Peter Marples’ attempt to sue the government for refusing to sign off on the sale of his defunct apprenticeship provider 3aaa is “fundamentally flawed” and based on “unjustified gloss”, according to the Department for Education.
In its defence for the lawsuit, the DfE has denied that officials in the then-Skills Funding Agency acted negligently, with malice, or in bad faith when the verdict was made in 2016.
The department states that the decision to not sanction the change in ownership was based on “unrealistic expectations” as to the future growth of the company – a view that was accepted by the proposed buyer at the time and the reason used by the purchaser for ending the deal.
The DfE’s defence (download full documents below) also provides evidence that counters Marples’ claim that officials had a personal vendetta against the businessman. It also tells of further “funding errors” including “falsification of documentation” at his previous training providers, and a £300,000 clawback due to “significant discrepancies in the evidence relied upon” by 3aaa in support of funding claims.
The lawsuit
3aaa was England’s largest apprenticeship provider until 2018 when a government investigation into alleged manipulation of achievement rates paused an Ofsted inspection, resulted in contract termination, administration, and a referral to the police.
Marples, who co-founded the provider in 2009, and three other members of his family are now seeking damages worth £37 million plus interest from the government because the SFA refused to sign off on the sale of the company back in 2016 to private equity firm Trilantic Capital Partners LLP (TLP).
He claims that SFA chiefs unlawfully exercised their power to deny the change in ownership which amounted to “negligent misstatement, negligence, and/or misfeasance in public office”, claiming that he was subject to “animosity”, “disdain” and “distrust” by those at the helm of the funding agency who saw him as a “necessary evil”.
The defence
Under clause 5.10 of 3aaa’s funding agreement – which Marples’ lawyers mistakenly named as clause 5.8 in the original particulars of claim – the SFA was entitled to “terminate the contract if it considers in its absolute discretion that the change in ownership would prejudice the contractor’s ability to deliver the services”.
Marples’ lawyers claimed the “principal factors” which ought to have been considered by the SFA were whether there would be a decrease in the quality of management of 3aaa, its facilities, and a “degradation” in the financial standing of the firm.
But the DfE’s lawyers countered that this claim “places an unjustified gloss on the language of clause 5.10”.
The SFA was “entitled to take into account matters such as whether the change in ownership appeared to be premised on unrealistic expectations of growth on the part of the prospective buyer, such that the pursuit of those expectations would jeopardise the company’s stability”, the defence states.
It continues that the SFA’s refusal followed discussions with 3aaa and with Joe Cohen, a founding partner of TLP, in December 2016.
Information about the proposed business plan for the takeover included a presentation that set out projections for “year-on-year growth of 44 per cent between 2016/17 and 2017/18, 19 per cent between 2017/18 and 2018/19, and 10 per cent between 2018/19 and 2019/20”.
A note attached to those projections stated that the projected revenues in respect of 2019/20 (£55.6 million, as against a 2016/17 figure of £29.7 million) were anticipated to consist of 30 per cent from levy activities and 70 per cent from the non-levy market.
The SFA’s decision letter highlighted that “the business plan appears to be premised on continued delivery, and growth of, non-levy activity”, and commented: “There is no reference as to how this latter growth will be achieved – from an increase in market share through acquisition, whether it is commercial activity or an assumption that non-levy delivery will continue to be funded into the future. We are concerned that key assumptions made in the business plan may not be achieved and there was little information and no sensitivity analysis to give us assurance of the make-up of the financial projections.”
The letter went on to explain that in view of the introduction of the levy arrangements from April 2017, “there is no guarantee that the current aggregate level of public funding going into SMEs will continue to be available”, “there is also no guarantee of long term central funding of apprenticeships for non-levy paying employers”, and in view of a planned £5 million cap, “no provider will be given more than an initial allocation of £5 million”.
Marples’ claim pointed out that the £5 million non-levy cap policy was formally withdrawn in May 2017, and alleged that it was “widely known within the ESFA that the cap would not be implemented” by December 2016 when the sale negotiations were happening. The DfE’s defence denies this allegation.
The DfE’s defence goes on to reveal that the agency did offer 3aaa and TLP the chance to submit an alternative business plan to go ahead with the sale.
The agency’s refusal letter concluded: “We would be prepared to reconsider our decision in the New Year if you can provide further detail which would provide assurance that a change of ownership would not prejudice your ability to deliver our contract.”
But in an email dated January 11, 2017, Joe Cohen of TLP wrote to then-SFA chief executive Peter Lauener thanking him for meeting with him in December 2016 and stated: “Regrettably, in light of the market outlook that is explicitly detailed in your correspondence, it has become clear that our basic funding assumption for the SME apprentice market, at minimum, being maintained for the length of this Parliament is viewed by your department as ‘excessively optimistic’. As you can appreciate, given the market that 3aaa operates in coupled with the views expressed by your department around the Trilantic business plan, we are left with no alternative but to terminate our discussions with the company.”
‘Fundamentally flawed’ claim
The thrust of Marples’ claim is that the SFA was wrong to refuse the change in ownership, for example because it “applied the wrong contractual test”, “considered and relied upon factors that were not relevant to the clause 5.10 test”, and “failed to consider the factors that were relevant to the clause 5.10 [test]”.
The DfE points out that despite the claim revolving around a disputed exercise of contractual rights, there is “no claim for breach of contract; the claimants were not parties to the relevant agreement; and in any event the agreement expressly excluded liability for indirect losses such as those claimed in these proceedings”.
Instead, Marples’ plea claims “negligent misstatement, negligence, and misfeasance in public office” which “suffer from a series of fundamental flaws”.
First, there is “no properly pleaded claim of negligent misstatement at all…It is nowhere alleged that the SFA, or anybody else, made a false statement of fact on which the claimants relied”.
Second, both the negligent misstatement and the negligence claim are “premised on the idea that the SFA, in exercising a right under a contract, owed a duty of care to its contractual counterparty’s parent company’s shareholders”. There is “no room for any such duty of care” as this would “conflict with fundamental principles of privity of contract, the corporate veil and public policy”, according to the DfE’s lawyers.
Third, Marples’ own case that the consequence of the SFA’s decision was that the proposed sale of shares did not take place “represents no loss to the claimants, because they retained the shares”, adding that the main reason why Marples subsequently suffered any loss is because the value of the shares “fell for other reasons, in particular when the company went into administration in October 2018” which is “unrelated to the pleaded causes of action and is not recoverable”.
As for the misfeasance claim, DfE’s lawyers state that the “primary facts pleaded are incapable of justifying an inference that the SFA acted maliciously or in bad faith with the intention of harming the claimants”. The pleading, for example, refers “amorphously” to a “hostile sentiment” on the part of “the senior leadership of the ESFA”, including in a period many years before the relevant decision-maker – then-chief executive Peter Lauener – was appointed to his role, and in a period before either the ESFA or the SFA existed.
DfE lawyers even provide evidence of a note from Lauener to then skills minister Nick Boles shortly before a visit to 3aaa in July 2015 which suggested he held no animosity for Marples.
The note explained that Lauener knew Marples from past work and that 3aaa was “an organisation that has done very well recently and expanded rapidly and does seem to have a strong employer driven focus and has scored well with Ofsted”. He also said that “subject to looking at their data more, this might be the kind of organisation we would seek to expand in the future because they do pull new employers in”.
The DfE’s defence added that Lauener had gone “out of his way” to assist 3aaa’s cash flow difficulties in March/April 2016 by expediting payment of funding that had been suspended during a KPMG investigation into dodgy data claims, so that it could be released in advance of the conclusion of that investigation and in advance of the SFA’s normal payment run.
DfE points out data and funding issues ignored by Marples
Marples worked at numerous training providers prior to 3aaa which he claimed “demonstrated his competence in the sector over many years”.
The DfE’s defence denied the SFA viewed Marples’ CV as “competence” and provided multiple examples of data and funding issues found at his providers.
In 2005 Marples sold his first training provider, Assa Training and Learning Limited, to become the skills division of Carter & Carter – a firm that was valued on the London stock exchange at over £500 million before its collapse in 2008.
The DfE’s defence states that in November 2007, Carter & Carter issued a statement explaining that it would not be able to submit accounts for the year ended 31 July 2007 because its auditors were investigating irregularities, adding: “The quality of some apprentice learner records has been insufficient to support funding claims made to the Learning and Skills Council. Work carried out on behalf of the board also reveals deficiencies in learner records at the group’s skills division, including falsification of some supporting documentation.”
Further to this, Marples had been a director of Silver Track Training Ltd, a provider of rail engineering apprenticeships, between February 2010 and June 2011, and had been a shareholder until November 2011. The DfE states that “funding errors were subsequently identified in respect of the period during which he had been a director”.
Also in 2011 to 2012, the DfE investigated arrangements under which apprentices at five colleges were declared as being employed by 3aaa “such that the identity or existence of the ultimate employer was unclear”, and that investigation resulted in the “ending of such arrangements”.
Marples’ lawsuit highlighted the KPMG investigation into 3aaa that was launched in early 2016. His claim stated that “there was no evidence found of deliberate circumvention of funding rules by 3aaa”.
But what he didn’t mention, and what the DfE points out in its defence, is that this investigation found “significant discrepancies in the evidence relied upon by the company in support of funding claims, from which the SFA concluded that over £300,000 paid to the company should be repaid”.
You can download and read the full claim from Marples here and the DfE’s defence here.
The case continues.