School Facility Management Ltd v Governing Body of Christ the King College
| Jurisdiction | England & Wales |
| Judge | Lord Justice Popplewell,Lord Justice Dingemans,Lady Justice Nicola Davies |
| Judgment Date | 12 July 2021 |
| Neutral Citation | [2021] EWCA Civ 1053 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A4/2020/1148 |
[2021] EWCA Civ 1053
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
MR JUSTICE FOXTON
Royal Courts of Justice,
Strand, London, WC2A 2LL
Lady Justice Nicola Davies
Lord Justice Popplewell
and
Lord Justice Dingemans
Case No: A4/2020/1148
Michael Watkins (instructed by Stone King LLP) for the Defendant/Appellant
Simon Salzedo QC and Pia Dutton (instructed by Stephenson Harwood LLP) for the Claimants/Respondents
Hearing dates: 22 and 23 June 2021
Approved Judgment
Introduction
This appeal raises a short point as to whether in a claim for restitution of benefits conferred under a contract which was void as ultra vires one of the parties, the provider of the benefits must give credit for all benefits it received under the contract notwithstanding that it has a change of position defence to any restitutionary claim for those benefits it received. The Judge held not.
This was only one of many issues which arose at the trial, and it emerged in less than satisfactory form before the Judge. The point was briefly identified in one paragraph of lengthy written submissions but not developed at all in those submissions or oral argument. It was addressed by the Judge in three concluding paragraphs in his judgment without any assistance or citation of authority from the parties on the point. When seeking permission to appeal, the appellant developed the argument more fully and referred to relevant authorities. The issue was then addressed by the Judge more fully in a further judgment dealing with that application for permission to appeal, in which he amplified his reasons for the conclusion which he had reached. In this court we have had the benefit of fuller argument over the course of two days focussing on this single issue, for which we are very grateful.
The facts
The Appellant (“the College”) was formed in 2008 from the merger of two middle schools, one Anglican and one Roman Catholic, with a mission to provide Christian secondary education on the Isle of Wight. It is a voluntary aided school maintained by the Isle of Wight Council (“the Council”), the unitary local authority for the island. On 10 February 2009, the Council approved a request by the College to expand its age range and open a sixth form. The Council is not responsible for the funding of sixth form education.
The College did not have the capital to purchase the buildings necessary for the sixth form teaching. The solution which the College ultimately adopted was to enter into what was described as a hire contract (“the Contract”) for the construction and hire of a modular building and associated equipment (“the Building”). The Building was provided and assembled by a company called Built Offsite Limited (“BOS”), a specialist in modular construction. The transaction was structured so that BOS sold the Building to BOSHire Limited (“BOSHire”), which was a 50/50 joint venture company between BOS and a finance company. BOSHire in turn entered into the Contract to lease the building to the College. Subsequent assignments led to School Facility Management Limited (“SFM”), a wholly owned subsidiary of BOSHire created for the purpose of raising finance for the Contract, effectively becoming party to the Contract with the College as if novated, with a subsequent assignment to GCP Asset Finance One Limited (“GCP”) of the right to payments made by the College under the Contract in order to service the financing.
On 30 April 2013 BOS entered into a contract (“the Build Contract”) with SFM pursuant to which BOS agreed to provide and assemble the Building, and SFM agreed to pay a price of £6,660,000, which was later increased to £7,147,039 in order to take account of further modifications required by the College. SFM made a net payment to BOS under the Build Contract of in excess of £5.8 million plus VAT pursuant to invoices dated between 30 April 2013 and 20 November 2013, which enabled the Building to be constructed and installed at the College on 5 September 2013. In addition to providing pre-fabricated modules, external cladding, roofing, electrics and plumbing, the Contract also covered the internal finish and certain fixtures and fittings as detailed in the Technical Specification in evidence before the court at trial.
On the same day as the Build Contract was concluded, 30 April 2013, BOSHire entered into the Contract with the College. It was headed “Hire Contract” and had the following features. It provided on its face that the College requested BOSHire to purchase the Building (referred to as “the Equipment”) from BOS and that the College was agreeing to take the Building on hire from BOSHire on the terms and conditions of the Contract. Clause 1.1.1 identified the Commencement Date as being the date of signature by the College of a delivery certificate evidencing that the Equipment had been delivered and installed at the College, which in the event was 5 September 2013. Clause 2.1 identified that the hire was for a minimum period of 15 years (continuing thereafter subject to three months' notice on either side), unless terminated earlier for repudiation by the College or by reason of loss or destruction of the Building. Clause 2.2.1 provided that hire accrued from the Commencement Date and was payable in advance commencing on the Commencement Date and thereafter on each annual anniversary for the duration of the Contract. The annual hire payments were fixed at £610,000 plus VAT payable on the anniversary date each year for the 15 years, save that there was an adjustment to frontload the payment due on the Commencement Date by adding 50% of the hire due for the second year, payable on the first anniversary date, to the hire payable for the first year, payable on the Commencement Date, and reducing the second year's hire commensurately. The periodic hire charges were therefore: £915,000 plus VAT payable in advance on the Commencement Date; £305,000 plus VAT payable in advance on the first anniversary of the Commencement Date; and £610,000 plus VAT payable in advance on each annual payment date thereafter. At the end of the minimum 15 year term, BOSHire was entitled to increase the hire but not by more than the increase in the retail price index over the period since the date of the Contract.
By two supplemental agreements, one of 5 June 2013 and one on the Commencement Date itself, 5 September 2013 the annual hire charges were increased to £667,841 plus VAT per annum, with the same 50% loading of the second year's hire on to the amount payable at the Commencement Date in respect of the first year's hire.
Clause 2.3.1 provided that the College would be entitled to possession and use of the Building until termination “provided that it performs all of its obligations under this Contract”.
It was the College's responsibility to ensure that the Building complied with applicable statutes and regulations in relation to its use, and to maintain the building in good and substantial repair and condition (fair wear and tear excepted). The College bore all risk of loss and damage, and was obliged to insure the Building for £6,953,000. On termination, for any reason, it was the College's responsibility to return the Building to BOSHire, with the College being liable for all costs of inspection, loading, unloading and transportation. The Building was to be returned in good condition and failing redelivery in this condition, the College was liable to pay BOSHire the costs of restoration with hire continuing to be payable until contractual redelivery took place.
Clause 2.6 identified a number of events of default by the College which were to be treated as repudiatory, which included non-payment of hire. Upon termination for any of the events of default, the entire hire charges for the unexpired minimum period of the contract became payable, subject to discount for accelerated payment.
During the course of negotiation of the Contract there was discussion of an option for the College to purchase the Building at the end of its minimum term. This could not be formalised without jeopardising the legal status or tax treatment of the transaction. However in a letter dated 17 January 2013 to the College from Mr Pierce, the Chairman of BOS and signatory of the Contract on behalf of BOSHire, he said that should the College wish to purchase after a period of time, that was an option which would be considered and not unreasonably rejected. He explained that a purchase price could not practically be determined at that stage because it would depend upon funding costs, replacement value and the length of time for which the College had had the use of the Building at the time of any purchase. The vagueness of the price at which the College might be able to purchase the Building at the end of the minimum 15 year term of the Contract was not resolved in subsequent communications during the life of the Contract. Nevertheless the Judge said at [428(ii)] of the Judgment that the College had a strong expectation of purchasing the Building at the end of the 15 year minimum.
On 17 May 2013 BOSHire assigned the benefit of the contract to SFM and the College acknowledged the assignment in writing on 5 June 2013. The Contract itself provided that in the event of such assignment the College would owe the assignee all the obligations and liabilities to be performed or discharged under the Contract, such that the assignment operated in effect as a novation. The notice of assignment provided that SFM would be or become the...
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