Peter Marples is holding firm in his High Court battle as his family lawyers attempt to pick apart the government’s defence.
The co-founder of 3aaa is attempting to sue the Department for Education for the then-Skills Funding Agency’s refusal to sign off on the change of ownership of the former apprenticeship giant in 2016, two years before the company went bust amid an investigation and police referral.
In the latest instalment of the legal action, Marples’ lawyer, Mark Harper KC, has countered the DfE’s claim that the case is “fundamentally flawed” and attempted to justify why a financial loss was suffered.
The reply to the defence also submitted evidence which alleges that the SFA had originally intended to sign off on the sale before U-turning at the 11th hour, and claims that the DfE has admitted the funding agency “did not have the power to approve a change of control”.
Bargaining power lost and shares rendered ‘worthless’
Marples claims that the consequence of the SFA’s refusal was that the proposed sale of shares fell through and caused a loss of at least £37 million.
The DfE’s lawyers hit back and said this “represents no loss because they retained the shares”, adding that the main reason why Marples 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”.
But Marples’ lawyer argued this was “specious” because the claimants “lost the benefit of the bargain that they had, in principle, agreed”.
The reply said: “It is not pleaded in the defence that there was an alternative, available market for the retained shares. Indeed, the effect of the refusal letter was to deprive the claimants not only of the intended sale to TLP (Trilantic Capital Partners LLP), but also to any other interested purchaser, to whom that refusal letter would have been disclosable.
“The shares were rendered worthless by the refusal letter.”
‘Duty of care’ contested
The DfE said Marples’ claim of negligence is 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”.
It added that there is “no room for any such duty of care, which would conflict with fundamental principles of privity of contract, the corporate veil and public policy”.
Marples’ lawyers disputed this: “There is no principle of law that such a duty is not owed to the shareholders of a company, by a contractual counterparty.
“The fact that the claimants were shareholders in the SFA’s counterparty is no bar to the existence of a duty of care in their favour, and the material facts show that the SFA assumed a duty of care when purporting to have the right to approve or deny a change of control request.
“Ultimately, the SFA purported to act as gatekeeper to a deal where it was reasonably foreseeable that its conduct would cause the abandonment of the TLP acquisition, and therefore cause the claimants’ loss.”
DfE ‘admits’ it had no power to refuse sale
3aaa’s funding agreement with the SFA included the following clause (5.10): “The contractor must notify the chief executive if there is a change in its name and/or ownership. The chief executive reserves the right to terminate the contract if they consider in their absolute discretion that the change in ownership would prejudice the contractor’s ability to deliver the services.”
Marples’ lawyer argued that, accordingly, the SFA exercised an effective veto over any change of control, because no reasonable intending purchaser of the company’s shares would agree to buy it without assurances that the funding agreement would not be terminated.
The DfE’s defence then said that, while the SFA “did not have the right to approve a change of control, it is admitted that it was commonplace for providers to seek the assurance of the SFA that it would not immediately exercise its right to terminate the contract”.
But it denied that approval by the SFA to the proposed change of control was “agreed to be a condition precedent to the TLP acquisition”.
Marples’ lawyer said the defendant has “therefore admitted that, whereas it purported to be entitled to decide upon a change of control, it had no contractual basis on which to do so”.
The latest reply continued: “The most the SFA could properly have said was that it reserved the right to exercise its discretion under clause 5.10 in the event of a change of control. Had it done so, the acquisition would have been completed.
“The SFA still had the opportunity to not renew the contract at the end of the then current term, being 1 August 2017, if it so wished; something which TLP were aware of as part of the acquisition when agreeing the consideration for the company.”
Marples’ lawyer added that, if the SFA was “truly concerned” about the future deliverability of the contract, then its options were to either terminate the funding agreement post-acquisition or simply not award a further annual contract.
But the “reality is that the SFA increased its funding to the company the following year”.
The mysterious draft letter
Marples claims that on December 22, 2016, he telephoned then-SFA deputy director Sharon Forton to enquire about the status of the sale approval. She allegedly informed him that she had placed a letter on the desk of then-SFA chief executive Peter Lauener, which “confirmed that the SFA would consent to the change in control”.
The DfE’s defence said the claimants are required to prove the telephone call and contents pleaded, adding that the letter refusing consent was drafted by Forton on December 22, 2016, and “at no time before that letter was drafted” did Lauener indicate to Forton, or any other person, that he intended to approve the change in control.
Marples has now claimed that there existed a draft version of the letter (see image) which “differed substantially from the refusal letter…which was presumably signed off by Peter Lauener”, adding that the defendant has “not explained how such amendments were finalised”.
Show us the evidence!
The DfE’s defence denied that 3aaa was “unique” in not being granted approval to a proposed change of control and claimed that the SFA had “terminated the contract of another provider upon a proposed change of control”.
In its reply, Marples’ lawyer said the DfE is “put to strict proof” on this matter, adding that the department must “prove that the alleged termination of contract occurred in the same period and pursuant to the same contractual provisions as governed in the funding agreement”.
You can download and read the full claim from Marples here, the DfE’s defence here, and Marples’ reply to the defence here.
The case continues.
Hope you take the DfE bullies down.
They think they are beyond accountability.
DFE are there to ensure public money is used wisely and not to line the pockets of individuals who should have used their excess profits to provide a better experience for their learners.
What like the wasted money on UTC failures
Or the more general cronyism of billions wasted on PPE with lots of it handed to colleges to hide from auditors gaze.
Or perhaps the hundreds of millions already expended on the 3000 students studying t levels
Can’t help but be sceptical. Civil servants covering their backs and politicians is what they are there to do in my book.
Quite a lot of tu quoque nonsense there Rob. Don’t think I’ll be reading your book.
Everyone is entitled to a view.
Hardly nonsense when you look at the facts. Dave, At least I have views rather than simply dismissing others opinions. The facts are that DfE allowed the situation to happen. How much taxpayer money is being spent on this