PROVING THINGS 92: WHERE THE CLAIM FOR DAMAGES WAS LARGELY “WISHFUL THINKING”: £1 MILLION CLAIM REDUCED TO £25,104 (OH & THROW IN A ERRANT EXPERT AS WELL)

The judgment of John Martin QC (sitting as a High Court judge) in London College of Business Ltd v Tareem Ltd & Anor [2018] EWHC 437 (Ch) is a prime example of a failure to prove damages. The claim was initially put at £1 million, reduced to £189,415 and yet £25,104 was awarded.  The judge comments on the total absence of evidence in support of the claim. Further the “independent” expert in support of the claim for damages proved to be not so “expert” after all.

“As it is, the College’s case on damages appears to me to be almost entirely wishful thinking that ignores the influence of other events,”

THE CASE

The judge found that the claimant college had unlawfully been excluded from its premises for four days. He then had to assess the damages that the college had suffered.

THE JUDGMENT ON DAMAGES

    1. As I have said in paragraph 4 above, the College’s claim, initially put at around £1,000,000, is now £189,415. This figure, which is based on the evidence of the person put forward by the College as its expert, is made up of two elements: lost profit of £113,680, and loss of goodwill of £75,735.
    2. The person put forward as its expert by the College was Anand Venkoba (“Mr Anand”), who described himself as “a freelance consultant with over 32 years of work experience in finance and accounting matters possessing suitable academic and professional qualifications in finance and accounting”. He is a fellow member of the Institute of Cost Accountants of India and a fellow member of the Institute of Company Secretaries of India. He is a Chartered Insurance Practitioner in the United Kingdom, and has an LLB, a postgraduate diploma in personnel management, and Masters in commerce, economics, history, public administration and business administration. He produced two reports, the first dealing with the state of account, the second with damages. Each of these reports stated in terms that Mr Anand knew of no conflict of interest of any kind, other than any which he had disclosed in his report. None was in fact disclosed. In the course of his cross examination, however, it emerged that since 2008 he has been providing freelance services as a business consultant to the College, attending at the College’s offices about once a week. He claimed that he regarded this as irrelevant, since his instructions were to provide an independent expert report and for the purposes of the report he was completely independent.
    3. It goes almost without saying that this situation was completely unsatisfactory. It is bewildering that Mr Anand should feel himself able to present himself as an independent expert and to state explicitly that he had no conflict of interest. I required both Mr Simms, the director of the College who presented its case in court, and Westbrook Law, a firm of solicitors who remained on the record for the College, to provide me with explanations in writing as to how it came about that Mr Anand had been tendered as an expert witness. I was satisfied from those explanations that neither Mr Simms nor the solicitors had known of the business consultancy services provided by Mr Anand to the College, and that the suggestion that Mr Anand should be used as the College’s expert came from Dr Basha. The position nevertheless remains highly unsatisfactory; and, although I have done my best to treat Mr Anand’s evidence fairly, it is obvious that the matters I have referred to affect the weight to be accorded to his evidence. Moreover, where – as, in relation to damages, he often does – Mr Anand provides factual evidence, I think it necessary to treat that evidence with some scepticism.
    4. Mr Anand based his figure for lost profit on his assessment of the number of students lost due to the lockout less the additional tuition and other costs that the College would have incurred had the students not been lost. As he acknowledged, it was not possible for him to pinpoint with accuracy the number of students who would have enrolled at the College but for the lockout. His estimate was based on certain historical data, which showed that the College had a higher intake of students in the September and October recruitment window than in the January and April windows; on the College’s projections of student numbers set out in strategic plan documents; on 105 e-mails from potential students in the period May to October 2014; and on two letters from recruiting agents.
    5. Of these factors, the only one which appears to me to have much validity is the first: it does appear that recruitment was typically higher in September and October, at the beginning of the traditional academic year, than at other times of the year. As to the others:
(1) The College’s projections of student numbers were perennially overoptimistic and unreliable. The extract from the College’s Business Strategic Plan 2013-2016 provided to Mr Anand shows that in 2010 23 of the 100 planned students for a Bachelor’s degree in fact enrolled, and 282 of the planned 400 Master’s students enrolled. In 2011, the equivalent figures were 100 Bachelor’s students planned, 15 enrolled and 400 Master’s students planned, 156 enrolled. In 2012, a total of nine students enrolled for Bachelor’s and Master’s degrees out of the 500 planned (although the 2012 figures were very heavily affected by the withdrawal of validation by the University of Wales). A revised version of the business plan was produced in response to the lockout; but even that shows that in 2013, when the College was able only to offer Edexcel diplomas and English language courses, 43 of the 50 projected students enrolled. In the original plan, 200 students were expected to take the Edexcel diplomas and English language courses in 2013, and 300 in 2014. In the revised plan, 200 students were expected in 2014 and 174 enrolled. Mr Anand’s view that 130 additional students would have enrolled but for the lockout seems highly unlikely in the light of these figures. Moreover, he has failed to have regard either to the effect on student numbers of a further suspension by the Home Office of the College’s licence in December 2014 or to the College’s performance in 2015 and 2016 – in each case, on the ground that his concern was only with 2014.
(2) The e-mails relied on by Mr Anand may best be described as expressions of interest in the College’s courses. Some of them are sent directly by potential students, some by agencies. A number of them appear to be dated 11 May 2014; a further number have dates in August and September 2014; and others are dated in October 2014. There are 105 of them, and Mr Anand estimates that 65 students would have resulted from these expressions of interest but for the lockout. However, there is no evidence whatever that the reason why any of the enquiries came to nothing was the lockout. Not one of the persons to whom the enquiries related was called to give evidence; there was no material dealing with how the May 2014 enquiries had been progressed and when it was that they came to nothing; and some of the e-mails were after the lockout, so on the face of it had been unaffected by the lockout.
(3) Neither of the agents who wrote letters was called to give evidence. One of them, Khaja Ali, was the College’s company secretary at the time of the lockout, so the failure to call him to give evidence is particularly striking. His letter said that he had been at the premises on 23 September 2014 with about 15 prospective students seeking admission into one of the courses. Because of the lockout, these students “had to return with serious doubts in their mind about the genuine operations of the College and my reference credentials. Also there were 20 other students for whom the application scrutiny were complete and they were in a position to make the fee payment of £3900 each, which student’s when they came in due to lockout of the premises were taken aback and went off making without making the payment, thus the College lost sizeable income”. The letter went on to say that Mr Khaja Ali believed that the situation would have spread to more students thereby damaging the college’s reputation. He also said that he was actively negotiating with a further 50 students, whose business he believed the College lost. The other letter was from a Mr Arshad Ali who had had a similar experience on 23 September 2014 with 10 prospective students, who “were so disappointed that they abused me questioning my credential to refer them to your college. This is a very serious matter and I not only lost my credibility in the student market place on whose behalf I was marketing and referring you the students, as well for the college, which in general failed on this occasion”. As I say later in this judgment, I do not disregard these letters altogether, but the quality of the evidence they provide is poor.
    1. So far as reputational damage is concerned, Mr Anand’s figure (which was initially £109,000) was based on the College’s published accounts for the five years from 2010 to 2014, although he did refer to letters from staff members, current students and one of the directors of the College that suggested damage to reputation. In the joint expert’s report, Mr Anand accepted that his figures in respect of two of the years did not correspond with the statutory accounts filed by the College at Companies House, and that resulted in a reduction in his figure for loss of reputation to £75,735.
    2. The expert who gave evidence on Tareem’s behalf was Adam Anstey, a Fellow of the Institute of Chartered Accountants in England and Wales and a partner in Wilkins Kennedy LLP, Chartered Accountants. He took the view that it was impossible on the material available to him to estimate whether any, and if so how many, students were lost as a result of the lockout. He approached the matter by looking at the College’s year-end accounts, prepared to 31 December each year, commenting that the accounts prior to 2014 would be unaffected by the lockout whereas the accounts for 2014 and 2015 would potentially be affected. He produced the following table.
Year Turnover Inc / (Dec)
2010 1,470,719  
2011 1,542,349 4.9%
2012 854,164 (44.6%)
2013 365,499 (57.2%)
2014 322,095 (11.9%)
2015 220,415 (31.6%)
His conclusion was as follows:
“The average reduction in turnover in the two years prior to the lockout (2012 and 2013) was 50.9%. The average reduction in turnover in the two years following the lockout (2014 and 2015) was significantly lower at 21.8% – i.e. in relative terms, an improvement in the position following the lockout. There may be other reasons for this trend, such as the impact and recovery from the Sky News investigation in 2012. However, the data does not support the assertion that [the College’s] performance was adversely affected by the lockout in September 2014.”
    1. In approaching this issue, I have borne in mind, as Mr Simms urged me to do, the following passage from the judgment of Toulson LJ in Parabola Investments Ltd v Browallia Cal Ltd [2011] QB 477 at [22]-[24]:
“There is a central flaw in the appellants’ submissions. Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant’s wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss.
The claimant has first to establish an actionable head of loss. This may in some circumstances consist of loss of a chance …, but we are not concerned with that situation in the present case …. The next task is to quantify the loss. Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account …
The appellants’ submission, for example, that “the case that a specific amount of profits would have been earned in stage 1 was unproven” is therefore misdirected. It is true that by the nature of things the judge could not find as a fact that the amount of lost profits in stage 1 was more likely than not to have been the specific figure which he awarded, but that is not to the point. The judge had to make a reasonable assessment and different judges might come to different assessments without being unreasonable …”.
  1. I have also borne in mind that the court should incline to resolve difficulties in the assessment of damages in favour of the innocent party to a breach of contract or – to use a phrase frequently used in the authorities – to give “a fair wind” to the innocent party.
  2. However, even with a fair wind, I am not able to accept Mr Anand’s estimates of the numbers of lost students or the even more exaggerated estimates given by Dr Basha. Toulson LJ’s statements in Parabola are directed to uncertainties that are incapable of objective resolution, not to matters that a party could have elucidated by evidence but chose not to. All the material advanced by the College in support of its claim to damages requires inference or speculation, in circumstances where significant parts of it could have been proved by direct evidence. Calling even one of the students who had expressed interest to explain why he did not enrol, or even one of the agents to explain what had occurred on 23 September 2014 and how it had affected subsequent referrals to the College, would have provided the College with at least some evidential foundation for the assessment of damages. As it is, the College’s case on damages appears to me to be almost entirely wishful thinking that ignores the influence of other events, in particular the loss of validation from the University of Wales and the repeated suspensions of the College’s licence, including that in December 2014. Although Mr Anstey’s evidence is limited, and the table he produced demonstrates a continuing fall-off in turnover after 2014, I consider that the limited inference he draws from the annual percentage decline in turnover is valid. In the circumstances, I am not prepared to find that any substantial damage flowed from the three-day closure of the College’s premises.
  3. Despite that, it seems to me that the College is entitled to limited damages. In the first place, it was deprived for a short while of the use of premises for which it had to pay in the form of licence fee. The fee, including VAT, was £9000 a year; and, on the basis of a year of 260 days made up of 52 five-day weeks, the wasted amount is in round terms £104. Secondly, there was undoubtedly disruption to the College’s ordinary business during the period of the lockout, and wasted expense on wages, and I assess the damages for that at £5000. Thirdly, and in particular because of the notices attached to the premises stating that the College was in arrears of rent, I consider that there was some damage to the College’s reputation, which I consider is to be viewed in the context of the prior suspensions and the Sky News allegations. I assess the damages on this ground at £10,000. Finally, I do not consider that I can wholly discount the possibility that a few potential students changed their minds about enrolling because of the lockout, and I award a further £10,000 to take account of that possibility. The total award of damages is accordingly £25,104.