Banham Marshalls Services UnLtd v Lincolnshire County Council & Ors [2007] EWHC 402 (QB)

[2007] EWHC 402 (QB)

Case No HQ06X00868

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 1st March 2007

Before

THE HON. MR JUSTICE EADY

Between

Banham Marshalls Services UnlimitedClaimant

Lincolnshire County CouncilDefendants

Leicester City CouncilDefendant

London Borough of EnfieldDefendant

London Borough of WandsworthDefendant

Leicestershire County CouncilDefendant

Southend on Sea Borough CouncilDefendant

Essex County CouncilDefendant

Andrew Lenon QC (instructed by Steeles (law) LLP) for Claimant

James Ramsden (instructed by Leicestershire County Council as agents) for Defendants

Hearing Hearing dates: 13th to 15th February 2007

Judgment

[1]Between 13 and 15 February 2007 I heard the trial of the issues arising between the Claimant and Lincolnshire County Council (“LCC”). This was regarded by the parties as the “lead” trial in a consolidated action in which similar claims are brought against six other local authorities. Pending the outcome of this trial the remaining claims, against the second to seventh Defendants, are stayed. The Master ordered consolidation on 2 May 2006 with a view to enabling the parties to establish principles or guidelines for the purpose of settling the remaining claims. The claim against Lincolnshire County Council was chosen because the issues of fact and law to which it gives rise also fall to be considered in other claims.

[2]The Claimant is Banham Marshalls Services Unlimited (“BMS”) which sues in respect of fees said to be owing under various contracts in respect of the provision of services at Banham Marshalls College (“the College”) to the local authorities by way of residential accommodation and teaching for certain children who were subject to statements of special educational needs. The children concerned had been placed by the local authorities at the College because they were all to a greater or lesser extent vulnerable or in need of special attention and facilities which could not be provided in mainstream state schools.

[3]The College was eventually closed after the Department for Education and Skills (“DfES”) withdrew the necessary approval for it to operate as a residential special needs school in July 2004. This followed about 18 months during which various attempts had been made to achieve improvements or changes in the regime of the College. It was during this period that most of the events occurred which are relevant to the determination of the issues in the present litigation. It is accepted that no decision by any regulatory agency relating to this case was challenged by judicial review. Indeed, the only witness called by BMS stated in evidence that advice had been received that there were no grounds for doing so.

[4]The National Care Standards Commission (“NCSC”) had at the time a responsibility under statute to inspect and monitor special schools and was regarded as the regulatory authority for such schools including the College. As children live in such a school, there is naturally a particular interest in welfare and pastoral care in addition to purely educational matters. In this context it is necessary to have regard to ss.87-87D of the Children Act 1989 (as amended). So far as is relevant for present purposes those provisions are as follows:

“[Welfare of children in boarding schools and colleges] [87(1) Where a school or college provides accommodation for any child, it shall be the duty of the relevant person to safeguard and promote the child’s welfare. … (3) Where accommodation is provided for a child by any school or college the appropriate authority shall take such steps as are reasonably practicable to enable them to determine whether the child’s welfare is adequately safeguarded and promoted while he is accommodated by the school or college. (4) Where the [Commission for Social Care Inspection] are of the opinion that there has been a failure to comply with subsection (1) in relation to a child provided with accommodation by a school or college, they shall – (a) in the case of a school other than an independent school or a special school, notify the local education authority for the area in which the school is situated; (b) in the case of a special school which is maintained by a local education authority, notify that authority; (c) in any other case notify the Secretary of State. … (5) Where accommodation is, or is to be, provided for a child by any school or college, a person authorised by the appropriate authority may, for the purpose of enabling that authority to discharge its duty under this section, enter at any time premises which are, or are to be, premises of the school or college.]”

It is provided in s.87(10) that the “appropriate authority” now means the Commission for Social Care Inspection.

[5]I should also explain that the NCSC was set up under the Care Standards Act 2000 to discharge these statutory functions, but the present wording of the Act makes no reference to that body because its inspecting functions were transferred in April 2004 to the Commission for Social Care Inspection created by the Health and Social Care (Community Health and Standards) Act 2003. The same statute abolished the NCSC, although it was the relevant inspection authority at the times to be considered in the course of this judgment.

[6]NCSC inspectors visited the college over a three day period between 13 and 15 January 2003. It was concluded in an interim report that the College was at that time in breach if its duty under s.87(1) and the relevant local education authority (Norfolk County Council) was notified accordingly. The inspection had taken place for the purpose of assessing whether the College met the National Minimum Standards for Residential Special Schools, which had been promulgated under s.87C of the 1989 Act. The inspection was carried out in accordance with the framework provided by the Care Standards Act 2000. Naturally, when the conclusions contained in the interim report were drawn to the attention of the various authorities who had placed children at the College, including LCC, this caused concern.

[7]Following the NCSC inspection, there began a separate child protection investigation which resulted from allegations of cruelty and sexual assault against certain members of staff (some of whom were still in post at the time).

[8]It is LCC’s case that on or about 2 May 2003 it withdrew four pupils from the College for two principal reasons. First, it was concerned at the findings of the NCSC that there was a failure to comply with the statutory duty to ensure the welfare of the children. Secondly, there was concern about the child protection investigation which had been mounted by that time and which, subsequently, resulted in some convictions for criminal offences including child cruelty. These appear to have related to incidents many years ago and certainly were not directly linked to any of the children under consideration in this case.

The nature of the claims

[9]The principal claim made by BMS is for fees for the summer and autumn terms of 2003 in respect of the four pupils, to whom I shall refer, in so far as is necessary, as LC, NJ, OJ, and DM. When those pupils were withdrawn by LCC, it was without prior notice to BMS and without paying the conventional term’s fees in lieu of notice. Although there was no written contract between the parties in this instance, it is not disputed by LCC that such a term would be implied. In essence, LCC contends that it was entitled to withhold the fees because, by the date of withdrawal (said to be 2 May 2003), BMS was in repudiatory breach of contract and the repudiation was unequivocally accepted.

[10]On the other hand, BMS denies that the facts and matters relied upon constituted repudiatory breach. Even if the court holds to the contrary, it is denied that there was any or any sufficient acceptance on LCC’s part such as to discharge the contract. An alternative argument is that, in any event, the fees had fallen due under the contract on the first day of term (28 April 2003) and that accordingly BMS’s right to recover would survive any such discharge.

[11]There is a complication in respect of LC, in that he was returned to the College after his initial withdrawal and spent the remainder of the summer term there. Even so, LCC is refusing to pay any part of his fees. It is its case that he re-entered the College under a completely separate contract, since his grandparents as guardians insisted that he be returned, without the consent of LCC, and contrary to its advice. This is a rather curious position to adopt, because there is no communication in evidence from LCC, either to BMS or to the grandparents, warning that the council would no longer be responsible for the fees.

[12]A discrete claim was added by way of late amendment in respect of spring term fees for a girl who left after only a few days. This gives rise to separate issues of fact, to which I shall return in due course.

The aftermath of the January 2003 inspection

[13]It has been emphasised by Mr Lenon QC on BMS’s behalf that the contents of the inspectors’ draft report were by no means wholly negative. Reference was made, for example, to some individual members of the care staff being “dedicated” and also eager to receive additional training to improve their practice. It also recorded that no complaints had been received about the College over the previous 12 month period. Nevertheless, there were other findings which understandably caused serious concern to those who were notified. It was said that the local education authority and the Secretary of State would be notified in accordance with s.87(4) of the Children Act of a failure to safeguard and promote welfare. There were complaints, in particular, about what were alleged to be inadequate criminal record checks on members of staff and also about inadequate training and staffing levels. It is true that BMS did not accept all the points made by NCSC and responded to them (as recorded in the final version of the report). It agreed to take steps to rectify some of the particular criticisms, but disputed the allegation that inadequate checks had been made as to criminal records. It was said that the inspectors failed to look in the right place.

[14]It is clear that one of the key figures lurking in the background of this dispute is Mr George Robson. He founded the Old Rectory School in Banham, Norfolk, as an independent residential school many years ago. In 1992 it moved to a bigger site and the name was changed to Banham Marshalls College. Most of the staff transferred at the same time. BMS itself was formed in June 1995 as a vehicle through which the education and welfare services at the College were to be provided. Nevertheless, it appears to be agreed on all sides that Mr George Robson continued to be a dominant influence in the affairs of the College. I described him as “in the background” because he did not give evidence in the trial or even provide a witness statement in advance. Although it is said that there are medical reasons for not attending the trial, as I understand it no explanation has been given for his not having produced a witness statement.

[15]On 3 February 2003 the NCSC wrote to LCC advising that specific child protection allegations had been made a few days earlier against Mr George Robson. On 13 February 2003 the Norfolk County Council wrote to LCC informing it of the on-going child protection enquiry. The children’s return from half-term at or around the beginning of March 2003 was delayed by several days for this reason. In the light of the allegations made against members of staff, a request was made by the Norfolk social services department that no less than 13 of them should be suspended (albeit “voluntarily”) by Mr Robson on behalf of BMS. There is no need for me to name them in this judgment. As I have already noted, allegations were made against George Robson himself, at that time acting principal, and consequently he resigned on 21 February 2003.

[16]To pupils, parents, staff, and colleagues, he announced his resignation forthwith as Director and went on to give as an explanation:

“At almost sixty-two my feeling is that the College will benefit from a change of leadership and direction and that I should spend more time with my dogs, fishing rods and my vegetable garden.”

. Mr Oakley was to become acting principal and he was to take over the running of the College with immediate effect, working with Mr Taaffe. Mr Robson stated also that “it has been ten years since I last worked directly with children”.

[17]That was the public stance. On the other hand, a week before, he had provided a statement (signed and witnessed) in which he had given eight undertakings to Norfolk County Council – specifically to the Head of the Child Protection Unit and to the Head of Pupil Access and Support Services: “1. not to enter the College site during any part of termtime until allegations made against me are disproved. 2. to suspend immediately any other member of staff who is the subject of allegations. Any such person living in close proximity to pupils will be required to remove him/herself from the site until investigations are complete. 3. to pass executive control of the College to the present Vice Principal, assuming he is not the subject of allegations. 4. to invite a team appointed by Norfolk Social Services and/or the L.E.A. to manage or supervise the running of the College. 5. as a final measure to sell the College to another Proprietor. 6. to implement the new College Action Plan immediately, subject to approval. 7. to guarantee close co-operation in all forthcoming investigations. 8. to accept and be bound by any advice offered by Norfolk’s L.E.A. and Social Services Department”.

[18]Moreover, on 21 February he sent a letter to NCSC (with copies to the DfES and Norfolk social services department). This recorded 11 conclusions reached at a meeting the day before:

“1. That I would not enter the College site during termtime until allegations against me are disproved. 2. That I would retire immediately, retaining only responsibility for finance and the building programme. I will carry out these responsibilities from my home and with the help of our architect. 3. That I would suspend four members of care staff on full pay whilst allegations made about them are investigated. I did that yesterday. 4. That executive control of the College would [be] given to David Oakley who will become Acting Principal with immediate effect. 5. That the College would advertise for and select a permanent Principal in the near future. 6. That Barry Taaffe would become Head of Care with immediate effect. 7. That Tony Thomas (aka Robson) would become Head of Bardolphs (the new accommodation) with immediate effect. 8. That care staff vacancies arising from suspensions and transfer of duties would be filled by present staff, people awaiting appointment and agency additions. 9. That the new College Action Plan would be implemented with immediate effect. 10. That the period February 24th to 28th be used for staff training 11. That I will actively seek to sell the College to another suitable proprietor.”

He also expressed the hope that these measures would be sufficient to allow the College to continue its work, “especially in the light of the huge support we are receiving from parents and pupils”.

[19]It is part of LCC’s case that in significant respects these undertakings were not adhered to and that this contributed to the later findings that BMS was failing to safeguard and promote the pupils’ welfare.

[20]It is fair to say that BMS were getting very little information either as to the nature of the complaints or as to how long the enquiry was likely to disrupt day to day work at the College. Indeed, when on 21 March 2003 solicitors wrote to the Norfolk police and to the Norfolk social services for information, the letter seems to have been ignored.

[21]By 28 April 2003 Mr George Robson, who had by this time stepped back into the breach as acting principal, wrote to the Norfolk County Council expressing his intention to reinstate all of the members of staff who had been suspended and against whom no charges had been brought. He felt unable simply to let matters drift. He began a process of reinstatement but, on 29 April, he agreed to re-suspend the staff because of representations made on behalf of Norfolk County Council. This was plainly a difficult period for all concerned, including those who were responsible for children who had been placed at the College and for the children themselves.

[22]On 30 April 2003 a Mr Briggs, who was the area manager of the NCSC, made an unannounced visit to the College, upon which he reported the following day. He had concluded that he could not be confident that a child who had made allegations would be safeguarded at the College, and that there was a risk that vulnerable witnesses might be interfered with. He also took the view that Mr George Robson’s actions hitherto constituted a failure to take appropriate steps under s.87 of the Children Act to safeguard welfare. He added that “to my mind this situation cannot be monitored or improved by NCSC inspections. It is unsatisfactory on a 24 hour a day basis”. He recorded that Mr Robson had assumed control for a short period; he was signing his correspondence as “Director”, whereas he had previously announced his retirement. This was clearly thought to be unsatisfactory and he noted that on 28 April Mr Robson had undertaken to “re-suspend” himself and the relevant staff.

[23]On 1 May, for the second time, a statutory notification was sent to the DfES under s.87. It was said that Mr George Robson was acting as director again and was in control at the College, despite having resigned and despite the possibility of criminal charges being brought against him. Moreover, as at 29 April, suspended staff were once again in charge of children who had made allegations. This was also alleged to apply to Mr George Robson as acting principal and child protection officer (although Mr Paul Robson in evidence denied that his father had fulfilled this latter role). He made the following observations:

“Mr Robson has deliberately challenged the Child Protection System by taking this action. He has substituted his own unsuitable measures for example, instructing staff not to talk about allegations but ending their suspension. Secondly, by rostering staff so that no previously suspended member of staff works alone with children. Neither of these steps can be guaranteed to safeguard children. If this was a children’s home, NCSC would be cancelling registration. The welfare of children cannot be regarded as being safeguarded”

. He added that: “Vulnerable witnesses have been put at risk. There is no confidence that other children are safe. Norfolk County Council has withdrawn children for Child Protection reasons. The actions of Mr Robson are arguably not those of a ‘proper person’ to be the proprietor of an independent school (s.469D Education Act 1996). Banham Marshalls College is in breach of its duty under s.87(1) Children Act 1989 to promote and safeguard children”.

[24]Before Mr Robson had resumed his role as acting principal, temporary managers had been put in place but the contract of the temporary principal (Mr Cooper) was due to expire at midnight on 28 April. This was apparently why Mr Robson had stepped into the breach. On 1 May 2003 he wrote to the DfES confirming that from 6 May 2003 Barry Taaffe would be appointed as acting principal with Mr Paul Robson as acting vice-principal. In fact, according to the evidence from Mr Paul Robson, Mr Taaffe had taken over before that date, although the position is not entirely clear.

[25]At all events, on 2 May Lynn Whitworth on behalf of LCC called Mr George Robson and told him that the LCC pupils were being withdrawn until the situation had been resolved. This communication is relied upon by LCC as constituting the unequivocal acceptance of repudiation. In fact, however, the pupils were not removed immediately and, as I have already said, one child (LC) returned shortly afterwards at the instigation of his grandparents.

The outstanding issues

[26]Against this somewhat confused background, it is necessary for me to identify the pleaded issues which I now have to resolve: i) the status of BMS and its capacity to bring the claim; ii) the terms of the contract between BMS and LCC and, in particular, whether or not it is appropriate to imply the terms pleaded; iii) whether BMS was in repudiatory breach; iv) whether, if so, LCC unequivocally accepted the repudiation; v) whether LCC remained liable for the discharge of the summer term fees; vi) whether any of the circumstances summarised above could amount to frustration of the contract; vii) whether BMS was entitled to the fees in respect of a girl (RK) for the spring term in 2003; viii) whether LCC is entitled to any payment on its counterclaim. ix) whether BMS is entitled to recover interest on any recoverable debt at an enhanced rate under the Late Payment of Commercial Debts (Interest) Act 1998.

BMS’s status and capacity

[27]The evidence relating to this issue was given by Mr Paul Robson. It was to the effect that the company was incorporated on 23 June 1995, on the advice of accountants, as a corporate vehicle for the provision of educational and welfare services at the college. One of the principal advantages was that VAT could be charged on the services provided and there would be a set-off against VAT charged on expenses incurred by the College. He said that his father, Mr George Robson, had notified local education authorities at the time and no objection was taken. College staff were employed by a different company, namely RPH Services Unlimited.

[28]Although Mr Ramsden, appearing on behalf of LCC, examined the relationship between the various corporate entities in a little detail and referred to “smoke and mirrors”, I am not persuaded that BMS lacks capacity to sue or is otherwise inappropriate as the Claimant in respect of a claim for fees.

The terms of the contract

[29]Some local authorities did have written terms of agreement with BMS (for example, Essex County Council). In the case of LCC, however, which had no written document, I must consider whether it is appropriate to imply the terms contended for by LCC (at para. 10 of its amended defence and counterclaim). The principles governing the implication of terms in the law of contract are well known and it is a matter of what is necessary to render the contract workable. It will not suffice to show that a term would have been reasonable; nor yet that any such term was expressly incorporated in contracts with other local authorities. Nor does it necessarily follow that, because there is a statutory duty imposed upon BMS, a corresponding obligation can be implied in the contract and enforced at the suit of LCC – although one would naturally expect there to be a significant degree of overlap. A further argument raised was that LCC would not have entered into a contract with BMS if, at the time, it had been aware of the full picture which later emerged. It may be true, but it does not in itself provide a criterion by which to determine repudiatory breach.

[30]By the conclusion of the trial, and in the light of the evidence, Mr Ramsden was content to place reliance on the terms pleaded at para. 10(a)–(e) and (j). These were as follows: a) that BMS would, at all times during the pupil’s placement, safeguard and promote that pupil’s welfare; b) that BMS would at all times ensure that no pupil will be subject to or exposed to the risk of child cruelty or sexual or physical assault; c) that BMS would not employ or continue to employ anyone who had committed an act of child cruelty or assault, without the express permission of Norfolk County Council or the Secretary of State for Education and Science; d) that BMS would provide to the pupil residential accommodation and care to the standards required by all relevant statutes and regulations; e) that BMS would comply with all relevant health and safety and employment legislation, and would be expected to have in place procedures which promote good practice in staff selection (including police checks), appraisal and development; … j) that the defendant may terminate its contract with BMS, without the requirement for notice, in circumstances where BMS is in breach of any of the terms set out in (a)-(i) above or of its statutory duty under s. 87(1) of the Children Act 1989 … The terms pleaded at 10(a) and 10(d) were not contested.

[31]There may have been something of a misunderstanding between counsel, because Mr Lenon had been under the impression that Mr Ramsden was arguing for a right to terminate the contract without notice even in the case of a breach which could be said not to go to the root of the contract. Mr Ramsden clarified the position and accepted that LCC should only be permitted to terminate in the case of a repudiatory breach which qualified as such in accordance with general principles.

[32]I would accept that the term pleaded at 10(a) can legitimately be implied as a matter of necessity. On this there was no dispute between counsel.

[33]As to 10(b), in my judgment this is too loosely worded. I can naturally understand why it has been proposed, but it is so broadly framed at the moment that any degree of risk of physical assault would potentially give rise to a claim (such as, for example, allowing a child to mingle, work or play in the vicinity of another pupil who had been known to be involved in bullying in the past, or even fighting).

[34]I would be prepared to imply a term fairly close to that pleaded at 10(c); that is to say, that BMS should not employ, or permit to be employed, anyone who had committed an assault or an act of child cruelty in the capacity of teacher, carer, principal, acting principal or proprietor. This would closely reflect the statutory requirement that a “proprietor”, as the person “responsible for the management of the school”, should be someone suitable to work with children and/or a “proper person” to be a proprietor: see s.469(1)(d) and s.579 of the Education Act 1996. It seems to me to be necessary to imply that the school should not employ a person in any such capacity who has committed acts of cruelty to children.

[35]Mr Lenon was prepared to accept that such a term should be implied in respect of persons having direct contact with children (such as a teacher or carer) but not to extend this higher up the scale of command, so that it would embrace a principal or proprietor. This seemed to me to be a difficult position to maintain because such a person would be responsible for managing or directing those lower down the scale, including teachers and carers. This distinction seemed to be unsustainable. Considerable emphasis was placed, in the course of argument and evidence, on the extent to which Mr George Robson was likely to come into contact with children directly. I consider that this rather missed the point, since child cruelty would disqualify someone in a managerial capacity just as much as those for whom he was responsible. (Although his brother, Thomas Robson, was also convicted of offences committed between 1976 and 1986, he was employed in the capacity of site manager up to 17 February 2003. This is not a consideration which need play any part in the issues I have to address.)

[36]I was referred to the decision of the Court of Appeal in Mount v Oldham Corporation

[1973] 1 QB 309

. The plaintiff was the principal and proprietor of a fee-paying special school for maladjusted children, who were paid for by local authorities. Two absconders made accusations of indecency against him and he was arrested, but was granted bail on condition that he did not visit the school or have contact with the boys. Six months later the principal was cleared of all charges, and indeed it was held that there was no case to answer. Thereafter he returned to the school and carried on successfully. In the meanwhile, however, Oldham Corporation had indicated that their boys would be withdrawn from the school and would not attend for the new term (beginning on 28 July). The Corporation declined to pay a term’s fees in lieu of notice and the plaintiff claimed in the county court.

[37]The county court judge had held that the events surrounding the plaintiff’s arrest constituted frustration of the contract. The appeal was allowed on the basis that, although it may have been reasonable for the Corporation to withdraw the boys without notice, it was still bound to pay the term’s fees in lieu of notice. It is interesting to note, however, that (at p.316C-E) Lord Denning MR commented:

“There was no breach of the contract by the headmaster. If Mr Mount had been found guilty of the charges he would, of course, have been guilty of a breach going to the root of the contract and he could not have recovered any fees: but he was not found guilty. He was acquitted. He was the victim of misfortune, not the cause of it”

. The judgments were ex tempore and I note that Edmund Davies LJ referred to “this late hour”, and so the matter was not subjected to close or detailed analysis. On the other hand, it is clear that Lord Denning seems to have taken it for granted that such conduct would have gone to the root of the contract. That is consistent with my conclusion in respect of this implied term. Of course, no conviction had taken place at the time when LCC withdrew the boys, but both parties accept that reliance may be placed on the fact that offences were committed even though that was not known at the time: see e.g. TheMihalis Angelos

[1971] 1 QB 164

and Cyril Leonard & Co v Simo Securities Trust

[1972] 1 WLR 80

[38]As to 10(d) although BMS was undoubtedly obliged by law to comply with the statutory requirements and regulations, I am not sure that it would always be right to import wholesale into the contract enforceable obligations in the same terms. Nevertheless, the term pleaded in this instance is not in dispute.

[39]The term pleaded at 10(e) seeks to import in general terms “all relevant health and safety and employment legislation”, which is in itself rather too vague to qualify for necessary implication. I accept that any such school or college would be expected to have in place procedures for promoting good practice in staff selection, appraisal and development. It is a little vaguely worded, however, and it would not be very easy to define in what circumstances a breach had taken place. In any event, I am not sure how this proposed term impacts upon the case now pleaded, since no specific breach is relied upon.

[40]Finally, in relation to 10(j) I would not imply the term so drafted, since it is accepted that in order to justify termination without notice it would be necessary to demonstrate a breach going to the root of the contract.

Was there repudiation?

[41]In the light of the evidence. Mr Ramsden places reliance upon what he submits are two clear and distinct breaches. First, it is said to be a breach to have employed Mr George Robson (or permitted his employment) as “proprietor” and, from time to time, in the capacity of principal. He had committed acts of criminal child cruelty. It is said that, if the College had not lost its approval as a residential special school in July 2004 and decided voluntarily to cease trading, George Robson would have been disqualified as a proprietor in accordance with the terms of s.471 of the Education Act 1996. This is one example of bringing into the argument, as to the nature and scope of the contract, a set of statutory provisions which shed very little light on the matter. I need to do no more than state my conclusion that permitting Mr George Robson’s employment, from time to time, in a managerial capacity was a breach going to the root of the contract (see [34] above).

[42]There is a letter dated 24 March 2003, signed by Mr Robson as “proprietor”, which it is I believe accepted was actually sent on or about 24 April 2003 (i.e. the wrong month seems to have been inserted). It certainly arrived with the recipient on 28 April, which appears from the date stamp. There is also a letter of 1 May 2003 (also signed as “proprietor”) which indicates to the DfES that a new management team under Mr Taaffe would be taking over on 6 May. Largely for these reasons, it is submitted on behalf of LCC that it is reasonable to draw the conclusion that Mr George Robson was back “in charge” at least between 24 April and 6 May. His involvement at that time was certainly causing disquiet in the NCSC report of 1 May, to which I have already referred. This is a material consideration because it goes to what is said to be a continuing and fundamental breach as at the date when LCC claims to have accepted repudiation (2 May 2003).

[43]It was also on 2 May that Mr Briggs wrote Mr Robson a letter setting out how NCSC now perceived the situation at the College and what it required to be done. The steps taken by Mr Robson were clearly thought to be inappropriate and the letter included the following observations: “I could only conclude that your actions were wrong, and were not safeguarding children. Whatever your objection to the process of investigation and the difficulties for you as an employer, safeguarding the welfare of children is a primary imperative. I believe that in substituting reasonably safe means for unsafe ones you are in effect making your own judgment about the possible outcome of the enquiries, which you are in no position to do, and is not appropriate”.

[44]In the light of the evidence I conclude that there was a breach going to the root of the contract because the Claimant was permitting George Robson to exercise a managerial and supervisory function, as proprietor and/or acting principal, up to and including the time when LCC purported to accept the repudiation. (It is to be noted that his wife, Sheena Robson, became proprietor at some stage prior to 19 July 2004, when she signed a letter in that capacity, and thus was presumably purporting to be the person “responsible for the management of the school”. Exactly when this transfer took place remains obscure, but it may have happened as late as April or May 2004. Mr Paul Robson accepted that the decision was probably taken because of the pending criminal charges. Mr Ramsden argues that this carries little conviction and that the inference can properly be drawn that she was not truly independent; that George Robson was throughout exerting his influence behind the scenes, despite the undertakings given in February 2003. As it happens, it is unnecessary for me to decide this point.)

[45]The second breach relied upon by Mr Ramsden consisted in what was later described as the “persistent and on going failure of BMC to ensure the welfare of pupils”. I readily accept that it is not appropriate, as a matter of general principle, for LCC to rely upon what was going on at the school after the date of purported repudiation. The state of affairs in July 2004, when matters finally came to a head, is not directly relevant. On the other hand, it is also the case that a similar view was taken by NCSC in the letter of 2 May 2003, from which I have quoted above. I recognise that the views expressed by Mr Briggs are not determinative of the matter and that it must be a question ultimately for the court. I nevertheless conclude that there was failure on the part of BMS to ensure the welfare of pupils for the reasons given by Mr Briggs and that this, viewed objectively, must also qualify as a breach going to the root of the contract (see [32] above).

Was there an unequivocal acceptance of the repudiation?

[46]What is relied upon is the conversation which took place between George Robson and Lyn Whitworth on 2 May 2003. Ms Whitworth gave evidence in the course of the trial. It is the contention of BMS, on the other hand, that there was no clear acceptance of any repudiation until 29 August 2003.

[47]The principles are well known and are conveniently summarised in Chitty on Contracts (29th edn) at 24-013:

“An act of acceptance of a repudiation requires no particular form. It is usually done by communicating the decision to terminate to the party in default, although it may be sufficient to lead evidence of an ‘unequivocal overt act which is inconsistent with the subsistence of the contract … without any concurrent manifestation of intent directed to the other party.’ Unless and until the repudiation is accepted the contract continues in existence for ‘an unaccepted repudiation is a thing writ in water’. Acceptance of a repudiation must be clear and unequivocal and mere inactivity or acquiescence will generally not be regarded as acceptance for this purpose. But there may be circumstances in which a continuing failure to perform will be sufficiently unequivocal to constitute acceptance of a repudiation. It all depends on ‘the particular contractual relationship and the particular circumstances of the case’.”

[48]Ms Whitworth was entirely frank in cross-examination and accepted that she told Mr Robson on the material date that LCC was withdrawing pupils until the uncertain situation at the College had resolved itself. In other words, it might have been a temporary measure only.

[49]Mr Lenon relies upon other factors which, he submits, clearly demonstrate that there cannot have been an unequivocal acceptance on 2 May 2003. On 24 June 2003 Ms Whitworth wrote a letter to the College confirming that one of the boys (DM) would not be returning and stating the school he would be attending from 8 July of that year. Similarly, on 14 July she wrote letters in respect of two other boys (OJ and LC) informing the College that they would not be returning and identifying the schools to which they would be transferred (with effect from the following September). These letters would surely have been superfluous had the contracts been terminated as early as 2 May.

[50]I have already referred to the fact that LC was returned to the College later in the summer term. Although it is now contended, as a matter of legal analysis, that this must have been under a new contract to which the boy’s grandparents were parties (and not LCC), I am afraid I take the view that this is ex post facto rationalisation. Whether or not an acceptance of repudiation is unequivocal must be judged, by a reasonable observer, as at the material time. It was never communicated to the College, or for that matter to the grandparents, that the boy’s return was not authorised by the council or that the fees would not be paid by the council. In those circumstances, it seems to me that a reasonable observer (standing in the shoes of the College) could be forgiven for thinking that the pre-existing contract was being reaffirmed, albeit after a temporary suspension.

[51]It is also of interest that LCC arranged for an inspection to take place at the College later in May, to be carried out by Mr Howe, for the purpose of enabling the council to decide whether to withdraw the pupils on a permanent basis.

[52]Against this background, I have come to the conclusion that there was no unequivocal acceptance of repudiation on the part of Ms Whitworth on 2 May. It was not that she failed to convey LCC’s message clearly: it is rather that she accurately reflected its understandable uncertainty in a difficult situation.

Assuming that the repudiation was accepted, would liability for the summer term be discharged?

[53]In the light of my conclusion on the previous question, strictly speaking it is unnecessary for me to go on to consider this hypothetical issue. Nevertheless, I propose to answer it in the light of the careful arguments addressed to me. There is no doubt that the liability to pay the summer term’s fees arose on the first day of term. That being so, it is difficult to see how it could be discharged by subsequent termination. The principle is explained in Treitel on Contract (11th edn) at pp 849-850: “… rescission does not operate retrospectively, in the sense of liberating the victim from his duty to perform obligations which had accrued before rescission. For example, where freight under a charterparty is deemed earned on loading, the charterer remains liable to pay it even though he later justifiably rescinds on account of the shipowner’s repudiatory breach”.

[54]It is accepted that an innocent party is not required to pay a sum outstanding at the date of discharge if it would be recoverable by him in a restitutionary claim. That cannot avail LCC here, however, as there is no question of a total failure of consideration.

Were the contracts frustrated?

[55]By the end of the trial, it was clear that Mr Ramsden was not pursuing the frustration argument with any vigour, although it was not formally abandoned. The doctrine of frustration comes into play only when there is some extraneous or unforeseen event which renders performance impossible. A convenient summary of the principle was cited by counsel from the speech of Lord Simon in National Carriers Ltd v Panalpina (Northern) Ltd

[1981] AC 675

, 700: “Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances. In such a case the law declares both parties to be discharged from further performance”.

[56]I cannot find any such supervening event in the present case. It is quite clear, despite the understandable concerns of LCC and other local authorities, that the contract was capable of being performed and, indeed, in respect of some children it was performed.

[57]The creaky nature of the LCC case on frustration is underlined by the pleaded case that in relation to NJ, OJ and DM the supervening event (whatever it was) occurred by no later than 2 May 2003, whereas in relation to LC it is said to have occurred by 29 August 2003. Since the same facts are relied upon in respect of all four boys, I fail to understand how frustration can be said to have occurred at different times. The frustration argument is therefore rejected.

Is BMS entitled to the spring term fees in respect of RK?

[58]According to the evidence, the girl in question was offered a place at the Gray’s Unit at the College (for which Mr Paul Robson was directly responsible), and she began on 13 January 2003. An invoice was sent to LCC in March of that year which LCC has refused to pay. According to Mr Robson, the invoice in question had been reduced to 25% of the strict entitlement (as a “goodwill gesture”) because she had in the event only remained at the College for a few days. Since LCC chose to pay nothing, BMS is now insisting on its full entitlement of £26,917 plus VAT. The liability accrued at the beginning of the spring term before she was withdrawn.

[59]This issue turns upon a question of fact. Either the arrangement was terminated by BMS, or she was withdrawn by her parents. If she was indeed withdrawn by her parents, it would appear that BMS is entitled to press for payment of the previously accrued debt. Nothing else is relied upon by way of breach in respect of this pupil.

[60]Mr Paul Robson asserted in his witness statement that she was withdrawn by her parents “as she simply did not settle in at the College”. I am invited by Mr Ramsden to discount that evidence on the basis that the only person who would be able to give direct evidence on the issue would be Mr Oakley. He relies, on the other hand, on the evidence of Chris Jones, whose own account she accepted in cross-examination had been reconstructed from the available documents. She infers that it was the College which excluded RK. In coming to her conclusion, she appeared to attach undue significance to who arranged her transport when she left, which does not seem to me to be determinative of who made the decision to remove her.

[61]In these circumstances, I must proceed to decide the matter on the available evidence. The burden lies upon LCC to prove on the balance of probabilities that BMS excluded her. It is significant that LCC cannot point to any notification from BMS that the girl was being excluded at its behest. It seems to me highly unlikely that the College would have taken such a step without any communication to the fee payer at all. I must also bear in mind that she was in the Gray’s Unit under the care of Mr Paul Robson. His evidence was that the College did not, and would not, exclude her after a matter of days. They were, after all, used to dealing with “difficult” pupils and would not have given up on her after so short a time. Again, it seems to me inherently unlikely that she would have been abandoned so soon. A number of factors came to light after her departure which underlined how difficult she would be to cope with (which had not been drawn to the College’s attention by LCC beforehand), but these matters do not appear to be directly relevant to the issue I have to determine.

[62]Of some significance is a letter of 15 January 2003, signed by George Robson and addressed to LCC’s Director of Education. This described how “we were beginning to see the very first signs of forward movement for this troubled child”, but recorded how at 11:20 pm on 14 January a car appeared on site containing her mother and others. There had been no warning and staff were sent to wake RK to be returned home. He continued “… [RK] was taken home and we have not heard from the family since”. The letter concluded with these words:

“Hopefully when the family has had time to consider [her] very early experiences with us, they will come to the conclusion that life at the College may have something to offer [RK]”

. In fact, it seems, she came back a few days later because her mother had promised the police that she would be returned – in order to avoid her being arrested over hoax telephone calls. Unfortunately, she promptly absconded. After her return, arrangements were made for her to be transported back home. The question was raised as to whether the College might have “bitten off more than they can chew”. But there was no conclusion reached, so far as the documents reveal. Moreover, none of those directly involved in the discussions gave evidence. (Those were, it appears, Tricia Reed and Mr Oakley.)

[63]In the light of the evidence available, I am not persuaded that the College excluded RK without notifying the LCC. In those circumstances, it would appear that BMS is technically entitled to recover the whole sum outstanding. The goodwill gesture was never taken up and accordingly the full sum may be recovered.

The counterclaim

[64]It is conceded by BMS that, in the event of the court concluding that there had been repudiation, LCC is entitled to set off the expenses it incurred against its liability for the summer term fees.

The autumn term fees

[65]Likewise, it is accepted that the autumn term fees would not be recoverable if repudiation had indeed taken place. It is recognised that any such repudiation would have been accepted at least before the first day of the autumn term.

Is BMS entitled to enhanced interest?

[66]Counsel were unable to draw my attention to any case law giving guidance on the interpretation of the Late Payment of Commercial Debts (Interest) Act 1998. During the course of the trial, it was conceded by Mr Ramsden on behalf of LCC that the statute would be applicable to any debt found to be owing by LCC to BMS.

[67]My attention was drawn, however, to s.5 of the Act: “Remission of statutory interest(1) This section applies where, by reason of any conduct of the supplier, the interests of justice require that statutory interest should be remitted in whole or part in respect of a period for which it would otherwise run in relation to a qualifying debt.

(2) If the interests of justice require that the supplier should receive no statutory interest for a period, statutory interest shall not run for that period.

(3) If the interests of justice require that the supplier should receive statutory interest at a reduced rate for a period, statutory interest shall run at such rate as meets the justice of the case for that period.

(4) Remission of statutory interest under this section may be required- (a) by reason of conduct at any time (whether before or after the time at which the debt is created); and (b) for the whole period for which statutory interest would otherwise run or for one or more parts of that period.

(5) In this section ‘conduct’ includes any act or omission.” (a) by reason of conduct at any time (whether before or after the time at which the debt is created); and (b) for the whole period for which statutory interest would otherwise run or for one or more parts of that period.

[68]It is perhaps unfortunate that there is no guidance on the circumstances in which the court should exercise its discretion to remit statutory interest, but in that situation I need to proceed from first principles.

[69]It seems clear that the legislature decided that discipline should be brought to bear on debtors through the imposition of what Mr Ramsden described as a “punitive” rate of interest ( Mr Lenon was content with the label “enhanced”).

[70]What seems to be clear is that the court has a wide discretion to enforce or remit the statutory rate according to what are considered to be the “interests of justice” in the particular case. It is no doubt necessary to have in mind that the mischief to which the statute appears to be primarily directed is that of casual or feckless non-payment. The extent to which the “interests of justice” require that it shall be enforced also upon those who withhold payment because of a bona fide dispute requires careful consideration.

[71]Mr Ramsden points to the considerable delay in bringing these proceedings (well over two years after the relevant debts accrued). Mr Lenon, on the other hand, unsurprisingly referred to the six year limitation period. I cannot accept, however, that it is appropriate for a creditor to delay without any particular reason for several years and then to expect to recover interest at the enhanced rate. I have little doubt that “conduct”, as used in s.5 of the statute, would embrace conduct prior to or in the course of litigation to recover the debt.

[72]Although I am conscious that there is, from a moral or public policy perspective, a distinction to be drawn between those who choose not to pay their outstanding debts and those who refuse to pay because of a genuine legal dispute, it would be wrong for me to approach the issue on the basis that the statutory interest is not to apply at all in cases of bona fide dispute. That would be to detract from the broad discretion which Parliament clearly intended when formulating s.5 in the terms set out above.

[73]I propose to take into account two particular considerations. First, I have in mind that the LCC defence in relation to RK and LC was rather weaker than in relation to the cases of the other boys. I also have in mind that BMS were slow off the mark in bringing these proceedings before the court. Against that background, I consider that justice would be done by awarding interest at the statutory rate in respect of the outstanding fees for LC and RK up to 1 April 2005 and at the ordinary rate thereafter. In relation to the other debts, I consider that interest at the usual rate will suffice throughout.