University of Wales v London College of Business Ltd

Hearing dates: 26, 27, 28 January 2016

Written submissions: 5 February 2016

Judgment

H.H. Judge Keyser Q.C.:

Introduction

1. On 8 May 2015 I gave judgment1 for the claimant ("the University") on its claim for payment of moneys due from the defendant ("the College" or sometimes, particularly in quotations, "LCB") under a validation agreement dated 1 February 2012 ("the Validation Agreement"). I also held that the College was entitled on its counterclaim to damages for the University's breach of the Validation Agreement by twice suspending enrolments at the College during 2012. This is my judgment upon the assessment of the amount of those damages.

2. The facts of the case and the more particular findings regarding the University's breach of the Validation Agreement are set out in detail in the earlier judgment. The most important points for present purposes are these:

• In breach of the Validation Agreement, on 29 March 2012 the University suspended enrolments at the College pending the outcome of an Interim Review. The suspension was lifted on 16 November 2012.

• In breach of the Validation Agreement, on 29 November 2012 the University again suspended enrolments at the College pending the outcome of an investigation into the College's academic and administrative processes.

• By letter dated 20 December 2012, while the second suspension was in place, the University lawfully terminated the Validation Agreement with immediate effect on the ground that its invoices had not been paid.

• The material effect of the University's breaches of the Validation Agreement—more particularly, of the first wrongful suspension—was to prevent the College from enrolling new students on University-validated courses in April and September 2012.

• The damages to which the College is entitled for breach of the Validation Agreement are limited by clause 17.3.3. It is entitled to claim damages in respect of the loss of profits it would have made under the Validation Agreement if the University had performed its obligations. But it is not entitled to recover damages in respect of any losses that it might suffer more generally on account of harm to its business arising out of the University's breach of contract.

• Accordingly, the profits for which damages are recoverable are those that the College lost by reason of being prevented by the University's breach of contract from enrolling new students in April and September 2012.

3. The parties and their experts approached the matter on the basis that the assessment of the College's losses required valuation of (a) the incremental revenue that the April and September 2012 intakes would have provided to the College and (b) the additional costs associated with that revenue. As a result of a measure of agreement between the experts and the parties, three factual issues remain for consideration:

1) How many additional students would have been enrolled on the College's courses in April and September 2012, but for the University's breach of contract?

2) What fees would those students have paid?

3) What additional costs would the College have incurred in respect of teaching staff required to teach those additional students?

The parties were agreed that I should proceed by resolving these issues, on the basis that the calculation of the loss could then be made on the basis of my findings. In view of the parties' invitation and of the large amount of agreement between the experts before trial, I shall proceed on that basis, though with some misgivings due to the consequence that it will result in an award of damages in a sum that I have not had the opportunity to consider in the round.

4. Evidence of fact for the College was given by Mr Ian Nisbet, who since November 2010 has been the Project Manager for the College's on-line MBA programme and since 2 July 2012 has been the College's Principal. His factual evidence and the College's case generally regarding its future business prospects were supported by the evidence of Professor Vicky Vass, an academic with long experience at senior management level in the UK university system, who gave her opinion as to the College's assessment of its likely student intake in April and September 2012.

5. Evidence of fact for the University was given by Mr James Plumb, its Assistant Registrar (Academic). The University did not adduce evidence from an expert in the field of higher education. However, it relied on witness statement of Mr Lee Bartlett, who at the relevant time in 2012 was a senior official of UKBA. The contents of that statement, in a redacted form, were agreed.

6. Expert accountancy evidence was adduced by both parties: for the College, from Mr Christopher Makin, formerly a partner in a large firm of accountants and now in practice on his own account as an accountancy expert and civil mediator; for the University, from Mr Adam Smith, a partner in Deloitte Forensic within Deloitte LLP. Mr Makin and Mr Smith were able to reach a very large measure of agreement and, to that extent, this judgment will not adequately reflect the assistance they have provided. The issues between them at trial centred on a difference of approach: Mr Makin took the view that his experience did not qualify him to express expert opinions regarding the numbers of students that the College would have been likely to recruit, and he therefore very properly prescinded from any such opinions; whereas Mr Smith considered that, having experience of assessing the past performance and future strategies of businesses of varying kinds, he could, though not an expert in higher education, give expert opinions on the realism and feasibility of the College's projections.

The relevant law

7. The correct approach to the assessment of damages in a case such as the present was explained by Toulson LJ in Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486, [2011] QB 477:

22. … Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant's wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss.

23. The claimant has first to establish an actionable head of loss. This may in some circumstances consist of the loss of a chance, for example, Chaplin v Hicks [1911] 2 KB 786 and Allied Maples Group Limited v Simmons and Simmons [1995] 1 WLR 1602, but we are not concerned with that situation in the present case, because the judge found that, but for Mr Bomford's fraud, on a balance of probability Tangent would have traded profitably at stage 1, and would have traded more profitably with a larger fund at stage 2. The next task is to quantify the loss. Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account. (See Davis v Taylor [1974] AC 207, 212 (Lord Reid) and Gregg v Scott [2005] 2 AC 176, para 17 (Lord Nicholls) and paras 67–69 (Lord Hoffmann)).

24. The appellants' submission, for example, that "the case that a specific amount of profits would have been earned in stage 1 was unproven" is therefore misdirected. It is true that by the nature of things the judge could not find as a fact that the amount of lost profits at stage 1 was more likely than not to have been the specific figure which he awarded, but that is not to the point. The judge had to make a reasonable assessment and different judges might come to different assessments without being unreasonable.

8. The University accepts that the College has demonstrated a "real or substantial chance" that, but for the University's breach of contract, it would have made profits that it did not in fact make and that it has thereby established an actionable head of loss; cf. Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, per Stuart Smith LJ at 1614. The task that remains, accordingly, is to make a reasonable assessment of the lost profits, taking into account and weighing up all the various factors that might have affected the profits for good or ill.

9. Mr Simms submitted that, as the reason why the College cannot clearly demonstrate what would have happened if the Validation Agreement had not been suspended is the University's breach of contract in suspending it, uncertainties ought to be resolved in the College's favour by allowing it a "fair wind" in assessing the value of what it has lost and applying in its favour an evidential presumption giving it the benefit of any relevant doubt (cf. Browning v Brachers [2005] EWCA Civ 753, [2005] PNLR 44, at paragraph 74). Such a presumption appears to have originated in the case of the valuation of property (Armory v Delamirie (1721) 1 Strange 505), though it has also been considered capable of...