University of Wales v London College of Business Ltd  EWHC 1280
The claimant, the University of Wales and the defendant, London College of Business entered into a Validation Agreement in February 2012 following a…
The claimant, the University of Wales (UW), and the defendant, London College of Business (LCB) entered into a Validation Agreement in February 2012 following a number of agreements made between 2008 and 2012. Under the Validation Agreement and provided that LCB paid an annual fee, UW committed to validate the LCB’s qualifications. The proceedings were commenced in October 2013 by the UW which claimed £42,900 in respect of payment due under the Validation Agreement following four invoices submitted to LCB in 2012. LCB contacted the UW explaining that it had made payments in regards to the invoices after having revised the list of students to be enrolled. They asked the UW to acknowledge receipt and amend invoices accordingly. UW did not respond.
In March 2012, Sky News made allegations against LCB that some of its students were being sold dissertations for use towards their degrees. It was also alleged that LCB was assisting overseas students to obtain entry visas by selling them the necessary qualifications. Following these allegations, the UW launched an Interim Review to investigate whether the assertions were justified and, in the meantime, decided to suspend new student intakes pending completion of the review.
The panel for the review found that the assessed documentation raised concerns which, although were capable of resolution, were nevertheless complex to resolve. Moreover, the panel wanted to be thorough as they were not sure whether Sky News was retaining more information or not. The final report was produced mid-June although it was not published at that time.
As LCB remained suspended from recruiting new students pending completion of the review, the newly appointed Principal of LCB wrote to the UW in July 2012 requesting the suspension to be lifted and joined a detailed letter describing LCB’s steps to address perceived concerns. The letter stated that the suspension had been damaging for the financial state of LCB and would most likely be fatal to LCB’s survival if it was not removed for the September intake.
Following a series of meetings and postponements, LCB was permitted to enrol students again on 16 November 2012.
On 10 September 2012 and 7 November 2012, the UW submitted further invoices to LCB.
Almost no sooner had the suspension been lifted than a question arose as to the possible provision of false certificates by three students at LCB. LCB required the certificate provider to verify the certificates. The provider confirmed that they contained discrepancies. On that basis, the UW wrote to LCB on 29 November 2012 to inform them that following the recent issues about the certificates, the Validation Agreement was suspended and that LCB was prevented from enrolling new students until the UW was satisfied through an investigation that the academic and administrative processes of LCB were sound.
An initial review meeting was held on 5 December 2012, but thereafter the review process was overtaken by other events. On 20 December 2012, the UW issued a termination letter for the Validation Agreement due to LCB’s failure to comply with the payment of the invoices and UW requested the immediate payment of the overdue invoices.
On 21 February 2013, LCB responded to UW’s termination letter. They stated that LCB had made several attempts to contact the university in relation to the invoices as they considered that they contained errors. On 25 April 2013, the university produced credit notes to mirror payments made and necessary adjustments to the invoices. In August 2013, UW contacted LCB as no payment had been made. LCB replied that no credit notes were received and proposed to make an immediate payment of outstanding fees upon reinstatement of the Validation Agreement.
As no further discussion was made, UW began proceeding in October 2013 and LCB made a counterclaim. During the course of those proceedings, LCB wrote to the university on 30 October 2014 that they now accepted repudiation of the Validation Agreement without prejudice to their rights to claim damages for such repudiation and for breach of the Validation Agreement. Indeed, LCB maintained that the six-month suspension starting in March 2012, the subsequent suspension in November 2012 and the termination of the validation Agreement by UW in December 2012 amounted to a breach of the agreement.
The first issue was whether the university had a contractual power to suspend enrolment. To answer this question, the court was not interested with the subjective intentions of the parties but with the meaning that the language used would have conveyed to a reasonable person who had all background information. UW stated that it would not enrol students during the period of review. This implicitly requested LCB not to enrol students during the same period as UW was the only institution validating LCB’s courses. However, the Validation Agreement did not have any express power of suspension. The court saw no need to imply a unilateral power of suspension into the Validation Agreement and relied on Lord Hoffman in the case of Attorney General of Belize who stated that“the question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs.” Accordingly, the court held that UW had no power under the Validation Agreement to suspend enrolment of students pending the completion of review.
The second issue was, as UW had no power to suspend enrolment, whether LCB can use waiver, estoppel or some other factors relating to its conduct. Regarding waiver, this concept requires a clear and unequivocal representation that strict contractual rights will not be relied on and some relevant conduct on that part of the other party that would make it inequitable for the representor to resile from its representation.
An estoppel arises when the parties have proceeded on the basis of shared understanding or assumption in circumstances where it would be inequitable to allow one party to go back on it. As stated previously, LCB’s conduct was not found as amounting to an unambiguous and unequivocal representation of waiver of its rights. Therefore, on the facts of the case, the court failed to see how LCB’s conduct could unequivocally and unambiguously signify acceptance of UW’s conduct.
The third issue was whether UW reasonably exercised its power of breach of contract and whether UW conducted the first review with reasonable expedition. In regards to the first part of the question, this issue was not addressed by the court as they have previously held that UW did not enjoy a power of suspension. In relation to reasonable expedition of the review, the court stated that one should observe the circumstances of the case including any relevant later matter affecting the performance of the contract. The judge insisted that the importance was not the length of the review but the duration of the suspension. In the court’s opinion, UW did not lift the suspension within reasonable expedition as the university took between five and six months to respond to the panel’s report.
The fourth issue was whether UW was entitled to terminate the Validation Agreement for non-payment of invoices. Clause 10.1.1 of the Validation Agreement specifically dealt with immediate termination of the agreement if invoices were not paid by the due date. The court rejected LCB’s argument that payment could not be made as the invoices were incorrect. The court held that in such case, the institution has an obligation to pay the amount due and will not be held liable for non-payment for what is not due. In the judge’s view, LCB was capable of identifying such amounts that were due or not due. The court also rejected LCB’s argument that time was not the essence of the contract as the clause in unambiguous and time of payment is of the essence of the contract. The court also dismissed LCB’s argument that the provision for payment without set-off or deduction was an unreasonable limitation clause for the purposes of the Unfair Contract Terms Act 1977 (UCTA). Although the judge accepted that section 3 UCTA may be engaged, he held that the no set-off provision satisfied the test of reasonableness.
The fifth issue was in the event UW was not entitled to terminate the Validation Agreement whether LBC’s purported termination of the Validation Agreement was effective. Pursuant to the judge’s conclusion in relation to the fourth issue, it was held that LCB’s purported termination was invalid and ineffective as the Validation Agreement had already been terminated.
Lastly, the sixth issue was, if UW was not entitled to suspend enrolment, whether LCB’s right to damages was limited by clause 17.3 of the Validation Agreement. Damages sought by LCB were for the loss of revenue and profits sustained during the period of the first suspension and during the period from the purported termination by UW in December 2012 until the contractual expiry date of the Validation Agreement. The judge firstly considered the construction of the clause and found that it did not prevent LCB from claiming damages in respect of loss of profits it would have made under the Validation Agreement if UW had performed its obligations. Secondly, the judge observed the clause under UCTA, in particular whether the clause satisfied the requirement of reasonableness. The main difficulty laid in clause 17.3.3. The judge held that the clause was not construed as to exclude loss of business under the agreement but it relates to business harm that one party may suffer as a result of the other party’s breach. As such, the judge found it reasonable. On the other hand, the judge held that, if contrary to his views, the clause aimed at excluding liability for the loss of profits that would be achieved under the agreement; he would consider such clause unreasonable.
There was judgement for UW on the sum of £42,900 and a request for a stay of execution was refused.
In regards to the counterclaim, it was held that UW was in breach of contract when it twice suspended registration of new students. Accordingly, LCB was entitled to damages subject to limitation as stated in clause 17.3 of the agreement. In addition, the court held that the Validation Agreement was effectively terminated via UW’s termination letter dated on 20 December 2012.
Lastly, the defendant submitted an application for permission to appeal. The judge refused the permission on papers. An application for permission to appeal to the Court of Appeal will commence between 23 July and 26 October 2015.