th November 2009.
42. In my judgement the proposed amendments are far too late and it would be unfair to permit them.

Witnesses

43. In relation to witnesses for Kingsway, I received witness statements and heard evidence from the following witnesses of fact – Stacey Leonard (3 statements); Azad Cola (2 statements); Yuval Herrmann (2 statements); Christopher Pass (2 statements); and Alex Sepahi (1 statement).
44. Stacey Leonard was the Executive Assistant Manager for the Rooms Division at the hotel. She was experienced in using various PMS (property management systems) to keep track of the many transactions taking place in the hotel. Ms Johnston (see below) agreed that she was a skilled operator of Entirety. Mr Cola is the Managing Director of Cola Holdings which owns the three hotels in London of which Kingsway Hall is one. He had the overall responsibility for running the hotel. Mr Herrmann is the Executive Director of Cola Holdings having responsibility for parts of Cola's businesses including Kingsway Hall and reporting directly to Mr Cola. He gave evidence primarily to support Kingsway's claim for loss and damage. I shall have various observations to make about his evidence but I am satisfied that he was doing his best to assist the court.
45. Ms Leonard worked in the back office of the hotel. Mr Pass was, from April 2007, Guest Relations Manager in the front office. He became Assistant Front Office Manager in October 2007 when the replacement system for Entirety was installed. Mr Sepahi joined Cola Hotels in December 2006 as Assistant Group IT Manager, initially working from Kingsway's sister hotel the Westbury Hotel.
46. I am satisfied that each witness was doing his or her best to assist the court. Stacey Leonard gave the primary evidence as to the problems which Kingsway experienced with Entirety.
47. For Red Sky I heard the following witnesses Richard Benson (4 statements); Laura Johnston (2 statements); Simon Frost (1 statement); Peter Edwards (1 statement); and Nicola Howard (5 statements).
48. During the trial I expressed concern at the way Red Sky's solicitors had taken the witness statements which, on occasion, went significantly beyond what the witnesses were able to say in evidence. However each witness was asked on oath whether he or she attested to the truth of their witness statements and whether or not he or she wished to change anything. The witnesses did not take the opportunity to make any changes.
49. Mr Benson was ill prepared when he came to give evidence. He had not re-read the relevant documents. He said in his CV that he had been employed for seven years immediately preceeding his employment at Kingsway. This turned out to be untrue. He had left Red Sky (then operating under its previous name, Ramesys) two years prior to joining Kingsway. This is of relevance in relation to his general credibility and to his up to date knowledge of Red Sky's standard contract terms. His witness statements gave the impression that he was responsible for IT contracts at Kingsway and that he knew what they contained because of his previous employment with Ramesys. In oral evidence he had to admit that, on the contrary, he was employed by Ramesys as a technical installer and was not employed on the sales side and would have had no need to be conversant with Ramseys or Red Sky's standard form conditions of sale. This altered entirely the thrust of his evidence. His evidence must in general be treated with caution.
50. Ms Johnston was responsible for some training at Kingsway after she joined Red Sky in November 2006. She was not responsible for the initial training. Hers was positive training which did not involve seeking out and addressing problems. Her first witness statements dated the 10^th November 2008 (paragraph 20) said that Red Sky did not consider that there were any faults with Entirety as at February 2007. This was clearly untrue. In the event her evidence on training was peripheral to the issues which I have to decide.
51. Mr Frost was the Customer Services Director of Red Sky in 2006/2007. He was evasive in his answers and an unsatisfactory witness. In his witness statement sworn on 2 December 2008, at paragraph 67 he said that "there were no faults with Entirety. It was simply that Kingsway did not like the way in which certain procedures had to be carried out, particularly as regards the booking function." He had to admit in cross examination (after giving a number of evasive answers) that he knew that there were a number of problems with the Entirety software.
52. It is a fair summary of his evidence that he was suggesting in oral evidence that matters which he asserted in his witness statement as being his responsibility were, according to his oral evidence, primarily the responsibility of others.
53. Mr Edwards was at all material times the Managing Director of Red Sky. He said in oral evidence that he understood the business side but not the actual detail as to how the software was used. In his witness statement he asserted that the sister hotel, Kensington Close, used Entirety when this was not in fact the case.
54. Ms Howard found herself in the uncomfortable position of having to defend the Action on behalf of her superiors including, on the technical side, Judith Grimes. Red Sky attempted to have Ms Grimes' witness statement included as part of the evidence but was forced to abandon the attempt when it became clear that she could be available to give oral evidence at the trial but, for whatever reason, was an extremely reluctant witness.
55. Reverting to Ms Howard, there appeared to be times when she was covering loyally for the inadequacies of Mr Frost, to whom she reported, and others at Red Sky. Her witness statements contained important and glaring inaccuracies. She said at paragraph 36 of her third witness statement, dated 14^th September 2009, that "suffice to say Red Sky were not aware of any problems with alleged screen freezing with Entirety at Kingsway. It was only raised once at one of the conference calls which took place in March 2007." In her first witness statement dated 27^th November 2008 (paragraph 68) she said that she was not aware that there were any issues as regard screen freezing. In cross examination she had to admit that this was not true.
56. . At paragraph 43 of her third witness statement, Ms Howard said that she "had not had any instance of excessive screen freezing reported by any other customers and users of Entirety" In oral evidence she said that she meant screen freezing which occurred more than once a month. Screen freezing of Entirety once a month at Kingsway, she regarded, she said, as excessive.
57. She had to admit in oral evidence, as a general proposition, that she was aware in October 2006 and afterwards, that other customers were complaining on a general basis of screen freezing when using Red Sky's product. She also agreed that her first witness statement gave a false impression in relation to this issue.
58. Having made these severe strictures, which inevitably affect adversely the way in which her evidence should be approached, it is right to emphasise that in her role as Support Manager she was extremely knowledgeable and clearly competent at her job. It was clear that at the hearing she was put in the unfortunate and embarrassing position of having to carry responsibilities which should have been those of others in the company.
59. The experts were Mr Tony Sykes and Mr Mac Smith. Mr Sykes has had many years experience in computer application development and design and in analysing problems with their code. He does not have, and did not claim to have, special expertise in relation to the hotel industry. He was clearly aware of his obligations to the court and his evidence was reliable and balanced.
60. Mr Smith's expertise is as an adviser to clients wishing to develop bespoke software systems. These include, specifically, software systems in the hospitality industry. He tended to regard his role, particularly in his written expert evidence, as an advocate for Red Sky. This was particularly the case in relation to his consideration of problems experienced by Kingsway. His criterion was whether the problem could be proved beyond reasonable doubt to have been caused by Red Sky rather than, as would have been appropriate, to consider the position on the balance of probabilities.
61. Mr Smith, had to concede that the statement "that there is no evidence that screen freezing was caused as a result of any fault with Entirety," had to be abandoned on reading 129 reports of screen freezing in third party fault logs. He had to agree positively that there is evidence that such screen freezing was caused as a result of Entirety.
62. On the technical aspects of the functionality of Red Sky, Mr Smith had less knowledge than Ms Howard and he was not entirely familiar with the fault logs.
63. Having said this, I should note with gratitude that the experts made considerable and successful efforts to co-operate in agreeing/narrowing issues without which the trial would have been far longer. In general I find Mr Sykes' evidence is to be preferred to Mr Smith in areas where they disagreed.

The Facts

64. Kingsway Hall is one of a group of three hotels which together form part of the Cola Group, the two others being Kensington Close and The Westbury Hotel. In 2000 Red Sky's predecessor company installed and maintained a DOS based PMS system at Kingsway known as the Innsite system. No complaint was made by Kingsway about the Innsite system.
65. It appears that Red Sky or its predecessor Ramesys had discussions at various times with Kingsway about its IT system. At a very late stage in the course of the trial, Kingsway found in its files an email from Mary Coogan, Corporate Account Manager for Red Sky's predecessor company Ramesys Hospitality Ltd. The email dated the 15^th September 2005 was copied to Mr Benson. It is a revised proposal for continued support for its Innova back and front office sales and catering system. In the files is a copy of Ramesys standard terms and conditions which include, in identical wording, the clauses in the Red Sky contract which are the subject of scrutiny in this litigation. The email is addressed to Oliver Raggett. I do not have any evidence as to his position in the Kingsway Hall Organisation. It would appear that he had left or moved responsibilities by the time of the events with which I am primarily concerned.
66. Red Sky's advertising materials for Entirety make specific claims for Entirety. They include, among its other advantages, that Entirety "dramatically increases revenue and occupancy levels, allows quicker check in and check out service to paying guests. "This is the essence of the service Red Sky was claiming to provide for Kingsway.
67. On the 25th May 2006 Ms Coogan sent an email to Mr Bailey, Kingsway's Operations Director, saying that she was looking forward to seeing him on the 1^st June 2006 to demonstrate Red Sky's software package, Entirety. Kingsway needed to find a new system because support for its existing system was being withdrawn by Red Sky. At Mr Bailey's request, Ms Coogan enclosed a copy of a proposal previously made for the Entirety, Aztec and Kx systems.
68. The proposal for Kingsway, which was annexed, included a detailed proposal for Red Sky software, professional training, third party software and hardware (Aztec).The professional training was Entirety Mandatory Training Package (6 days for up to 6 people); Entirety Configuration (1 day) and a number of optional courses after the system had gone "live". In addition there was system maintenance training – mail merge – sales and marketing – allocations and availability – additional shift of live cover. For each of these items a charge was quoted. The product notes deal with First User Licence and minimum software specification. Item 37 says that "the training course will include Reservations including groups, management sales ledger and auditing, Front Desk including "Groups," I was told by Mr Benson that Kingsway was able to satisfy the operation systems requirements (item 40) which would enable Entirety to work successfully.
69. The proposal ended with a price summary of £50,323.22 as the capital price and £7,528 per annum as the licence and maintenance charge. The proposal says "This proposal is subject to contract and Red Sky IT's standard terms and conditions of trade, vat (were applicable) and is valid for thirty days. Our standard terms and conditions of trade are available on request."
70. It would appear from Mr Benson's witness statement that Ms Coogan had already attended Kingsway and given a demonstration to Kingsway's Reservations Manager, Ms Melinda Ryan and to Kingsway's General Manager. Red Sky had also provided Kingsway with a 15 minute demonstration DVD showing the typical manner of operation of Entirety It represented Entirety as having the simplicity of operation as shown in this DVD.
71. A further demonstration took place on 1 June 2006. Mr Benson said, in his witness statement, that he thought that newly appointed staff attended this demonstration. He did not attend either demonstration because he said that he knew how Entirety operated.
72. Following this demonstration Ms Coogan sent an email to Mr Benson saying:

"Having spoken to Carl Plucknett, he has agreed that the payment terms previously agreed can be honoured provided the contract is signed by the end of the week 16th June, after this time he said he would need to review the payment terms."

73. There was then a concession on price by Red Sky to bring the cost below £50,000. The email went on, "If you could arrange for the contract to be signed and if you could also date and initial each page of the proposal to confirm you agree that the content match the contract and then return by fax…I will process the order as soon as possible and schedule dates for you.." Kingsway notes that there is no reference to a specific discussion of the terms of the contract other than the price.
74. It would appear that the contract for signature, not signed by either party, was a four page document which now specified a price of £49,999.It said on the fourth page in bold letters "contract sums exclusive of VAT which will be added at the appropriate rate at the date of the invoice. The terms and conditions overleaf apply to this contract ." There followed the revised proposal which on page 6 contained the identical wording relating to Red Sky's standard terms being available on request.
75. It would appear from Mr Benson's witness statements that he had a further meeting with Mr Bailey. They agreed that Entirety would meet Kingsway's requirements but Kingsway wished to see the system being operated "live". This was sensible since there was a difference between the theoretical position understood by an IT Manager and the practical requirements of making and changing bookings and booking in clients. It appeared from Mr Benson's witness statement that he took the decision to purchase Entirety based on his own knowledge.
76. Mr Benson had a good relationship with an existing customer of Red Sky, the East India Club. The East India Club, a private members club with rooms, agreed that Kingsway staff could attend their premises to see the system in action. Mr Benson attended the demonstration along with the then General Manager and Kingsway's Finance Director. They agreed after the demonstration that Entirety would meet Kingsway's requirements.
77. On 13^th July 2006 Mr Bailey sent Red Sky a purchase order for the new system, the new conference and banqueting system and the new food and beverage system for the total cost of £49,999.
78. On the 3^rd August 2006 the four page contract was signed by Mr Benson on behalf of Kingsway as the Group IT Manager. The fourth page again had on it "the terms and conditions overleaf apply to the contract" I have been told that this was intended as a reference to the fifteen pages of standard terms which were in fact "available on request".
79. The background to the decision by Kingsway to purchase Entirety was investigated in detail in cross examination. Mr Bensons' answers in cross examination departed materially from his witness statement. It appears that he was employed by Red Sky's predecessors until August 2003. He then worked for the company for three to six months as a technical consultant and thereafter he was a self-employed technical consultant until he was employed by Kingsway. During the time he was with Kingsway's predecessors he dealt with customers who wished to buy current products which included Red Sky's previous system, Innsite, but not Entirety which was then in the stage of development. His evidence is a little confusing but it would appear that his involvement with the Red Sky predecessor firm and its products ended at the latest in about April 2004. When he was employed there he visited potential customers and advised potential clients on how their current needs could be met.
80. He agreed in cross examination that Ms Coogan was the person at Red Sky with whom he discussed Kingsway's requirements and that it was Ms Coogan who suggested that Entirety would be the most suitable system for Kingsway. Mr Benson confirmed in cross examination that he relied on Ms Coogans's advice in respect of the usability and functionality of Entirety when making the decision to buy Entirety. I accept his evidence in cross examination and, in so far as his witness statements conflict with it, I reject the witness statements.
81. Ms Coogan provided Mr Benson with a DVD showing the typical functionality of Entirety software. Mr Benson agreed that Red Sky was marketing Entirety as a product which would give increased occupancy levels in the hotel, and improved guest service, a faster check in and better forecasting information, the type of claims made in Red Sky's advertising literature.
82. . Mr Benson was shown the section in the"booking client" in Red Sky's promotional literature which, he agreed, appeared to demonstrate that the process of amending guests' reservations was simple. He agreed that page 12 of the literature appeared to be telling potential customers that Entirety could process groups and make changes to group reservations including, for example, changing the departure date.
83. On the 11^th August 2006 Red Sky sent a training schedule to Kingsway. It was a comprehensive schedule of training in Entirety for the front office from the 28^th September 2006 to 24^th October 2006.
84. The system went live on 23rd October 2006 as is evidenced by the Installation Site Handover form. The form comments that the site went live at 3pm on that day and that all interfaces were "basically working by 6pm.Site live has gone very well with no unexpected issues."
85. The General Training Notes on the Form said that "all users on the system have done extremely well from live load to actual live" It is clear that no major training issues were foreseen by either Red Sky or Kingsway.
86. One of those who received training on "Reservations and Groups" and "Management and Rates" was Melinda Ryan. Two weeks later, on 7^th November 2006, she sent an email to Mr Bailey copied to Mr Cola, the Managing Director which expressed serious concerns about the system. The first occasion on which a problem occurred was 27^th October 2006(although this may not have been caused by Entirety). This email was passed on to Red Sky and the complaints received by Red Sky are set out in Ms Black's email dated the 8^th November 2006. Ms Black was Red Sky's Project Manager.
87. These complaints as set out in the 8^th November 2006 email (together with some responses) are as follows:

Mini bar charges posting to Interface dump account without the room number (logged by Kiru at beginning of this week)

A trace has been taken of the system and is being investigated by technical support to ensure all interface mappings are correct

Accounts reported a problem with posting over credit limits/it took four days for Red Sky to come back to them and resolve them

This was due to configuration and user setting which took time to fully test but has been fully resolved

Main Server crashed for 10 minutes on Saturday 4^th November 2006

The services had stopped which were re-started, we took a copy of the log but no errors were found, we are monitoring this situation.

No Show report reflects incorrect figures. It is calculating the no shows based on the booking lines rather than the number of reservations

Adrian will be calling Melinda this afternoon

Availability is consistently incorrect."

None of these problems had shown up in any of Red Sky's demonstrations of the Entirety system.

88. Red Sky's email stressed that the main problem was availability. As an example, figures showed 160 rooms sold whereas the forecast room report showed 167 rooms sold.
89. Ms Ryan said that she was told that there may be a small glitch in the system where it could not calculate the availability accurately and that she should be rebuilding the forecast statistics and hotel availability every morning in case this happened again. This process negated one of the main advantages of installing Entirety.
90. The email from Ms Black dated the 8^th November 2006, to which I have already referred, said that the complaint in relation to availability data had been investigated and "an availability re-run. After this run the system seemed to gain five rooms for the next four days." The email said that the problems relating to the mini bar, main server and no show report were being investigated.
91. In relation to the claim that availability figures were consistently incorrect, Red Sky's email said that Ms Howard was allocating a member of her team to work closely with Kingsway Hall on a VIP basis.
92. Mr Bailey asked Kingsway's sales front desk to update the comments from the Entirety log book. The Note dated 14^th November 2006 from sales detailed the following problems; Accounts - problem solved in four days; difficulties in printing bills- problem solved in 24 hours; mini bar charges- not solved not clear whether or not issue linked to Entirety; main server crashed for 10 minutes "solved issue not linked to Entirety, Richard was working on the server which caused the system to crash…"
93. Five new issues were raised. It is clear that four- account split between expense account and accommodation account,-system created two billing lines instead of one;-system shows wrong no show figures, and - guests not found by room number, were referred to Red Sky.
94. A joint review with Red Sky took place on the 20^th and 21^st November 2006. It appears to have been rather inconclusive. The note of the meeting is clearly a Red Sky document. It says that the first day was spent with Melinda Ryan. It notes that the whole meeting was a preliminary meeting with some items to be covered in more detail in January 2007.
95. On the 28^th November 2006 Ms Black of Red Sky sent an email to Mr Benson and Ms Ryan updating the situation. She noted that "the investigations over the last week are not fully conclusive in finding the cause of your issues and we will continue to investigate the scenarios which would adversely affect availability. In the meantime please ensure that you adopt the precautions as described above… can you please ensure all issues continue to be logged with support as on going investigations continue.
96. It appears that as of that date Ms Black thought that Kingsway had a genuine cause for complaint and was trying to find the cause and the solution to the problems.
97. The background to subsequent events was explained by Mr Benson in his cross examination. He said that "the trust factor in the reports we were getting from the system had gone to zero within a matter of a month if not sooner. Therefore even when reports came out correctly, because we could not trust the report we had to check the report to make sure that even if it looks right, we had to check it to make sure it was right."
98. Most surprisingly, there is then a gap in the correspondence until 10^th January 2010. During this time it is clear that Kingsway's problems were continuing and Red Sky was not remedying them.
99. The gap in the correspondence, both in terms of Kingsway's complaint and Red Sky's promised response is unexplained. It is clear that Melinda Ryan wrote a report for the Managing Director, Mr Cola. I have not seen it.
100. On 10^th January 2007 Ms Black, as Red Sky's Project Manager, wrote to Mr Benson about the agenda for the proposed meeting between Mr Cola and Mr Edwards. It is clear from the fact that this meeting was to take place that Kingsway's problems were now being taken seriously at the highest level.
101. In the email Ms Black acknowledged:

"…Groups and the way in which these currently have to be managed is the biggest issue as this is time consuming for the staff and not a practical way of using the system. The current development schedule has the new group enhancements scheduled in Entirety Version 2.4. I'm afraid I am unable to give you release dates at present but our Development Manager is aware of the importance of this and how critical this issue is to Kingsway."

102. This concession was echoed by other Red Sky employees. Ms Johnston, the Training Manager, conceded in cross examination that the procedure was time consuming and not a practical way of using the system. Mr Frost, in cross examination, said that he knew it was a critical issue for Kingsway. It was not suggested that the problem was caused by training or the lack of it.
103. Although not expressed as such, I suspect that the answer to Ms Black's request for information was contained in the email which Mr Cola(and in a slightly corrected form Mr Sepahi, newly appointed Assistant Group IT Manager) sent to Mr Edwards on the 15^th January 2007.It was also copied to Ms Black and Ms Coogan.
104. The email starts by referring to the mounting frustration and problems which Kingsway Hotel had experienced as a result of Entirety, causing "great distress, disruption of hotel operations and, at times, monetary loss."
105. Mr Cola said that he would attach a full comprehensive list later but he highlighted what he described as a "generic" list of problems. These relate not just to the problems themselves but to the inadequate response of Red Sky's staff and the problems which it is said to have caused.
106. At point 4 of the email it notes that "prior to installing the Entirety system at Kingsway Hall we only employed 3 reservation agents in order to cope with the work load. As a result of issues experienced with the system one or more agent is constantly required to be dealing with issues caused by the system. As a result of this we have had to recruit a fourth reservation agent".
107. The complaint was that Kingsway had been sold a system which had not been tried and tested and that they would be expected to pay more money in order to achieve a fully working system.
108. Mr Cola ended his email by requesting a meeting. Mr Edwards responded to the email by agreeing to a meeting. In his oral evidence Mr Edwards agreed that only matters of importance with the client would require his involvement as Managing Director.
109. Mr Cola wrote again to Mr Edwards on the 17^th January 2007.He set out a number of specific problems – forecast room rate not matching up with summary availability report; the way group bookings are set up in Entirety, amending check in and check out dates. It went on "This procedure takes far too long and increases the chances of user error and the chances of Entirety freezing; as it does once a day on every users computer. This has inevitably led to our reservations team to not feel confident loading soft or hard allocations into the Entirety system which they use everyday."
110. The letter went on to say that:

"Our team are having to print two hard copies of availability reports to compare as the Entirety system cannot be trusted.

Added to the fact we cannot print any reports for past dates in case of a discrepancy. Reservation reports can not be printed each day which includes all reservations made and walk-ins and same day arrival bookings.

Reports that outline any in-house charges made to a reservation can only be viewed on screen and can not be printed as the booking history of the booking has not been checked in."

111. The email went on: "It is apparent that a lot of our problems are resolved by Red Sky IT doing "rebuilds." Should a programme we rely on so much, not to mention how much we have paid for, need us to maintain it so it works for us."
112. The email also explained the need for better support from Red Sky including "some sort of owners manual which include a step by step guide and is not consisted of Help Sheets and work books."
113. I find that this letter sets out genuine complaints about the use of Entirety at the hotel.
114. In a further document dated the 17^th January 2007 the major problems were identified by Ms Ryan as:

1. Availability of hotel rooms

2. Group Bookings

3. Regular appearance of smaller issues

4. The way of resolving problems on behalf of Red Sky. This appears to refer to a twenty page report setting out various problems.

115. A further letter from Mr Cola to Mr Edwards referred to a number of problems which needed to be considered at the meeting.
116. The meeting took place on Friday 2^nd February 2007. It is clear that both parties regarded the problems as serious. The two chief executives, when they met, agreed that an action plan would be submitted to Kingsway by Red Sky by 7^th February 2007.
117. Red Sky produced the action plan which is dated 5^th February 2007. It was sent by Mr Frost to Mr Chana, Kingsway's Finance Director on the 7^th February 2007. It identified the core issues as follows:

"1.Availability discrepencies caused by the room inventory being oversold in respect of groups.

2. Availability/forecasting discrepancies between the availability reports and the statistical report"

118. The action plan proposed an immediate plan to simplify and eradicate both faults. In relation to the first problem, a button was to be added to the group functions which would allow the operator immediately to jump back to the group master booking history and amend inventory as required. Kingsway say that the button made little difference to a long and tortuous process. Mr Frost agreed in cross examination that this was a temporary fix.
119. The second problem was acknowledged to be a fault. On the 1^st February 2007 a software fix was loaded to eradicate the fault. Mr Benson said in cross examination that it took three months to fix from the time when the problem was first notified.
120. In order to improve confidence at Kingsway, the action plan proposed that a weekly conference call would be scheduled on a Friday at 1.30 pm to review logged faults. A daily check of the availability and statistics reports would be instituted. The sensitivity and importance in eradicating the problems in the availability and statistical reports was acknowledged. With that in mind Red Sky proposed that it would make available its second line support team. Further, a designated Red Sky training consultant would be made available on particular dates.
121. Red Sky urged Kingsway to report all faults to the call centre so that they could be investigated. Kingsway, in practice, regarded this as unrealistic as it would have been disproportionately time consuming if it had been implemented meticulously. As an illustration, Mr Pass when pressed in cross examination about reporting faults said, "I reported lots of things at various times. It was quicker just to turn the computer off than to call someone to tell me to do that ".
122. Finally the action report proposed there should be a further review meeting on either the 19^th or 26^th February 2007 to review all areas set out in this document and to review progress.
123. Mr Chana, Kingsway's Finance Director, responded on the 8^th February 2007 that," there needed to be a time scale and also what would happen after that" Mr Sepahi was designated as the main point of contact in making sure that problems were addressed. Ms Melinda Ryan was to be the point of contact at the hotel for persons using the system. Mr Chana ended his email by emphasising "we need more of an action plan with times and dates." It is clear that as far as Kingsway was concerned, the problems were well known to Red Sky. Kingsway was waiting to see if they could be put right.
124. At the meeting on 9^th February 2007, Mr Frost said that the booking history button was to be delivered towards the end of the following week subject to testing. The fix for the availability/forecasting discrepancies having been loaded on 1^st February 2007, the note says that no further problems had been recorded.
125. Mr Frost discussed with Ms Ryan the twice daily check of statistical material and was told that since the exercise had been carried out on 6^th February 2007, no further discrepancies had been identified.
126. The meeting notes went through items in a business like way including the issues set out in the letter dated 17^th January 2007 to Mr Edwards. The calls to Red Sky's help line during the week were reviewed. There was a problem with configuration relating to VAT which was rectified.
127. On the 12^th February 2007 Mr Frost responded in part to Mr Chana's call for an action plan. He noted that the date of the 30^th March 2007 allowed time to monitor the performance of the fixes/enhancements as well to gauge the general use/operation of the system. He did not address the question of what would happen after 30^th March 2007.
128. Mr Chana, in his immediate response, raised the question of what should happen if the problems were not fixed.
129. Mr Bailey wrote to Mr Edwards on the 13^th February 2007. The purpose of the letter was to register dissatisfaction with the process that was being undertaken. The letter claimed that it had been agreed that one member of Kingsway's senior management would be the sole point of contact but although nominated by Kingsway, Mr Pearse, the hotel General Manager had not been involved by Red Sky in the monitoring process nor was he told about the conference call that had taken place on the 9^th February 2007.
130. Mr Edwards responded by refuting the complaint and saying that substantial efforts had been made by Red Sky in resolving the problems and that considerable progress had been made. On the 15^th February 2007 Ms Coll attended Kingsway Hall to arrange training. In an email on that day Mr Frost asked Mr Chana for Kingsway's input.
131. The second conference call was on 16^th February 2007. Mr Pearse was involved. The booking history button was still to be installed. This was done on 27^th February 2007. The fix was said by Red Sky to deal with combined availability/forecasting discrepancies. Kingsway employees said it was largely ineffective and that they continued to work around the problem. The twice daily check of availability and statistical reports was successful as a work around in eliminating problems of availability. Four calls to the help line were logged during the week to the 16^th February 2007. None, in Red Sky's view, was the fault of Entirety. Three new points were raised.
132. The meeting notes for the 23^rd February 2007 dealt with training Kingsway staff. It was agreed that Ms Coll would provide a training plan which would be completed by 30^th March 2007.
133. At the meeting reference was made to two call logs, 212450 relating to the training system, and 212664, carried forward from the previous week, relating to a discrepancy of availability against the room occupancy report. When Mr Sykes was cross examined about this he said that the problem was a bad design fault in Entirety. I accept this.
134. At this conference call Mr Sepahi raised the question of whether Red Sky had a user manual for Entirety. Mr Frost said that the preferred method of help was user/operator guides detailing usage/functions within the system. He said that Kingsway Hall had all the operator guides provided by Red Sky.
135. Also on 23^rd February 2007 Ms Ryan or Ms Hoare of Kingsway raised an important problem in relation to what is described as the "Auto Accommodation Post Option. At Kingsway Hall the staff would post additional charges correctly at midday on any day. For any guest who departed after midday the report would say "no current booking line" and no charges would have been made for these departing guests.
136. Ms Palmer the Release and QA Co-ordinator of Red Sky, advised that any guests checking out after midday should be checked out manually. This was a potentially awkward problem in a busy hotel. It was a problem that Kingsway, no doubt, assumed that Entirety would avoid.
137. On 28^th February 2007, Mr Bailey, as Director of Operations wrote a further letter of formal complaint this time in relation to the sister hotel Kensington Close. The letter ended with the threat that if he felt that he needed to write again in the same vein, he would communicate through his solicitors. The letter ended with a reference to a deadline of the end of March having been agreed between Mr Cola and Red Sky. The letter does not make it clear whether this related only to problems at Kensington Close.
138. The history of Kensington Close is not before me. It seems that, whether justified or not, the level of frustration felt by those responsible for both hotels was communicated to Red Sky and it must have been well aware of it.
139. There was a further conference call on the 2nd March 2007. The button had been loaded. Kingsway staff was not impressed with the result. The note reads as follows:

"Update 02/03/07 loaded new functionality however MR (Ms Ryan) feedback is that does not provide much more efficiency in group reservation/check-in process. The functionality has been delivered as to the specification detailed within the action plan of 05/02/07 and as per the first conference call and as per the functional document provided by Red Sky. MR stated that she had thought they were receiving some sort of re-fresh button. SF (Mr Frost) stated that Red Sky would further assess if a re-fresh option could be provided within groups from check in pages etc "Ms Palmer and Ms Grimes of Red Sky, (neither of whom was involved in the conference call) were to assess.

140. Ms Leonard gave evidence, which I accept, to this effect:

"If it saved any steps it would save maybe the one step of searching for the group master by entering the first couple of letters of the group. But I never used the button after I was shown what it did. It did not make any difference – any difference to me at all. There was no point in using it when it did not save any time." She said that she still had 14 further steps to amend a room type as part of a group booking check in.

141. With regard to the twice daily check of availability, two anomalies were noted. Log 212664 had availability correct but statistics were out by one room. Availability and statistics anomalies were discovered in a check in on 2^nd March 2007. A thorough investigation was to be conducted.
142. Three call logs were referred to in the meeting note. They did not refer to the fault by K214594 specifically but it was one of the matters referred to in relation to the check on the 2^nd March 2007.
143. During the call there was also further discussion about operator manuals. Mr Sepahi requested manuals. Mr Frost again said that they provided help documents. Mr Sepahi also requested an index for operators so that they could search for a function within Entirety. Mr Storey of Red Sky explained that the option was available and how it could be achieved.
144. Also on 2^nd March 2007 a meeting took place between representatives of Kingsway Hall, and from Red Sky, Mr Frost, Mr Storey (involved in the conference call) and Ms Palmer. After the meeting, Mr Bailey spoke to Mr Frost. He then wrote another letter to Mr Edwards also dated 2^nd March 2007 expressing dissatisfaction with the progress which had been made. The letter was copied to Kingsway's solicitors. The letter looked at the bigger picture and demonstrated the wider issues between the parties.
145. Mr Frost had clearly adopted a firmer tone at the meeting on behalf of Red Sky. He said that "complete satisfaction "was not part of the original software package or offer and could not be delivered in relation to issues relating to availability of rooms or statistical information. In the course of the conversation Mr Frost appears to have said that some functionalities were identical to those contained in Innsite which was the previous system that Kingsway had bought. Mr Frost said that he could not give a date on which the group booking issue could be resolved and that a new fix was in the hands of the developers.
146. The question of dealing with "group master" issues was raised. Mr Bailey told Mr Edwards in the letter that:

"The way the system works now was being benchmarked against older systems." He went on to say that "Simon [Frost] did indeed make reference to the fact that you are currently going through the same exercise with other hotels". In his oral evidence Mr Frost said that this was a misinterpretation of what he had said but agreed that Mr Bailey's impression had not been corrected.

147. Mr Bailey said that in the letter the most frequent fix relating to call logs for the previous week was to "reboot" or "turn off" the work station and then turn it on again. He also complained about problems with printing from work stations. Mr Bailey complained that when the process started there were eleven logged/documented issues and now there were eighteen.
148. I have seen no response to this letter from Mr Edwards. He can have been left in no doubt as to the extent of the continuing dissatisfaction being expressed on the part of Kingsway. It should be noted that this letter relates to the extent of functionality which Entirety provided. The point is made on behalf of Red Sky that many of Kingsway's complaints related to functionality which was not in the original software.
149. The minutes of the telephone conference on the 9^th March 2007 were sent to Kingsway immediately after the conference call had finished. There was no further progress in relation to Kingsway's complaint as to the ineffectiveness of the booking history button. Equally no progress was made on the availability and statistical anomalies raised on the 2^nd March 2007.
150. The note of the 16^th March 2007 telephone conference indicated that Red Sky's development team had assessed further, the possibility of providing a re-fresh option within the process of group check-in, to alter and amend the room types and classes booked within a group, which, when applied, would automatically re-fresh the groups booked on the reservation group master and they had concluded that it was not viable to include this functionality in the current programme. The next phase of group developments within Entirety was being developed. These would enhance the group booking process and allow operators to change the allocation of rooms in a number of areas " which will suit customer needs more closely." Red Sky (Ms Grimes) said that the new functionality would be available for release in September/October 2007 depending successful testing.
151. Six calls from Kingsway were logged at the Red Sky help desk over the week 3-7 March 2007. Some of these were queries.
152. In relation to the question concerning the availability of Red Sky manuals, Kingsway requested that all "help" documents should be sent to Kingsway for review. Mr Frost agreed to do this.
153. Problems had previously been raised concerning email confirmations which were sent but not copied into the relevant box. Red Sky said that they would consider this.
154. Also, credit card numbers were included in the guest history at the time of booking but would not transfer to the reservation. It was reported that current functionality did not permit this to happen. The credit cards numbers were not stored in the guest history records. Red Sky said that this was a matter for future development.
155. At item 13 Mr Sepahi raised the issue of screen freezing. This is major issue in this litigation. The note reads as follows:

"13. AS (Mr Sepahi) stated that screens were freezing. NH (Ms Howard) replied that if a screen freezes in Entirety, this is written into the system logs. NH agreed to review error logs to determine if these errors had been written. NH also requested that if a screen freezes in Entirety, that a call is logged."

156. On 23^rd March 2007, in an update, Red Sky said that no errors were written into Entirety logs resulting in screen freezing failures. Ms Howard re-emphasised that screen freezing should be logged with the Red Sky help desk.
157. The note of the conference call on 23^rd March 2007 added, in relation to the proposed re-fresh option, that Ms Grimes would attend Kingsway Hall on 29^th March 2007 to meet and talk through the planned enhancements to group functionality with key operational persons at Kingsway.
158. Five new calls to Red Sky's help line were logged between 16^th March 2007 and 23^rd March 2007. With regard to Entirety help documents, Ms Coll would hand over all Entirety help documents when she was conducting training on site.
159. On 9^th March 2007 in call log 214897 Kingsway had raised a query on amending a linked booking where the existing rate code does not exist. This was identified as another development function request. It was noted on 23^rd March 2007 that the developmental work needed to be included within new releases for development.
160. Among further points raised at the meeting on 23 March 2007, Ms Leonard had noted that some bookings had lost details (ref 18903 and 19598).These were being looked into.
161. Finally it was noted that the release of a new version of Entirety, V 2.3, upgraded from the current 2.2 versions was likely to be released in the next 2-4 weeks.
162. The training on 23^rd March 2007 referred to a new procedure which Red Sky had put in place. Red Sky reported that those on the front desk would update all the information on check in and then print the registration card. They would require the functionality to print a registration card on arrival with express check in. It was clear that currently Kingsway did not have this. The note indicated a substantial set of documents which had been provided on site.
163. The note said that the writer, probably Ms Johnston, had set up help-sheets throughout the programme which coincided with Kingsway hotel procedures. These were itemised as;

Banking procedure

Groups with Billing Instructions

Adding availability to a Master Guest check in

Rate check procedure

164. In a note of the 30^th March 2007 Ms Johnston said that the documentation had been given to the site on disc (2 copies) and a folder had been put together with all the listed documents.
165. On the 28^th March 2007 Mr Bailey wrote again to Mr Edwards to complain that at 6pm on 27^th March 2007, a critically busy time for check-in at the hotel, Red Sky informed the Kingsway Hall switchboard that they were shutting down the Entirety system for a re-boot. Senior management at Kingsway Hall was not consulted in advance.
166. Mr Bailey said in his letter that Red Sky's system was taking up a great deal of the hotel management time and it was clear that Red Sky was unable to provide a stable system with the expected support to match. "I will certainly not be signing off on the system on the end of this month." He ended the letter by saying "I believe it would be prudent that when we meet next week an exit strategy with a full refund of costs incurred through the installation and maintenance of the system is the only topic on the agenda."
167. I can find no direct response to the letter. Mr Frost emailed Mr Pearse on 28^th March 2007 to say that any future request to shut down the Red Sky core system should be directed to the hotel management team or the IT team for Cola hotels. The email did not contain an apology for shutting down the system and it is clear from Mr Bailey's letter that this exacerbated still further, poor relations between the parties at senior level.
168. The final conference call took place on the 30^th March 2007. It was noted that Ms Grimes had met Kingsway employees on the previous day to discuss enhancements to group reservations. Six further incidents had been logged to the Red Sky help line. The first involved three separate episodes on the same day, on the 24^th March 2007, numbers 216933, 216945 and 216952.
169. The note confirmed that the documents already identified, had been handed over to Kingsway. The queries in relation to email and credit card numbers would need to be solved by further software development. In relation to screen freezing, no further problems had been reported. The allegations that some bookings had lost details – numbers 18903 and 19598 were still under investigation. Finally Version 2.3 release notes had been sent and Kingsway would be notified when it became available.
170. There is then a gap in the correspondence until a solicitors letter dated 20 April 2007 was sent to Mr Edwards by Shoosmiths, solicitors, on behalf of Cola Holdings.
171. The letter said that:

"There have been problems with the software almost from the moment it was installed in late October/early November 2006 which have never been satisfactorily resolved by you." The letter went on to say that those problems rendered the software as unfit for the purpose and that Kingsway was entitled to reject the software and to seek repayment of the monies to date as well to claim damages for the loss which Kingsway had suffered.

172. The general claim in the letter was that although Red Sky had represented that Entirety was an improvement on the Innsite system, which Red Skys' predecessor firm had installed, it was considerably less adequate.
173. The letter raised four main heads of complaint:

a. An inability to handle group bookings which had to be dealt with manually;

b. The system could not produce accurate availability reports showing the level of room occupancy at a particular time with the result that the system showed the hotel as full when it was not.

c. It was impossible to monitor changes to bookings

d. The system frequently froze and/or crashed so that it needed regularly to be re-booted.

174. In relations to losses, the letter claims that the disruption to Kingsway's business had resulted in the hotel having to take on extra staff and that rooms which could have been let had not been let because of the failing of Entirety. The claim was estimated at £50,000 - £60,000 for losses caused by having to take on extra reservations staff but the solicitors said that the damages were in the process of being calculated. The letter ended by asking Red Sky for its proposals.
175. No response was received to this letter. Shoosmiths wrote again on the 21^st May 2007 saying that problems had persisted since their previous letter. They said that there had been no improvement and that Kingsway had no alternative but to look for a replacement system. They said that Kingsway also had no alternative but to continue to use Entirety until an alternative system could be found. There was again no reply to this letter.
176. On 5^th October 2007, Shoosmiths wrote again to Mr Edwards to say that it had taken Kingsway rather longer than it expected to arrange for a new system to be installed but it had now done so. The letter went on to say that since that it had now been able to replace Entirety, it was now able to exercise its right of rejection.
177. The letter claimed as losses: The sum of £24,999.50 plus vat in respect of the cost of the system plus £2,225 plus vat in respect of support fees. It also claimed damages for business disruption. With regard to staffing, it said, echoing Mr Cola's earlier letter, "Our client also had to engage the services of an additional reservations clerk because of the time it was taking to book people in. The salary cost of doing so was £20,000.
178. On the evidence so far, I make the following finding of facts.

a. Entirety was not a bespoke system but was recommended by Red Sky employee Ms Coogan to Kingsway as being suitable to the hotel's needs and an improvement on its existing system. Kingsway relied on this recommendation when choosing Entirety.

b. The demonstrations of the system were intended to persuade Kingsway that the system that Red Sky was offering was a more up to date and improved booking system than the one which Kingsway was currently using. Red Sky at the time of the demonstrations was well aware that it was attempting to sell Entirety to a busy hotel in the middle of London.

c. The demonstrations showed the benefits of Entirety. They did not show the potential problems or limitations and how to deal with them.

d. The demonstration at the East India Club may have been helpful in general but the pressure on pre-bookings and, in particular, on booking in clients at busy times in a London Club, was not comparable to that at Kingsway Hall, a busy four star hotel in the centre of London.

e. Group bookings were an important part of Kingsway's business as Red Sky knew.

f. The complaints made by Melinda Ryan on the 7^th November 2006 were detailed and fundamental complaints about the system. I find that none of the complaints had shown up in any of Red Sky's demonstrations. The problems included screen freezing.

g. Within a month of its installation, Kingsway lost faith in Entirety. This was implicit in Ms Leonard's approach to using Entirety and was confirmed by Mr Benson's evidence. It was also essential for Kingsway to work around Entirety problems at business times. To do otherwise would have caused more delay and more annoyance to clients.

h. As far as the factual evidence is concerned, it was clear that the problems related to fundamental problems with Entirety rather than to a failure which was caused by lack of training of Kingsway's employees in operating the system.

i. Minor improvements to the 2.2 version to Entirety were made in the early months of 2007 but they did not materially affect the fundamental complaints made by Kingsway. The enhanced version of Entirety 2.3 which was then being developed might have made a significant difference.

j. I was told that there were differing versions of Entirety 2.2. It was never clear to me which version was installed at Kingsway Hall. (see Para 186 below)

k. Kingsway did not accept Entirety, but gave Red Sky until 31 March 2007 to put Entirety into a state that was acceptable and responsive to its needs.

The Expert Evidence

179. The purpose of the expert evidence was to investigate the specific complaints relating to Entirety to see to what extent they were supported by the evidence, to consider their effect and to assist me in deciding what level of functionality could reasonably have been expected in 2006 in a system supplied to Kingsway, not as a bespoke system, but as a recommended package. Clearly if I had found that Kingsway relied on Mr Benson in deciding whether or not to purchase Entirety, this question would not have arisen.
180. The experts also assisted in relation to whether or not Red Sky provided appropriate manuals to enable Kingsway to understand how the processes were to be performed. Mr Sykes was clear in his evidence that Kingsway employees should have been provided with operating manuals which would have shown on a step by step basis how to amend group bookings. In cross examination Mr Smith agreed and said that he had not seen any such documents in the materials supplied to him.
181. Mr Smith's general approach seemed to come closer to that of Mr Sykes in his oral evidence. However he said that when Kingsway were looking for its new systems, he "would imagine there were at least four companies banging on Kingsway's door" and that Kingsway "should be able to rely on what the sales people said. I have no evidence that this was the case. He went on to say that, whether Entirety was the most appropriate system for them is a business decision for the hotel." Mr Smith said that in his opinion the Entirety system had the required functionality but appeared somewhat dated in 2006 in terms of usability.
182. Mr Sykes goes much further than this and concludes that Entirety was not suitable for the purpose for which it was being sold to Kingsway.
183. The experts' investigation of the suitability of Entirety was hampered by Red Sky's attitude to disclosure of relevant documents. It is right to say that while Red Sky was under a primary obligation to provide prompt disclosure of relevant documents, Kingsway did not on every occasion attempt to force Red Sky to provide specific disclosure. However it did so on a number of occasions and I find that Red Sky was being obstructive in relation to disclosure issues.
184. On 30^th September 2008 and again in the joint statement dated the 17^th December 2008 and yet again in his first expert's report dated 20^th February 2009, Mr Sykes requested a version history of Entirety. This would have set out the changes that were made to each new version of the software and the faults which the new version seeks to address. This was clearly relevant in this case since such information might well have made clearer what faults existed in Version 2.2 which Version 2.3 sought to address. No disclosure has been made of these documents.
185. Bugzilla Reports (BR), which were disclosed extremely late, provided a substantial part of the history of all changes that were made.
186. The problem did not rest there because in her oral evidence Ms Howard said she was aware of at least three different versions of Entirety 2.2. This may well account for the fact, that, as I have already found, Stacey Leonard did not see various screen images which were found in Entirety, perhaps in other versions. The Version history might have made clear which version of 2.2 was in fact supplied to Kingsway.
187. Mr Sykes asked for copies of help desk logs. I made an order dated the 31^st July 2009 that they were to be provided. Only heavily redacted logs were disclosed on the 14^th August 2009. On the 3^rd November 2009 Mr Sykes was provided with "complete copies" of the fault logs. These were still incomplete and inadequate. Finally on the 20^th November 2009, with the first day of the trial on 1^st December 2009, FSR listing reports providing further information were disclosed. Mr Sykes still found that the logs were incomplete.
188. Mr Sykes also asked for a copy of the bug list. Red Sky denied that one existed. Following service of the first version of the fault logs in August 2009 it became clear that bug lists did exist. On the 30^th October 2009 I ordered Red Sky to disclose all copies of the bug list. Finally on the 16^th November 2009 Red Sky served copies of an incomplete and redacted set of Bugzilla Reports or bug lists for the bugs in Version 2.2 of Entirety. They were being analysed at the start of the trial. They should, of course, have been disclosed many months before.
189. In the cross examination of Ms Howard, it emerged that Red Sky did keep a comprehensive bug list through the Bugzilla Reports and that it would have been a simple, mechanical exercise to print off the Reports. In this respect, it is clear that Red Sky failed to comply with the Court Order of 30^th October 2009. Mr Sykes is concerned that complete records which should have been disclosed at the relevant time have since been lost or destroyed. This is a reasonable concern.
190. Kingsway contends that not only its preparation of the case been hampered but that it has not been possible to present to the court a full and clear account of all the problems experienced at the hotel. I am asked to draw the following conclusions from the late and incomplete disclosure:

1. Generally, that Kingsway should not be prejudiced by Red Sky's late and incomplete disclosure or from the loss or destruction of documents.

2. Screen and/or system freezing was a known and widespread problem within Version 2.2 of Entirety and was known and reported before Entirety was supplied to Kingsway.

3. Screen freezing and/or system freezing was indicative of a significant bug or error in Entirety connected with errors associated with Groups and Folios.

4. There were actual defects in Version 2.2 which were known to and recorded by Red Sky which would only be addressed in Version 2.3K.

5. Version 2.2 contained thirteen critical bugs and six major bugs relating to availability, freezing, groups and folios which were only addressed in version 2.3K.

191. Mr Marshall, in his closing submission for Red Sky, made the limited concession that " Mr Sykes task was more difficult because he had less time than he would have liked" He said that if Mr Sykes had had more time there is no suggestion that he would have achieved a different result. In my view the consequences go far beyond this. I am satisfied that Red Sky failed to disclose some relevant documents at all and disclosed others too late to enable a clear picture to be put before the court.
192. I am satisfied that if the documents to which I have referred had been produced at an appropriate time in the course of disclosure, this would not only have saved time and costs but would have enabled me to be presented with a much clearer picture. Having said this it is clear that I should draw my conclusions not solely on the basis of inadequate disclosure but on the basis of all the evidence. However I must take great care to ensure that Kingsway is not prejudiced by Red Sky's defaults in disclosure.

The Particular Allegations

193. The issues are summarised in the experts' joint statement. I shall refer to each in turn and then make further findings based on the evidence and the experts' opinions. There is now no separate issue in relation to Items 3,4,6,7,8,9,10,14,18,23,24 and 26 of the Schedule.

1. Amending Group Bookings

194. The agreed description of the complaint is that unless check-in staff exit the check in software and access the group master software when adding additional room types or upgrading, the system is unable to keep track of room availability and reports become inaccurate and misleading. The effect on booking at Kingsway Hall is said to be that incorrect reporting of the availability of rooms caused lost revenue if too few rooms were reported thereby excluding the possibility that the unknown surplus of rooms could be sold. If it resulted in additional overbooking the consequence was discontent among disappointed customers who would be reluctant to book in to the hotel in the future. I put it in this way because I accept that hotels have to overbook to a limited extent because some customers fail to take up their bookings without any notification to the hotel.
195. The procedure alleged to be advised by Red Sky to deal with the problem is to exit the check in software and load up the group master software. Going through this process while checking in a guest is said by Kingsway employees to be impracticable and unworkable at a busy check in time and is unacceptably slow and unwieldy.
196. Red Sky agrees that "in order to maintain the group availability, if a room type different to that reserved on the group is required at check in, the user must first amend the group booking. This is done via a different option in the same application."
197. The experts have reached a considerable measure of agreement. They agree that the description of the defect, as set out by the Claimant, is accurate. They also agree that if the recommended sequence of steps is followed whereby the Group Master is amended during check-in or the reservations process, then the correct availability would be shown.
198. The experts also agree that if the sequence of steps was not followed the system becomes corrupted in an unpredictable way and that this would lead to errors in showing availability.
199. There is also a problem, disputed by Red Sky, that the software is not written so as to prevent the user from operating the system incorrectly by warning the operator that there is an "availability restriction" with a detailed warning in the body of the message "allocation over sold ." or "no availability exists." Mr Smith said that the system was not defective. It had to be operated in the way in which it was designed to be effective. He made two additional points. First (and this, as a matter of fact, is contentious) that a warning message was given. Secondly the system did not permit operators, without the appropriate security level to check guests into the hotel.
200. Mr Sykes said that the system did not prevent the user from operating the system correctly and the consequences were that availability and group availability became corrupted. "In my opinion the system should have been designed to prevent this and is therefore not suitable for use as a commercial PMS software system." "The combination of these inadequate measures, the necessity to enter data in multiple locations and the corrupting effects when data was not entered into the prescribed place together with the inability of the software to take account of these factors when reporting on availability constituted a technical defect in my opinion." In relation to the issue of whether a warning was or was not given, I accept the evidence of Ms Leonard that on the version of Entirety which was supplied to Kingsway, this warning message was not in fact given.
201. I am satisfied that the consequence was that incorrectly reported room availability caused lost revenue if too few rooms were reported and discontented/lost customers if too many rooms were reported. The procedure which was to be followed to exit the check-in software and load up the group master software when checking in guests was unworkable at a busy check-in since it was unacceptably slow and unwieldy for customers and staff. I also accept Mr Sykes' opinion that this constituted a defect which rendered the system as unsuitable for use as a commercial PMS system.

2. Room Availability Discrepancy

202. If there are rooms in a group booking with no names attached and the room release function is used and then extra allocation is added, the number of rooms and the total availability of rooms in the hotel are incorrectly calculated.
203. Kingsway contends, again, that incorrectly reported room availability causes either lost revenue, if too few rooms are reported, or over booking and discontent leading to lost future customers, if too many rooms are reported showing the hotel as being full, when rooms were in fact available. I am satisfied that this was a problem which caused significant loss to Kingsway.
204. The experts agree that there was an initial defect in the software. Red Sky says that the problem was recognised as a bug in Bugzilla Report 28150 dated the 17^th January 2007 and was fixed on 1^st February 2007. Kingsway says that problems continued to occur as a result of errors in availability. Mr Benson's evidence was that the problem was notified to Red Sky almost as soon as Entirety was installed, certainly by 7^th November 2006, but no action was taken until after the letter dated the 17^th January 2007.

205 On the afternoon of Day 8 of the hearings Mr Sykes was taken in cross examination to logs 231417 and 233421 which were recorded as a consequence of two calls to the Red Sky help line in July 2007. The allegation was that there continued to be problems which had not been fixed in February 2007. Mr Sykes made the point that the data base may be corrupted in an unpredictable way and that problems may be interrelated. This may be the case in relation to Items 1 and 5(see Para 222 below). I find that there were problems relating to room availability which persisted after February 2007 and were not the result of operator error.

206 Commenting at page 8 of the joint statement, Mr Smith says that it is usual in his experience for software of this type in the hospitality industry to contain bugs and undocumented features and for these, when identified, to be fixed at the specific hotel and for the fixes to be made available to all customers within the next general release.

205. Mr Sykes does not accept as a general statement that bugs are inevitable in all software systems. He emphasises that a PMS system, by design, is expected to report on a hotel and its rooms/availability etc. Errors that affect these basic functions and cause the software to misreport the availability/revenue/room type can not and should not be tolerated.
206. I prefer Mr Sykes' evidence on this. This was a standard system which was being marketed as such. This is quite different to a customised system which is being developed for the customer, the circumstances with which Mr Smith is clearly very familiar. This is a fundamental defect for a busy four star hotel like Kingsway Hall.

11. Screen Freezing

207. The original complaint is that the Entirety software frequently froze, rendering the system or aspects of the system inoperable. This could not be rectified except by action from the Red Sky help desk staff causing lengthy delays and inability to process particular functions. This resulted in missed bookings or bookings taken by hand and then entered on the system afterwards once the system was unfrozen. There was a further complaint that screen freezing occurred regularly but could be rectified by the Kingsway operator switching off the computer and re-booting the work station by "Control Alt Delete."

210 In his oral evidence Mr Benson said that screen freezing happened each day. Mr Cola's letter to Mr Edwards dated 17 January 2007 was explicit. In relation to amending Group check-in he said, " This procedure takes far too long and increases the chance of user error, and the chances of Entirety freezing, as it does once a day on every user's computer. It is clear that Kingsway regarded it as a consequence of the specific problems which it was experiencing.

208. In addition to the screen freezing there was evidence of screen crashing. Kingsway logged 9 separate occasions between November 2006 and July 2007.
209. The Kingsway log gives numerous examples of screen freezing. It is not suggested that the log is not genuine and I take it into account.
210. Red Sky questions whether if frequent screen freezing did occur, it was caused by Entirety. It says that there was little mention of it in the correspondence and that there were few references to the help desk.
211. The experts agree that there were elements of Kingsway's hardware which were not the responsibility of Red Sky. The experts define screen freezing as a generic expression which was somewhat loosely used in the fault logs to describe, among other things, being unable to log in to Entirety, being unable to access a screen when using Entirety and the functions of a screen suddenly ceasing to operate within Entirety. The experts agreed that the expression "system crash" or "system down" or similar expressions typically are used to describe server related issues affecting all the screens which are not necessarily Entirety related.
212. The experts noted the claim of Kingsway witnesses that there were unacceptable levels of screen freezing and that there was some evidence that it was occurring at other sites. Mr Sykes said that he had personally experienced screen freezing when running the Entirety software.
213. Mr Sykes said at point 5 of the Experts schedule of disagreement:

"I have seen numerous Bugzilla Reports, the A3 spreadsheets and various logs, all relating to freezing, which seem to indicate that freezing was an issue in V2.2, (the version supplied to Kingsway) and may have been cured in V 2.3." He said that he was not provided with the opportunity to run and inspect a representative system using Entirety software which would have enabled him to be "absolutely sure" of the inherent cause of freezing within the Entirety software.

214. However he concluded, (point 6) "My role as an expert is to look at all the technical evidence and to weigh this up and my only logical conclusion is that freezing was caused by inherent defects in Entirety."
215. Mr Smith challenges the basis of the complaint on the grounds that the first report in the Red Sky help desk logs was nearly three months after the system was installed. If it had been a real problem, he would have expected diagnostic work to be undertaken to find out whether if screen freezing did occur frequently, it was caused by Entirety or some other cause. The arrangement to re-boot the system was operationally expedient for the hotel. It did not enable the problem to be identified and resolved. Mr Smith felt that this was an unsatisfactory situation which should have received more attention from both parties. He was surprised that if it was a serious problem it was mentioned so infrequently, particularly in the seven week monitoring period ending on 31^st March 2007.
216. In cross examination he conceded that, whatever the cause of the screen freezing, the effect was to leave Kingsway with a PMS system which "was not satisfactory as at 2006"
217. I am satisfied on the evidence that screen freezing did take place to an unacceptable extent. I accept the evidence of Kingsway witnesses that it was a frequent problem which had to be worked around by re-booting the system. I am not surprised in view of the loss of confidence which had occurred long before February 2007, and the response to Mr Cola's letter dated 17 January 2007, that it was mentioned so infrequently during the seven week monitoring period ending on 31^st March 2007.
218. I conclude that screen freezing occurred frequently, was caused to an unacceptable extent by Entirety and that this was a fundamental defect in Entirety.

5. Check in of group bookings was unwieldly and prone to error

219. The group booking system was such that adjustment of the reservation details of any guest booked under a group booking required an adjustment of that guest's reservation and then a further adjustment of the group master reservation by means of a lengthy sequence of discrete steps.
220. The alleged effect on the hotel was that the process was too unwieldly to be practical at a busy check in desk. The system allowed the user to perform only the adjustment to the guest details but then the room availability would be in error with no means of correction. Red Sky acknowledged that there was a problem and offered to provide a "booking history button" which was installed between the 27^th February 2007 and 2^nd March 2007. Kingsway said that it did not provide much more efficiency and did not provide a refresh function. Red Sky said that this improvement was not possible until new software was written and tested. If all went well it would be due for release in September/October 2007.
221. In his second witness statement Mr Herrmann attempted to calculate how frequently such amendments took place. Over a six month period 61 groups stayed at the hotel. By a process of mathematics Red Sky seeks to argue that this equates to two changes a day on average. This would equate to between 2 and10 minutes a day. It is argued that this was an irritant but did not amount to a breach of contract.
222. The experts are agreed that there were a number of steps which were not user friendly. Mr Sykes concludes that the system, as supplied, was not workable on a busy front desk in a central London four star hotel. He said that the Group Booking facility was unsuitable for use in that form at the time. The problems were caused by actual defects and by the software's lack of controls within its design that allowed the operator to amend the customer's details without making a further adjustment in a different part of the software. Mr Smith concluded that a PMS by design should be expected to produce such reports.
223. Mr Smith said that Kingsway was not a particularly heavy user of group bookings. It accounted for 7% -11% of its business. Staff training was offered by Red Sky and if the operators were trained to use the system correctly, and did so, the system was suitable for use.
224. I prefer Mr Sykes' evidence which is supported by Kingsway's witnesses. I do not accept Red Skys' attempt at a mathematical calculation to minimise the impact of the problem on Kingsway. I am satisfied that at times it caused serious delays to Kingsway's business.
225. I find that this was an important part of the system, and that it must have been clear to Red Sky, when they recommended that Kingsway should purchase Entirety from them, and that the system Group Booking amendment system. I find that it was so unsatisfactory as to amount to a fundamental defect in the system sold to Kingsway.

Other Problems

226. I should add that I accept the following:

a) The production of accurate yield management reports was a standard PMS function.

b) Folio errors occur following a system crash because the data in the system becomes lost or damaged. The replacement system uses Sage software (rather than Aztec) which prevents the loss of data which has previously been entered.

c) Entirety failed to provide a proper audit trail. This was important for a busy London hotel.

d) I also accept the evidence of Ms Leonard, Mr Sepahi and Mr Pass, that no proper manuals were provided - see in particular the evidence of Mr Sepahi, and the history which I have already set out.

e) I also accept that the training provided by Red Sky in September/October 2006 did not address amending group bookings-see the evidence of Ms Leonard. Further, I accept that the people who Red Sky recommended should attend training did so–see again the evidence of Ms Leonard. In any event I have concluded that training issues were not in any way decisive in relation to the matters that I have to decide.

Contractual Issues

227. The documents recording or evidencing the contract (in the absence of Kingsway's proposed amendment which I have not allowed) are as follows:

a) Kingsway's purchase order dated the 13^th July 2006.

b) The proposal document, including the provision that the contract is subject to Red Sky's standard conditions.

c). Contract number 11062 signed by Mr Benson and Mr Edwards.

d) Red Skys' standard terms and conditions.

228. The standard terms and conditions can be summarised as follows:

a) Under clause 2 Red Sky was required to sell the equipment and licence the computer system, provide (if any) the operating documents (paragraph 2.1.5) and provide the services set out in Schedule C (including training) and provide maintenance and support cover.

b) Clause 10.1 excluded all terms as to performance, quality, fitness for purpose etc except as provided in clause 10.2.

c) Clause 10.2 contained an express warranty that "the programmes will in all material respects provide the facilities and functions set out in the Operating Documents.

d) Operating Documents were defined in clause 1.1.6 to include "any operating documents supplied by the defendant to the claimant."

e) Clause 10.4 provided that the sole remedy for breach of the warranty in clause 10.2 was the Maintenance and Support Cover. The Maintenance and Support Cover was defined by clauses 1.1.4 by the Schedules in the four page signed document, by clause 13 and by clause 28 which set out the hours during which support would be provided and also the response times which could be expected from Red Sky.

f) Clause 10.7 provided that clause 10, together with clause 18 stated the entire liability of the defendant in respect of any fault or error in the IT system.

g) Clause 18 contained limitations and exclusions of liability as follows:

i) Clause 18.3.2 excluded liability for any indirect or consequential loss. The term expressly excluded loss of profits and similar losses

ii) Clause 18.3.3 limited liability for direct loss to four times "Total Price". By clause 1.1.26 the "Total Price" was £18,250 before discount. A net discount of £1,800 was applied to the contract price for the package. Applying the discount pro-rata to the services gives a figure of £17,615.82. The cap on recovery of damages in this case would therefore be £70,463. These figures are agreed by the parties solely as figures.

h) Clause 23 was an entire agreement clause and clause 26 provided for English law and jurisdiction.

229. Red Sky contends that clause 10.1 excluded all terms relating to performance, quality, fitness for purpose etc: "to the fullest extent permitted by law." Therefore the implied terms on which Kingsway relies are incompatible with the express terms of the contract.
230. In its final submission Red Sky suggests that under the definition in clause 1.1.16, operating documents would include instruction manuals and similar documents setting out how the software was intended to operate.
231. Red Sky claims that clause 10.4 provides the sole remedy for breach of warranty. The support cover to be provided was defined by clauses 1.14, by the schedules contained in the four page signed documents, by clause 13 and by clause 28. This provides a very high level of support from 7 am to 11 pm each day of the year with an estimated response time of four hours.
232. Red Sky emphasises that clause 10.7 should be read with clause 18 and provides the further exclusions as follows:

a. Clause 18.3.2 excluded liability for any indirect consequential loss which expressly excluded loss of profits and similar losses.

b. Clause 18.3.3 limited liability for direct losses to the sum of £70,463

233. While Red Sky accepts that Section 3 of the Unfair Contract Terms Act 1977 (UCTA) applies, it contends that the test of reasonableness is satisfied.
234. Section 11(1) of the UCTA provides:

"The term shall have been a reasonable one to be included having regard to the circumstances which were or ought reasonably to have been known to or in the contemplation of the parties when the contract was made." The Guidelines in Schedule 2 are helpful guidelines.

235. Red Sky claims:

a) That the parties were of equal bargaining power relative to each other. There were over thirty property management systems competing in this highly competitive market.

b) The customer received a significant inducement to agree to the terms in that a significant discount was given and concessions were made on payment terms despite the fact that the contract price was very modest.

c) There was a long course of dealing between the parties so that Kingsway ought to have become aware of the existence of and extent of the terms. Clause 18.3 contained a prominent warning.

d) This was not bespoke software but it was adapted to the special order of the customer in that it would be configured for the particular customer. Entirety was used by a wide range of customers and the consequences of a breach would differ widely depending on which customers were using the software.

236. Red Sky also relies on section 11(4) of the UCTA which provides that in considering whether or not a clause or clauses in a contract satisfy the requirement of reasonableness, regard shall be had to:

a. "the resources which he could expect to be available to him for the purpose of meeting liability, should it arise.

b. how far it was open to him to cover himself by insurance."

237. The position of insurance is not known although Mr Edwards said that he thought cover might have been arranged at Group level.
238. Red Sky relies in particular on the judgement of Chadwick LJ in Watford Electronics v Sanderson CFL [2001] All ER (Comm) 696 at para 55 page 716 that where experienced business men, representing substantial companies of equal bargaining power negotiate an agreement, they may be taken to have had regard to the matters known to them and to be the best judges of the commercial fairness and reasonableness of the agreement which they have reached including the fairness of each of the terms of the agreement. This, so Red Sky contends, clearly applies to this case.
239. Specifically, Red Sky contends, that clause 10.2 applies to exclude any terms to be implied under section 14 of The Sale of Goods Act 1979 to the effect that the goods are of satisfactory quality (section S 14(2)) and that where the buyer (as in this case is alleged by Kingsway) makes known to the seller expressly or by implication the purpose for which the goods are bought, that the goods are fit for that purpose.
240. Red Sky also contends that clause 10.2 would exclude the warranty in Section 4 of The Supply of Goods and Services Act 1982 that the goods were of satisfactory quality.
241. Kingsway contends, as set out in paragraph 5 of the Reply, that these clauses do not apply since clause 10.2 only applies if there are Operating Documents. The term is defined in clause 1.1.16 of the agreement as "such operating documents as may be supplied by the supplier to the customer in conjunction with the equipment and the Red Sky IT system (as updated, corrected or modified from time to time) and which expression shall include any and all copies of the operating documents which may be supplied by the supplier to the customer. Kingsway contends that no such documents were supplied at the time when Entirety was installed.
242. Further Kingsway contends that clause 10.2 is not inconsistent with implied terms as to fitness and quality. Kingsway notes that these are Red Sky's terms and under the contra proferentem rule any doubt or ambiguity in meaning is to be construed against Red Sky.
243. Further, Kingsway contends that if clause 10.2 must be construed in the manner contended for by Red Sky and the term did otherwise preclude the normal implied terms as to quality and fitness for purpose, it would be unreasonable within the meaning of section 11 of the UCTA because:

1. It would purport to exclude these criteria without substituting any other and would allow a seller to provide unsatisfactory software without any benefit to the purchaser.

2. The terms, other than price were not discussed and conferred no benefit on Kingsway.

3. The bargaining power of the parties was all one way-save for the question of price and payment terms. The contract was entirely under the control of Red Sky – it was a take it or leave it arrangement especially where Kingsway had no real option but to replace the Innsite software as Red Sky had said that they were not going to continue to support it or maintain it.

4. There is no evidence that Kingsway even knew of the existence of the terms of exclusion. Red Sky did not draw it to Kingsways' notice clearly or at all.

5. Red Sky continued to protest that the goods were off the shelf and were not made specifically for or specifically adapted for Kingsway.

6. Red Sky were specialists in the supply of hotel PMS software.

7. By the date of the agreement, Red Sky had the knowledge of supplying Entirety software to other hotels and were therefore in the best position to assess the likelihood of the existence of any defects and their likely consequences.

8. There is no evidence that one party was in a better position to insure against the risk of the consequences of defects in the software although, given the factors set out in 6 and 7 above, it was a reasonable inference that Red Sky would have been in a better position. Further Mr Edwards seemed to indicate that in fact Red Sky was insured.

244. Taking these points in reverse order, I conclude that, in principle, the UCTA does apply and that the test of reasonableness is not satisfied. I adopt Kingsway's' submissions set out above. I conclude in relation to those submissions that:

1) The parties were not of equal bargaining power.

2) Kingsway and Red Sky bargained on price. Kingsway did not receive any inducement to agree Red Sky's' standard terms.

3) On the facts, it is not correct that there was a long course of dealing between the parties such that Kingsway ought to have known the existence of and the extent of the terms.

4) This was not bespoke software.

245. Further it seems to me that clause 10.1 may provide the key to the answer to the contractual dispute and to the question of the circumstances in which the implied terms as to fitness and quality can properly be excluded.
246. Red Sky's contract is predicated on the basis it was able to sell its software as off the shelf rather than customised software and that the manuals, together with the demonstrations of the software, would enable a customer to understand the strengths and the limitations of the software and thus to decide whether it would fulfil its needs. The representations in the manuals would be crucial in explaining to potential customers whether the system provided the level of sophistication and speed which they required. Of course, the operating documents could later be supplemented by further documents which set out the benefits of updates etc.
247. Without the manuals being supplied before the contract was entered into, it was not possible for potential customers to understand this and to make up their minds whether or not the system would be suitable for their needs. There is no evidence that such documents were provided at the time when the contract was signed. Mr Marshall for Red Sky was forced to say (doing his best) in oral closing that "it is still a valuable warranty even if one does not have the full text of the operating documents" This is not sufficient, even if it is an accurate representation of the factual position. It certainly does not amount to compliance with the contract so as to invoke clause 10.2.
248. Mr Marshall went on to say that the warranty was that the software would perform "appropriately." In this case this must mean that the software would perform appropriately "for a hotel which was recommended by Red Sky to use it as being suitable for its needs." This software was not suitable because in relation to group bookings it had serious defects.
249. I also accept Kingsway's submission that clause 10.2 must be construed contra proferentem. In the event of any ambiguity, the clause must be construed against the drafter of the clause i.e. Red Sky. I conclude that operating documents must be construed as being those documents to be supplied by Red Sky either in hard copy or computer readable form which would enable a customer in advance of signing the contract to understand fully the system being offered for sale including the functionality and level of sophistication of the system. This would enable a potential customer to assure himself in the course of a demonstration by Red Sky that its product was suitable for customers needs.
250. In this case there is also a further complication because the terms of the contract are predicated on the basis that the customer will decide itself whether or not to purchase Red Sky's product. In this case, I have found that Kingsway relied on Red Sky's positive recommendation as to the suitability for its purpose in making its decision to purchase Red Sky's software.
251. It might be reasonable for the contract to have the effect of precluding the implied terms to satisfactory quality and fitness for purpose where the customer has the means to satisfy itself as to the quality and fitness of the product(Entirety) and does not rely on the advice of Red Sky. In the absence of such a construction of clause 10.2 I am satisfied that the detailed submissions by the claimant are correct and that the UCTA would apply.
252. I note further in relation to bargaining power, that these were Red Sky's' standard terms. Apart from price, this was not a negotiated contract. The Contract was far removed from the circumstance postulated by Chadwick LJ in Watford Electronics.
253. I should add that on the evidence, Kingsway was in fact induced to purchase Entirety by reason of representations made by Red Sky staff. The standard conditions, as I have said, are predicated on the basis that the customer will receive the operating manuals, have the demonstration and decide for itself.
254. In Kingsway's case this did not happen. Kingsway, as I have found, relied on Red Sky's advice that Entirety would be fit for the purpose of use in a busy central London hotel. Red Sky's employees knew that group bookings formed an essential part of the system which it was supplying. I conclude therefore that Red Sky's standard terms excluding liability or limiting damages do not apply.

To summarise on the Contractual issues:

1. Red Sky's' standard terms were predicated on the fact that a prospective customer would investigate Entirety and make up its own mind whether or not to purchase based on demonstrations and the Operating Documents which Red Sky had previously supplied. It did not apply to circumstances in which the customer relied on Red Sky's' advice in deciding to purchase Entirety.

2. The exclusions in clause 10.2 only applied where the Operating Documents as defined in Clause 1.1.6 were supplied to the customer before the contract was signed. In this case such documents were not supplied by Red Sky to Kingsway. Therefore, Clause 10.2 and the exclusions derived there from did not apply.

3. In any event, for the reasons set out above, the UCTA Section 11 applies. The terms following which restricted liability were unreasonable to be included having regard to the circumstances which were or reasonably ought to have been known to Red Sky or Kingsway, or be in the contemplation of the parties when the contract was made.

4. Pursuant to S14 of the Sale of Goods Act 1979, a term is to be implied into the contract that Entirety would be fit for the purpose for which it was bought, namely that the system would increase revenue and occupancy levels and would allow quicker check-in and check-out, including accurately processing groups and making changes to group reservations while preserving the accuracy of the system. I am satisfied that Entirety was not fit for the purpose for which it was sold.

5. Pursuant to Section 4 of the Supply of Goods and Services Act 1982 a term is to be implied into the contract that the goods were of satisfactory quality. Entirety did not meet the standard that a reasonable person would regard as satisfactory, taking into account any description of the goods, the price and all other circumstance so as to satisfy S4(2A )of the 1982 Act.

6. Kingsway was entitled, as they did, to reject Entirety which, as delivered, was not of satisfactory quality or fit for its purpose. They were entitled to do so after giving Red Sky every opportunity to improve Entirety, so that it would become of satisfactory quality and fit for its purpose.

256. Damages

Kingsway claim damages under four heads:

a. Lost profits and loss of goodwill

b. Cost of a replacement system

c. Additional staff costs

d. Wasted staff costs

I deal with each in turn.

a) Lost Profits and loss of goodwill

257. Kingsway claims in the re-amended Particulars of Claim that it suffered substantial inconvenience and disruption to its business resulting in loss of profits by reason of the defects in Entirety and the consequential screen freezing and folios.
258. In the re-amended pleading the claim is made on two alternative bases. First it is alleged that, as a result of defects in the system, the loss (excluding weekends and bank holidays) was £248,703 at a reduced occupancy of 4% or £310,947 at a reduced occupancy of 5%.
259. Alternatively the claim is based on the claim that, but for the Entirety system and its defects, Kingsway would have sold 56,500 or 56,600 rooms in the year 2006 – 2007. This was 1,700 – 1,800 more rooms than it actually sold. The average room charge was £130.67. Therefore, so it is said, the loss amounted to £222,139(1,700 lost rooms) or £235,206(1,800 lost rooms).
260. These figures are also intended to compensate Kingsway for damage to its business reputation and loss of goodwill. Paragraph 18(2) of the Re Amended Particulars of Claim pleads as follows:" By reason of the defects which caused substantial delays at the check-in desk and the production of inaccurate bills, customer dissatisfaction and disgruntlement was further created or increased and customers who would, but for the delays at check- in during their stay, and at check-out, the inability to locate bookings or details, manual amendments of bookings and inaccurate charges as aforementioned, have stayed at and/or returned to the Claimant's hotel, decided to stay elsewhere and/or decline to re-book."
261. Mr Herrmann's evidence was that the hotel operates by varying its room prices in order to maximise its occupancy. This happens even during the day on which the reservation is to be taken up. Thus if, on a particular day, there are many rooms available, the price can be lowered. If the hotel is virtually full, a premium rate can be charged for the few rooms which remain unsold.
262. In order to operate this system, reporting of available rooms needs to be accurate and accordingly it is done internally four times a day. Mr Herrmann said that, as a result of inaccurate reporting, the occupancy of the hotel was lower than it should have been.
263. In their evidence, Ms Leonard and Mr Pass gave anecdotal evidence of customers being turned away or having to be put up at one of Kingsway's sister properties. It is also supported by Mr Cola's evidence and by the Kingsway Hall Duty Management log.
264. It is also clear from the evidence of Mr Sepahi, Ms Leonard and Mr Cola that the implementation of the patch in February 2007 did not cure the problem as far as Kingsway was concerned. They still had the practical difficulties which they had had before.
265. Mr Herrmann has provided a graph showing the difference in sales occupancy during the period when Entirety was installed as compared with its successor system, Protel, and its predecessor Innsite.
266. The three years seem to show a number of similarities. March seems to be a good month for the hotel. There was a drop in occupancy in February although much less pronounced than in 2007/2008. This was followed by a rise which itself was followed by another trough.
267. Red Sky in a separate table, has shown the figures for 2005/2006 and 2006/2007. It concludes that of the total "lost sales", over half occurred in December 2006. On further analysis it claims that the majority of the loss of room sales occurred in the second two weeks around Christmas and New Year of that year and cannot be attributed to lost sales caused by problems with Entirety.
268. I find the statistical information to be of some value in supporting the anecdotal evidence that Kingsway suffered significant loss in terms of actual sales and goodwill. Red Sky contends that Kingsway could have produced much more convincing evidence as to whether it suffered or did not suffer a quantifiable loss. On this basis I am asked to find that no loss has been proved.
269. I am not persuaded, on the basis of the evidence produced by Kingsway, that its loss can reasonably be calculated on the basis of Mr Herrmann's statistical evidence. However it would have cost a quite disproportionate amount for Kingsway to have produced the type of sophisticated evidence which Red Sky contends should have been produced. This is a claim for £200,000, not for two million pounds and the sort of analysis which Red Sky suggest ought to have been produced would have cost a very substantial sum of money. I am satisfied that Kingsway has proved that it has suffered very significant damage in respect both of lost profits and loss of goodwill for which it is entitled to be compensated. I must do my best to assess a reasonable figure and in my judgement the reasonable figure is £50,000.

b) Replacement Software

270. Under paragraph 18(4) of the re-amended Particulars of Claim, the cost to Kingsway of installing a replacement system is pleaded at £26,051.90 plus vat together with the cost of replacing the Sage software in the sum of £3,840.21 plus vat to provide the accounting part of Entirety.
271. In addition Kingsway claims the sum of £13,937.63 plus vat. The basis for this claim is that since Protel could not operate with Aztec, Kingsway had to replace it with the alternative software DOTPOS.
272. Alternatively, under paragraph 19 Kingsway claims the sum of £23,738.79 being the sum of £31,988.79 paid for the Entirety package less the sum of £8,250 being the cost of Kx software which Kingsway has retained.
273. The figures are not disputed as figures by Red Sky.
274. Red Sky claims that Kingsway made no effort to find an equivalent replacement system, did not need to replace Sage and was not entitled to claim for DOTPOS. Kingsway should have obtained a system which was compatible with Aztec. In so far as Protel represented an advance on Entirety there should be a reduction for enhancement. These matters were not investigated in detail in evidence. I find that Kingsway is entitled to recover the reasonable cost of providing a reasonable system to replace the system which they were entitled to inspect as being suitable for their needs when Entirety was installed in 2006.
275. I am satisfied that the Protel system provided such a replacement. If this was the appropriate system they were entitled to order it, even if it meant that it incurred the other additional cost. I have heard no specific evidence to support the claim that Kingsway acted unreasonably e.g. by not installing a particular system, or alternative replacement systems which would have achieved their objective at a more reasonable cost.
276. The alternative pleaded basis is that set out in paragraph 19 of the re-amended Particulars of Claim namely the loss of £23,738.79 being wasted expenditure. In addition Kingsway claims the various losses of profit, goodwill etc in paragraph 18 of the re-amended Particulars of Claim.
277. Having considered the matter, I find that the proper measure of damage is to be derived from the alternative claim. This is on the basis that apart from the £8,250 which Red Sky is entitled to be paid for the Kx software, the balance was paid for a failed system. A claim on this basis avoids a number of complications in trying to work out what discount (if any) should be given for the fact that Kingsway was forced to use the defective system for a significant number of months. It seems to me that it represents together with the claims for loss of profit etc claimed in paragraph 18 the proper measure of loss.

C Additional Staff Costs

278. These relate to additional staff costs. They are as follows:

a. Additional Reservations Manager from 15^th January 2007 – November 2007 i.e. eleven months at the rate of £20,000 per annum making a total claimed of £18,334

b. Three additional shift leaders with annual salaries of £15,000, £16,000 and £17,500 for a period of eight months at an average cost of £16,000 per annum making a total claimed of £32,000.

c. Wasted staff time. These figures have been substantially amended since the service of the amended Particulars of Claim. The claim is now for:

i) Alex Sepahi, Assistant Group IT Manager	£4,550
ii) Sarah Hoare, Front of House Manager	£8,067
iii) Zac Pearse, General Manager	£6,722
iv) Melinda Ryan then Stacey Leonard, the Revenue Manager	£6,240

I deal with each claim in turn.

a) Additional Reservations Manager

279. In his email dated the 15^th January 2007, and confirmed by Ms Leonard, Mr Cola stated that an additional Reservation Agent had to be recruited throughout the period because of deficiencies in Entirety. Initially Gaby Kazlauzkaite was engaged at a salary of £13,000 from the 20^th November 2006.i.e one month after Entirety went "live." Then when Melinda Ryan left in April 2007, Louise Chapman was employed as the additional member of staff. Ms Leonard said in her first witness statement that the salary was £20,000.
280. Although £13,000 was the salary of the additional member of staff, it does not represent the total cost to Kingsway. They must pay national insurance contributions and staff benefits in addition to the basic salary. It may well be that Ms Leonard's estimate of the staff costs is accurate but I have no precise evidence about this. As a conservative figure, I reduce the £20,000 estimate to £18,000 and the time from eleven months to ten months. This comes to £15,000. I am prepared to have brief further evidence about the precise figure unless it can be agreed.

b) Three additional shift leaders

281. The claim for three additional shift leaders depends on the evidence of Mr Pass, the Assistant Front Office Manager since April 2007 and the evidence of Mr Cola. Mr Pass said, at paragraph 21 of his witness statement, that at the time when Entirety was in operation, Kingsway employed three shift leaders or supervisors to deal with rate changes or corrections. He said that this work could not be left to the front office staff. In cross examination Mr Pass said that shift leaders would spend between half an hour and one hour a day sorting out the difficulties which Kingsway was experiencing with Entirety. Otherwise they were carrying on their normal duties which included dealing with customers. Mr Cola said that three shift leaders were employed while Entirety was in operation but not thereafter.
282. On the evidence, the sum claimed is excessive. On Mr Pass' evidence, they were not employed specially to deal with Entirety problems but undertook substantial other duties. Doing the best I can, I will allow one half of one salary of £16,000 or £8,000 under this head.

c) Wasted Staff time

283. I come finally to wasted staff time. I accept that Kingsway staff spent a considerable amount of time addressing problems caused by Entirety and in seeking to mitigate them. These problems included:

a. The daily manual checking of availability information by reservations and front staff and substantial staff time, constantly checking reports

b. Rebuilding of data approximately every hour

c. Time wasted by an inability to locate guests by room number. I accept that this included nine specific occasions between January 2007 and July 2007

d. Time consuming weekly conference calls with Red Sky

e. The need to address the daily freezing of screens/system freezes

f. Filling in the freezing log

g. Mr Sepahi's time in telephoning Red Sky on a daily basis in the early months of 2007

h. Checking in of Group Bookings which was time-consuming and slow

i. Inaccurate folios once or twice a week

j. Three weeks training required for Entirety rather than one week

284. As a result it is claimed that Mr Sepahi spent approximately two hours a day in dealing with these matters while Entirety was in operation. He was employed from January 2007 i.e eight months at a cost of £4,550(reduced from £6,760 in Mr Cola's statement) I accept this claim.
285. It is claimed that the Front of House Manager, Sarah Hoare, also spent about two hours a day. Mr Cola in his evidence makes no attempt to substantiate this or to set out in detail what Sarah Hoare is claimed to have done. Mr Cola's statement simply says that "one a similar basis of calculation her wasted time over a year amounts to…" In my view the claim for two hours a day is insufficiently substantiated although it is clear on the limited evidence before me that she spent some additional time. I make an award of £1,000 in relation to her claim.
286. Mr Cola in his evidence said that the General Manager, Zac Pearse spent one hour a day on specific problems caused by Entirety during the eleven months during which is was in operation. Taking the large amount of written and oral evidence into account, I find that the claim is exaggerated .I will allow just over one-half of the claim or £3,500.
287. Finally, I accept that the Revenue Manager first Melinda Ryan and then Stacey Leonard spent approximately two hours a day related to problems caused by Entirety. I accept the figure put forward by Kingsway of £6,240.
288. This gives a total under this head of claim of:

a. £15,000

b. £8,000

c.

i) £4,550

ii) £1,000

iii) £3,500

iv) £6,240

289. This gives a total of £ 38,290. I have to consider whether, overall, this sum represents reasonable compensation for wasted staff time. In my view it does.
290. In relation to Red Sky's counter-claim, the invoices indicate that the sums claimed relate to varying dates between the 3^rd October 2006 and 4^th May 2007. They relate to what appear to be stage payments, to licence fees and support, and in one instance to training. On the basis that the system was never fit for the purpose for which it was sold, the counter-claim fails except in relation to the supply and retention of Kx. Kingsway agrees that on analysis Red Sky should receive a credit of £1031.25 in respect of licence fees, support fees or the use of Kx during this period.
291. Subject to this Kingsway is entitled to recover:

a. Lost profits etc £50,000

b. Wasted expenditure on Entirety £23,738.79

c. Additional staff costs/wasted staff time £38,290.

292. This makes a total of £112,028.79 less £1031.25. I therefore give judgment in the sum of £110,997.54.