The highly anticipated trial between former apprenticeships tycoon Peter Marples and the Department for Education began today.
Marples, the co-founder of the now defunct apprenticeship giant 3aaa, appeared in the High Court alongside wife Sarah Marples, son Thomas Marples and his nephew and ex-commercial director Lee Marples.
The family filed a £37 million claim two years ago in which they argued that the government scuppered the planned sale of their business to Trilantic Capital Partners (TLP).
They argue “misfeasance in a public” office and claim that the DfE’s Skills Funding Agency (SFA) “maliciously targeted the claimants intending to cause them loss” by refusing to agree to a change in ownership in 2016.
Taking into account added interest, the Marples could recoup over £60 million if The Honourable Justice Eason Rajah rules in their favour.
Non-existent powers
Adam Solomon KC, representing the Marples, told the High Court that the SFA had “breached their duties” by “exercising a non-existent power to refuse a change of control”.
James Segan KC, for the DfE, argued that “approval of change of control” was simply shorthand for a process that had become commonplace in the skills training sector.
He said there was no contractual requirement to notify the SFA in advance of a proposed change of ownership, and no contractual right on the part of the SFA to “approve” or “reject” a proposed change in advance. The idea of seeking “approval” served as a “shorthand for the process by which notice was given in order to seek an assurance that the SFA did not intend to exercise its right of termination”.
Segan pointed out that on both occasions when 3aaa sought such confirmation, from the proposed TLP sale and a previous sale to another firm called Inflexion – which had been agreed to in 2015 before it was aborted by Marples – the company sought what it itself called “approval for a change of control”.
Solomon went on to accuse the SFA of “taking into account irrelevant considerations” such as “the amount of money that the claimants would make” before deciding not to agree to 3aaa’s application with TLP.
The agency “acted arbitrarily”, he argued, “by not following the process which they had set themselves and by inventing new rules specifically for this application by 3aaa”.
‘My blood pressure is much higher now’
Solomon singled out former SFA chief executive Sir Peter Lauener, who was knighted in the King’s birthday honours last week, for “taking into account irrelevant motivations”.
He explained: “Sir Peter was primarily concerned about how much money the shareholders are making, and wasn’t asking questions about the correct test of determining whether a change of ownership would prejudice the contractors’ ability to deliver the service.”
It was heard that Peter Marples informed then-SFA deputy director Sharon Forton that “Trilantic would pay shareholders £42 million, of which shareholders would re-invest £18 million into 3aaa and £8 million would be used for working capital”.
But Lauener’s response “focused on the amount the claimants would receive for their shares”, the court heard Solomon say.
Lauener said that the Marples’ were “taking £24 million cash out of the deal” and asked: “What do our rules say about this kind of transaction? What scope do we have for discretion?”
In a message read out in court by Solomon about Lauener’s enquiries, Forton said: “Having to be a flippin investment banker here! We are going into so much detail – we have never gone to this granularity”.
In late November 2016 there was a pause in the change of control process while Trilantic reassessed the acquisition in relation to a non-levy tender that launched in October and a proposed non-levy cap of £5 million, set to kick in from April 2017.
The court heard that in early December Mike Keoghan, who was the then deputy CEO of the Institute for Apprenticeships, emailed Lauener with the subject “how’s yer blood pressure?” informing him of six-figure sums which Peter Marples and other co-founder Di McEvoy-Robinson took out of 3aaa, other profit they and the business made, and that 3aaa described itself as “highly cash generative”.
Lauener replied: “My blood pressure is much higher now. Trilantic have renewed their interest in 3aaa. Not surprising when it is so cash generative.”
‘Stand back and wait for the fireworks’
Solomon went on to state that Lauener was asking questions like “why would you want to invest in this sector?” to Trilantic Europe founding partner Joe Cohen weeks before the deal fell through.
On December 22, 2016, Forton drafted a letter stating that the SFA’s decision is that “at this point, based on the information provided, the SFA is not able to agree to this change of ownership in the context of current and future contracts”, but asked for further information about the plan for the levy business, to be assured it would not prejudice future delivery of the contract.
Lauener “made more radical changes” to the refusal letter, according to Solomon. He changed Forton’s request for further information into statements that the SFA “is not able to agree to this change of ownership in the context of current and future contracts”.
His additions to the letter concerned 3aaa’s future business plan around non-levy income and performance projections, which he considered “excessively optimistic” and found a “risk that the change of control will prejudice delivery of our contracts both now and in the future”.
TLP’s business plan projected, for example, an increase in monthly income of almost 80 per cent between August 2016 and July 2017.
Segan, barrister for the DfE, said Lauener’s refusal of the change of control was because the business plan for 3aaa post-acquisition was “premised on an assumption of significant growth of non-levy business which was far too optimistic in view of the impending changes in the funding environment, and the SFA was concerned about the impact on the business if that level of growth was not achieved”.
But after the refusal, Lauener wrote in his covering email: “Then we stand back and wait for the fireworks…my private expectation is that Trilantic will ditch 3aaa at this point because they have been misled by them.”
Solomon argued that a public official “acting properly, in accordance with his powers, would hardly want his decision to cause ‘fireworks’, that can only demonstrate an improper and personal motivation”.
Cohen later pulled out of the 3aaa deal. In an email submitted by the defence, Cohen states that “if what the SFA expect is 3aaa to plan on the basis of no or less SME funding (and there will be little non-levy funding in the future) then no one can realistically invest in the sector including Trilantic”.
Cohen’s email added: “Accordingly, we would not go down a path that seeks to accept or possibly demonstrate how and why the business environment portrayed could be manageable. I am even not keen to give assurances that 3aaa delivery would continue in a worse case scenario”.
Data manipulation relevance
Solomon dismissed allegations of data manipulation and wrongful retention of funds – for which 3aaa have been investigated multiple times by DfE – as “irrelevant”.
He referred to an SFA-commissioned report by KPMG in 2016 that found “no evidence of deliberate circumvention of the funding rules”.
Segan countered that the 2016 investigation found “significant irregularities” and resulted in over £300,000 clawback.
He continued that the “real cause” of the collapse in the value of the Marples’ shares in 3aaa was the “identification of serious irregularities and manipulation of data, and the resignation of Marples and McEvoy-Robinson in late 2018”. This investigation led to a referral to the police, but no action was taken.
Segan argued that the SFA “was both entitled and indeed expected to secure the appropriate and efficient use of the public money that it was securing the provision of”.
He said in his oral submission that the agency was “entitled to understand and exercise a measure of control over who it was, in substance, it was doing business with – and who was actually providing the services”.
Segan referred to “repeated insinuations throughout the evidence and the submissions that any concern on the SFA’s part about the profit being made by private providers is indicative of some sort of malice towards the private sector provision” as “misplaced”.
He denied that the “amount of money being received by shareholders” as part of the buyout was a “decisive factor” in SFA choosing not to agree to the buyout.
He further stated that the SFA was “entitled to scrutinise 3aaa’s request particularly carefully because it was taking place against a background of unprecedented uncertainty in the (further education) market” – referring to the levy reforms.
The court heard Segan describe the claim of misfeasance brought against the SFA by the Marples family as “entirely baseless”.
Claims made that the SFA were “motivated by personal animosity to Peter Marples” have “simply no basis”.
“It is a recurring theme that the court should infer malice because essentially any concern on the part of the SFA or its employees about profit margins among private training providers is an indication of hostility towards the private sector or indeed towards Mr Marples.
“That simply doesn’t follow”, Segan concluded.
Duty of care
Lawyers will clash in the coming days over whether or not the SFA owed a duty of care to the Marples family and whether that duty was breached by issuing the “refusal” letter.
This is a key argument in Marples’ allegation that the SFA acted negligently.
By “refusing” to sign off on the change in ownership of 3aaa, Marples’ lawyers’ argue this created a “special relationship” with the family as identifiable individuals who stood to lose a lot of money by the SFA’s decision.
Government lawyers dispute that such a duty exists, describing the claim as “an extreme departure” from existing law. They argue the SFA’s funding agreement was with the training provider, not its shareholders, and extending a duty of care to private investors would “upend” contract law.
They go on to point out that Sarah Marples and Thomas Marples, who are named as claimants and are therefore claiming a duty of care, have not provided evidence as witnesses, nor have former shareholders Derek Mapp and Diane McEvoy-Robinson.
Palmer in the dock
Andrew Palmer, 3aaa’s former managing director who later ran England’s former largest training provider Learndirect until its skills funding contracts were terminated following an ‘inadequate’ Ofsted judgement in 2017, was then called to give evidence as the first live witness for the claimants.
He was directed to an extract from his statement that claimed the SFA was “continually wanting to restrict (the) growth” of private providers.
This was contrasted with another statement he had previously made stating that he could not
“remember one occasion where the agency did not approve funding for 3aaa”.
Tom Cleaver, another barrister for the DfE, then put to him: “The SFA was continually wanting to restrict growth but you never had a funding request turned down – it can’t be both can it?”
“It can’t be both”, Palmer conceded, adding: “I would say we would have to work very hard to justify and qualify the growth we got, which may be fair enough bearing in mind that its public money.”
He was then asked if it was “industry knowledge” that “if a buyer sought an assurance that a contract wouldn’t be terminated?”
“It was my belief at that point, that at no point had anyone requested change of control and not been awarded it”, Palmer said.
He was questioned about the part of the offered rationale behind the SFA’s decision not to agree to a change of ownership concerning a change in the funding environment amid the introduction of the levy as well as the proposed non-levy cap.
“Would you accept that it is reasonable and sensible for a company offering its services in this sector to have regards to the government’s funding plans and proposals when it makes its own plans for the future?”, Cleaver asked.
“Yes”, said Palmer, “however, the companies had all grown their now-called non-levy – small and medium enterprise provisions – with the agreement of the government and so therefore the government knew the size of the contracts and the amount they needed to move forward.”
Cleaver pressed that Palmer’s witness statement was a “misleading way of presenting the process” of change of control, as Palmer described it as “quick” and “with little to no questions asked”.
The trial continues tomorrow with Peter Marples scheduled to give evidence.
