H.H. Judge Keyser Q.C. :
Introduction
- On 8 May 2015 I gave judgment for the claimant ("the University") on its claim for payment of moneys due from the defendant ("the College" or sometimes, particularly in quotations, "LCB") under a validation agreement dated 1 February 2012 ("the Validation Agreement"). I also held that the College was entitled on its counterclaim to damages for the University's breach of the Validation Agreement by twice suspending enrolments at the College during 2012. This is my judgment upon the assessment of the amount of those damages.
- The facts of the case and the more particular findings regarding the University's breach of the Validation Agreement are set out in detail in the earlier judgment. The most important points for present purposes are these:
- In breach of the Validation Agreement, on 29 March 2012 the University suspended enrolments at the College pending the outcome of an Interim Review. The suspension was lifted on 16 November 2012.
- In breach of the Validation Agreement, on 29 November 2012 the University again suspended enrolments at the College pending the outcome of an investigation into the College's academic and administrative processes.
- By letter dated 20 December 2012, while the second suspension was in place, the University lawfully terminated the Validation Agreement with immediate effect on the ground that its invoices had not been paid.
- The material effect of the University's breaches of the Validation Agreement—more particularly, of the first wrongful suspension—was to prevent the College from enrolling new students on University-validated courses in April and September 2012.
- The damages to which the College is entitled for breach of the Validation Agreement are limited by clause 17.3.3. It is entitled to claim damages in respect of the loss of profits it would have made under the Validation Agreement if the University had performed its obligations. But it is not entitled to recover damages in respect of any losses that it might suffer more generally on account of harm to its business arising out of the University's breach of contract.
- Accordingly, the profits for which damages are recoverable are those that the College lost by reason of being prevented by the University's breach of contract from enrolling new students in April and September 2012.
- The parties and their experts approached the matter on the basis that the assessment of the College's losses required valuation of (a) the incremental revenue that the April and September 2012 intakes would have provided to the College and (b) the additional costs associated with that revenue. As a result of a measure of agreement between the experts and the parties, three factual issues remain for consideration:
1) How many additional students would have been enrolled on the College's courses in April and September 2012, but for the University's breach of contract?
2) What fees would those students have paid?
3) What additional costs would the College have incurred in respect of teaching staff required to teach those additional students?
The parties were agreed that I should proceed by resolving these issues, on the basis that the calculation of the loss could then be made on the basis of my findings. In view of the parties' invitation and of the large amount of agreement between the experts before trial, I shall proceed on that basis, though with some misgivings due to the consequence that it will result in an award of damages in a sum that I have not had the opportunity to consider in the round.
- Evidence of fact for the College was given by Mr Ian Nisbet, who since November 2010 has been the Project Manager for the College's on-line MBA programme and since 2 July 2012 has been the College's Principal. His factual evidence and the College's case generally regarding its future business prospects were supported by the evidence of Professor Vicky Vass, an academic with long experience at senior management level in the UK university system, who gave her opinion as to the College's assessment of its likely student intake in April and September 2012.
- Evidence of fact for the University was given by Mr James Plumb, its Assistant Registrar (Academic). The University did not adduce evidence from an expert in the field of higher education. However, it relied on witness statement of Mr Lee Bartlett, who at the relevant time in 2012 was a senior official of UKBA. The contents of that statement, in a redacted form, were agreed.
- Expert accountancy evidence was adduced by both parties: for the College, from Mr Christopher Makin, formerly a partner in a large firm of accountants and now in practice on his own account as an accountancy expert and civil mediator; for the University, from Mr Adam Smith, a partner in Deloitte Forensic within Deloitte LLP. Mr Makin and Mr Smith were able to reach a very large measure of agreement and, to that extent, this judgment will not adequately reflect the assistance they have provided. The issues between them at trial centred on a difference of approach: Mr Makin took the view that his experience did not qualify him to express expert opinions regarding the numbers of students that the College would have been likely to recruit, and he therefore very properly prescinded from any such opinions; whereas Mr Smith considered that, having experience of assessing the past performance and future strategies of businesses of varying kinds, he could, though not an expert in higher education, give expert opinions on the realism and feasibility of the College's projections.
The relevant law
- The correct approach to the assessment of damages in a case such as the present was explained by Toulson LJ in Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486, [2011] QB 477:
22. ... 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.
23. The claimant has first to establish an actionable head of loss. This may in some circumstances consist of the loss of a chance, for example, Chaplin v Hicks [1911] 2 KB 786 and Allied Maples Group Limited v Simmons and Simmons [1995] 1 WLR 1602, but we are not concerned with that situation in the present case, because the judge found that, but for Mr Bomford's fraud, on a balance of probability Tangent would have traded profitably at stage 1, and would have traded more profitably with a larger fund at stage 2. 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. (See Davis v Taylor [1974] AC 207, 212 (Lord Reid) and Gregg v Scott [2005] 2 AC 176, para 17 (Lord Nicholls) and paras 67-69 (Lord Hoffmann)).
24. 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 at 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.
- The University accepts that the College has demonstrated a "real or substantial chance" that, but for the University's breach of contract, it would have made profits that it did not in fact make and that it has thereby established an actionable head of loss; cf. Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, per Stuart Smith LJ at 1614. The task that remains, accordingly, is to make a reasonable assessment of the lost profits, taking into account and weighing up all the various factors that might have affected the profits for good or ill.
- Mr Simms submitted that, as the reason why the College cannot clearly demonstrate what would have happened if the Validation Agreement had not been suspended is the University's breach of contract in suspending it, uncertainties ought to be resolved in the College's favour by allowing it a "fair wind" in assessing the value of what it has lost and applying in its favour an evidential presumption giving it the benefit of any relevant doubt (cf. Browning v Brachers [2005] EWCA Civ 753, [2005] PNLR 44, at paragraph 74). Such a presumption appears to have originated in the case of the valuation of property (Armory v Delamirie (1721) 1 Strange 505), though it has also been considered capable of application in the case of loss of profits (e.g. Wilson v Northampton and Banbury Junction Railway Co (1874) 9 Ch App 279; and, with heavy qualification, Double G Communications Ltd v News Group International Ltd [2011] EWHC 961 (QB)).
- I have not found reference to this line of authority to be of any real assistance in the task before me. Two matters of fundamental importance must be kept firmly in mind: first, the indemnity principle, which underlies the law's approach to damages; second, the burden that lies on the claiming party, here the College, to prove its loss on the balance of probabilities. The question must always, as it seems to me, be what inferences and conclusions are justified by the evidence. In some cases the defendant may have access to evidence that it has failed to produce, and it may be proper to draw an adverse inference as to the reasons why the evidence has not been produced; Armory v Delamirie, which involved the loss of physical property, was such a case. Another kind of case, of which Browning v Brachers is an example, concerns damages for the loss of intangible property, namely a right of action; where the negligent lawyer advanced the lost case at a certain value, it might be reasonable to infer against him that it did not have a significantly lesser value, in the absence of contrary evidence. The present case is simply a claim for loss of profits on account of breach of contract. Because the quantification exercise arises in consequence of the University's breach of contract, the inherent uncertainties of the exercise may be said to result from the University's conduct. But this is not a case of withholding or suppressing evidence or information and the University has not acted in a manner that imposes on it any burden to explain why a generous view ought not to be taken of the profits that the College would have made. It would be wrong to permit any supposed rule of law to override the two fundamental principles mentioned earlier in this paragraph. (See Zabihi v Janzemini [2009] EWCA Civ 851, at paragraphs 26 – 32 and 50 – 51.) Further, having considered the evidence before me, I should not consider a "fair wind" approach to be useful on the facts of this case. I find that my conclusion may be precisely expressed in the words of Hamblen J when he considered the same point in Porton Capital Technology Funds and others v 3M UK Holdings Ltd [2011] EWHC 2895 (Comm):
244. This is not a case concerning the value of goods which the defendant has failed to produce or of the suppression of evidence, as in Armory v Delamirie. Nor is it a case involving the loss of the chance of success in legal proceedings, as in Browning v Brachers. It is a claim for lost profits for breach of contract. There is factual and expert evidence before the court relating to that claim. There is documentation before the court relevant to the claim. The evidential playing field is a level one. Whilst it is correct that the claim involves a degree of conjecture, that is the case in relation to very many contractual damages claims and in all such cases it can be said that it is the defendant's breach of contract which has made that conjecture necessary. As a matter of authority there is no requirement to apply the principle of Armory v Delamirie to a case such as the present, and as a matter of principle I consider that there is good reason not to do so and that the application of the principle should not be extended further than is necessary.
245. Even if that be wrong, in accordance with what was stated in Browning v Brachers, any presumption would only arise in a case of doubt and in arriving at the findings set out below I have not found there to be sufficient doubt to give rise to any presumption that might otherwise be applicable.
Some necessary context
- LCB carries on the business of a college with a view to profit. It began to trade in 2005, and between 2008 and 2012 most of the qualifications that it offered were validated by the University pursuant to a series of agreements, of which the Validation Agreement was the last. Students enrolled on one of the College's validated courses would receive, upon the successful completion of the courses, undergraduate or postgraduate degrees or other qualifications from the University. In each year there were three intakes of students, respectively in January, April and September. The College operated from three campuses, at Barking, London (Oxford Street) and Birmingham, though from the beginning of 2012 the Birmingham campus was effectively mothballed.
- Schedule 1 to the Validation Agreement set out the courses validated by the University, the dates when the respective courses started or were to start, and the maximum and minimum numbers of students that could be enrolled in any one intake. The relevant information was as follows:
- BA in Business Administration: start-date February 2008; maximum 230 (100 at Barking, 50 at London, 80 at Birmingham); minimum 70 (30 at Barking, 10 at London, 30 at Birmingham)
- MBA: start-date February 2008; maximum 570 (400 at Barking, 50 at London, 120 at Birmingham); minimum 110 (70 at Barking, 10 at London, 30 at Birmingham)
- MBA (on-line): start-date April 2012; maximum 50; minimum 10
- Foundation Certificate ("FC"): start-date April 2012; maximum 100 (50 at Barking, 50 at London); minimum 20 (10 at Barking, 10 at London)
- Masters Entry Diploma ("MED"): start-date April 2012; maximum 100 (50 at Barking, 50 at London); minimum 20 (10 at Barking, 10 at London).
- This case is concerned with the loss of two intakes, namely April and September 2012. The total number of students that could have been permitted to enrol on University courses in those two intakes was as follows: BA, 460; MBA, 1040; MBA on-line, 100; FC, 200; MED, 200.
- The BA course was originally a three-year course, but from 2010 it was reduced to two years, with shorter breaks between terms. Each of the other courses was for one year. As the start-dates in Schedule 1 indicate, the on-line MBA, the FC and the MED were new courses. The on-line MBA was particularly designed to enable overseas students to take the course without the need to enter and reside in the UK. The FC was designed as a grounding certificate to qualify students to enrol on BA courses. The MED was designed to perform a similar function for students wishing to enrol on the MBA or another Masters course. Both qualifications were particularly designed for non-UK students whose overseas diplomas or degrees could not be evaluated as sufficient to qualify them to enrol on a BA or Masters course in the UK. An exchange of emails between staff of the College and the University in early 2012 confirms the intention that the FC and MED courses would be up and running from April 2012.
- Despite the terms of Schedule 1, the information given to me at trial was that the MBA on-line was offered by the College in September 2011 and January 2012. What was not produced, however, was evidence to show the figures for the intakes on the on-line course in distinction from those for the MBA as a whole.
- At the beginning of 2012 the College had about 460 students, who were mainly drawn from Asia with a small number from Africa and Europe. The "Annual College and Course Review[:] Academic Session 2010/11", produced in 2012, recorded that the student intake in 2011 comprised 99% from outside the European Economic Area ("EEA"); 46% were from Pakistan and 20% were from India. It is necessary to say something about the system in place in 2012 whereby students from outside the EEA ("non-EEA students") could be accepted for study in the UK. The short summary that follows is taken, highly simplified and much abridged, from Mr Bartlett's witness statement.
- Prior to March 2009, the entry of non-EEA students into the UK for study purposes was subject to a student visa regime based on assessments made by Entry Clearance Officers. In March 2009 that regime was replaced by Tier 4 of the Points Based System, which involved the licensing of approved educational institutions as Tier 4 sponsors. Before a prospective student could apply for a Tier 4 visa, he had to be in receipt of a Confirmation of Acceptance for Studies ("CAS") from the licensed sponsor. The CAS operated as confirmation by the sponsor that the student satisfied the requirements of the rules relating to Tier 4 visas and was premised on the sponsor having made sufficient checks on the student. The sponsor was also required to inform UKBA of any material change of circumstance, such as the student leaving the course of study, that might affect the student's continued right to remain in the UK. The number of CAS an institution could issue was controlled by UKBA in accordance with factors that included the sponsor's total capacity and its history of compliance with the Tier 4 system. The new system did not affect the rights of residence of those who were already admitted for study in the UK under the previous system.
- Following the introduction of the Points Based System, the College applied for a Tier 4 licence and on 18 March 2009 it was granted such a licence with an A-rating, the highest available.
- The introduction of the new Points Based System was followed by a significant increase in the number of non-EEA students who came to the UK. UKBA considered that many of these students were not genuine and that not all Tier 4 sponsors were satisfying the requirements of their licences. From 2010 onwards, a combination of a series of policy and legislative changes served to restrict the ability of private educational institutions to sponsor non-EEA students and to limit the overall number of such students entering the UK. It is unnecessary here to describe those changes in detail. One early approach adopted by UKBA involved the suspension or revocation of sponsor licences held by delinquent institutions and the reduction of the number of CAS that a given sponsor could issue. Another measure was the complete removal of rights to work from Tier 4 students whose CAS was issued by privately funded institutions; students whose Tier 4 visas were sponsored by publicly funded universities continued to have the right to work full-time out of term and up to twenty hours a week during term. This obviously placed private institutions at a significant competitive disadvantage as compared to publicly funded institutions. To the same effect, another reform required private institutions to undergo a significant and costly educational oversight process, bringing them into line with publicly funded institutions. Again, a change in the Points Based System made it mandatory for all institutions seeking a Tier 4 sponsor licence to achieve and maintain Highly Trusted Sponsor ("HTS") status by April 2012. Mr Bartlett comments on the effect of the various changes that he describes in more detail in his statement:
The changes ... enabled UKBA to target compliance action against those who they believed posed the greatest risk to immigration control through poor recruitment practices [and] had a disproportionate effect on the private sector in terms of the students they could attract due to (i) the removal of associated working rights and (ii) the nature of their recruitment processes. ... The new requirements for HTS status and educational oversight, combined with the increased audit activity and compliance action of UKBA ... naturally created an environment which made it more difficult for the private sector to recruit in. It also increased the need for them to become more diligent and conservative in their recruitment practices, as they now required a more in-depth and time-consuming process of checking and validating previous qualifications and a student's intention to study ...
Following the introduction of these changes, I can recall that there was a noticeable increase in action taken by UKBA against non-compliant sponsor institutions. That action was often publicised.
- From March 2009 until February 2010 the College had a CAS limit of 250 students. In early 2010 it began to implement a strategy for expansion, which involved a request to UKBA for an additional 2000 CAS allocation. In April 2010 the College applied for HTS accreditation, which was eventually granted in November 2010. On 22 December 2010 UKBA increased the College's CAS allocation to 2250. However, in March 2011 UKBA announced a decision to introduce an interim limit on the number of CAS from 21 April 2011, calculated on the basis of the number of CAS assigned by each sponsor during an assessment period between 1 March 2010 and 28 February 2011. The introduction of the interim limit was extremely damaging for the College: by 1 March 2010 it had already issued most of its available 250 CAS; after the increased allocation in late December 2010 it had only limited opportunity to issue CAS before 28 February 2011 and, in the result, it issued only 179 CAS during the assessment period.
- On 19 April 2011 UKBA informed the College that its CAS allocation had been reduced to 134 in respect of an interim period from 21 April 2011 to 5 April 2012. UKBA did not accede to the College's immediate request that the interim allocation be increased to 562 as being 25% of its previous allocation. The College used only 25 of its 134 places in the September 2011 enrolment and only eight in the January 2012 enrolment; Dr Basha states that it hoped to use the balance in the April 2012 intake. In January 2012 the College made an application to renew its CAS allocation at the previous number of 2250. However, on 9 February 2012 UKBA reduced the College's CAS allocation to nil. A request for reinstatement of the allocation had met with no substantive response when on 26 March 2012 UKBA officers carried out an unannounced compliance visit at the College. In consequence of that visit, on 29 March 2012 the College's Tier 4 sponsorship licence was suspended with immediate effect. It was not reinstated until 30 August 2012.
- During the period of suspension, the College would have been unable to issue CAS to non-EEA students or to enrol non-EEA students who did not have existing visa rights. With the exception of the MBA on-line, all of the College's courses required a lesser or greater period of full-time attendance at the College. Students who were from non-EU countries and did not already have a visa permitting them to study in the UK would accordingly have required a CAS.
The College's case
- The College's case in a nutshell is as follows. If the University had not wrongfully suspended the Validation Agreement, the College would in 2012 have enrolled on the BA course 150 students, on the MBA course 390 students, on the MBA on-line course 50 students, on the FC 30 students, and on the MED course 60 students. Those students would have generated for the College additional turnover from fee income and additional pre-tax profits (i.e. turnover from fee income over and above that actually received, and pre-tax profits over and above those actually achieved) as follows:
| |
Additional turnover |
Additional pre-tax profits |
| 2012 |
£1,954,000 |
£860,332 |
| 2013 |
£2,611,750 |
£1,814,284 |
| 2014 |
£546,250 |
£124,947 |
- Two matters highlight the need for cogent proof of this claim. First, the profits the College says it would have made in 2012, 2013 and 2014 are out of step with its previous performance. The College's total turnover and pre-tax profit or loss from 2008 onwards were as follows:
| Year |
Total turnover |
Total pre-tax profit/loss |
| 2008 |
£558,979 |
£16,036 |
| 2009 |
£1,306,801 |
£108,110 |
| 2010 |
£1,470,719 |
£28,541 |
| 2011 |
£1,542,349 |
(£46,082) |
Second, as already explained, the College's CAS allocation was reduced to 134 in April 2011 and to nil in February 2012 and its Tier 4 sponsorship licence was completely suspended from 29 March to 31 August 2012.
- It is of interest to note the ways in which the claim has been put in the course of these proceedings. In the table below are shown the figures previously advanced by the College as representing its lost income ("Inc") and pre-tax profit ("PTP"). Row (1) contains the figures originally advanced in Mr Makin's report of November 2014, before my earlier judgment restricted the scope of the claim, on the assumption that the College would utilise its Oxford Street premises. Row (2) contains figures adjusted on the assumption that the College would not utilise the Oxford Street premises. The figures in row (3), which are those now proposed, are of course premised on there being no intakes of the University's students in 2013 and 2014.
| |
2012 Inc
|
2012 PTP
|
2013 Inc
|
2013 PTP
|
2014 Inc |
2014 PTP |
| (1) |
£2.479m |
£696k |
£13.613m |
£8.239m |
£25.449m |
£17.741m |
| (2) |
£1.954m |
£462k |
£10.626m |
£6.055m |
£20.440m |
£13.857m |
| (3) |
£1.954m |
£860k |
£2.611m |
£1.814m |
£546k |
£125k |
- These figures serve to emphasise the disjunction between the College's claims as to what it would have achieved in the future and the reality of what it had achieved in the past. The College's basic answer to this point was that its trading history did not form a useful indicator of its future prospects, because 2012 would have seen a material change in its business and a breakthrough in its trading results. The response was put clearly by Mr Makin in one of his replies to written questions: "The fundamental point ... is that the defendant's business would have been transformed by the circumstances which changed in 2012, such that it would have taken on an entirely different nature and scale." Whether that response is well made will fall to be determined by a realistic appraisal of the evidence.
First issue: number of students
- Central to the College's case on loss of profits is its estimate of the numbers of students that would have enrolled in April and September 2012:
| Course |
April 2012 |
Sept 2012 |
Total |
| BA |
50 |
100 |
150 |
| MBA |
140 |
250 |
390 |
| MBA on-line |
20 |
30 |
50 |
| FC |
10 |
20 |
30 |
| MED |
20 |
40 |
60 |
- Such estimates advanced in the course of litigation in support of a claim for substantial damages cannot be accepted uncritically. Three specific matters indicate the particular need to scrutinise the estimates in this case.
- First, the figures now advanced are very different from those mentioned by the College in February 2012, before the suspension of its Tier 4 licence. At 3.52 pm on 17 February 2012 the University's Validation Officer sent an email addressed both to Dr Ana-Maria Pascal, the MBA Course Director and the College's acting Principal, and to Dr Hui Wang, the BA Course Director; the email was also sent to the College's general enquiries address. It said:
I need to make a forecast for the University on registration numbers so I'd be grateful if you could confirm the expected intake numbers for the April intake.
At 11.10 am on Monday 20 February 2012 Dr Pascal replied: "It's difficult to estimate at this point, but I'll ask around and get back to you." That response was copied to the College's Senior Administrator and to Dr Basha, the owner of the College. At 1.40 pm Dr Pascal replied, again copying in Dr Basha: "We're expecting to have about 100 MBA and 10 BA students for the April intake." Mr Nisbet refused to accept that this response represented a serious pre-estimate of the likely intake. He said that he had been able to find no evidence that Dr Pascal had consulted with colleagues or made any enquiries before responding and he pointed to the promptness of the reply as indicating that Dr Pascal had simply rattled off a quick response that had no substantial basis. Mr Nisbet's stance on this point was, in my judgment, manifestly feeble. The University's enquiry was dealt with by a senior officer at the College, who did not give an immediate response but copied the enquiry to other senior figures and said that she would "ask around". She then replied some two-and-a-half hours later, though there is no indication that the request was especially urgent. The proper inference is that Dr Pascal made some enquiries and gave a thoughtful and considered response. Of course, it is impossible to know precisely what information was available to her; she was, however, the director of the largest course offered by the College and as such and as acting Principal she might be expected to have been well placed to provide an informed estimate.
- Second, Mr Nisbet acknowledged in cross-examination that the College's intake had generally fallen short of projected figures. Thus the College's "Profile and Strategic Plan 2010 – 2014" (hereafter, "the Strategic Plan") contained a table showing planned and (in brackets) actual student intake since 2008:
| Course |
2008 |
2009 |
2010 |
2011 |
2012 |
| BA |
30 (10) |
30 (24) |
100 (23) |
100 (15) |
100 |
| MBA |
300 (60) |
300 (569) |
400 (282) |
400 (156) |
400 |
| Total |
330 (70) |
330 (583) |
500 (305) |
500 (171) |
500 |
Mr Nisbet observed that the exercise performed by the College for this litigation was not a forecast but a retrospective exercise in considering what would have happened in circumstances that were largely known. That is a valid point, so far as it goes, but the weight to be accorded to it depends on the identification of facts that make the latter exercise more reliable, as being more soundly based, than the former.
- Third, the figures now proposed may be compared with the actual intakes in the years 2008, 2009, 2010 and 2011, as set out in the table above. The projections for the great increase over the numbers for 2011 and for the tenfold increase over that year's admissions for the BA are the more striking in the light of the suspension of the College's Tier 4 licence. The estimated intake figure for April 2012 does not of course include any CAS students. The spike in MBA numbers for 2009 was probably due to a surge in applications on account of changes in the rules for accreditation of colleges and the College's position as a Tier 4 sponsor; see above.
- Mr Nisbet said that the College's inability to take advantage of the CAS market would have been more than offset by several factors that would have enabled it to expand its business.
(1) The College's business was firmly established and had a proven track-record of offering the University's courses over several years, at both undergraduate and graduate levels. It was benefiting from significant numbers of word-of-mouth recommendations from existing or former students. It also had a strong marketing programme, both on-line and through a network of overseas agents. The agents included seven specifically recruited from July 2011 onwards to find students for the new on-line MBA course.
(2) In 2012 the College enjoyed a significant price advantage over public universities, which were now allowed to and often did charge fees of £9000 p.a. to domestic undergraduate students.
(3) A further advantage that the College had over competitors for undergraduate courses was that from 2010 its BA course lasted only two years instead of three, making it less expensive.
(4) In 2010 the College had become listed with the Student Loans Company. Therefore students wishing to enrol in 2012 would be able to use a student loan to pay their fees.
(5) The crackdown by UKBA in 2011 and 2012 on the abuse of the Tier 4 visa system had led to the closure of "over 750 colleges, principally in the London area", that had either been bogus or failed to comply with their responsibilities regarding the admission and the monitoring of overseas students. "This meant that students wanted to enrol with colleges which were unlikely to find their Highly Trusted Status lost, leaving the students stranded with the need to try to enrol on another course, at more expense, within a very limited period allowed by the UKBA."
(6) The College operated at various sites and could cater for a range of student preferences.
(7) The on-line MBA, which had very competitive fees of £3000 p.a., would enable overseas students to study without the expense of residence in the UK and without the need to obtain visa clearance.
- Mr Nisbet complained that the University's case and its supporting evidence from Mr Smith paid only lip-service to the various factors he identified but did not allow them to influence their analysis. He summed up his contention in a passage in his fourth witness statement:
In marketing terms, LCB had various markets and, if there was a problem with the CAS market, which was obviously the case for the April intake, then the College would have targeted BA students who could have taken advantage of the Student Loans Company loans, and those already having a visa permitting them to study in the UK. We would have targeted non-CAS students for the MBA, MED and FC courses. For the on-line MBA course the College would have targeted EU and EEA students, but also all of its overseas agents and in particular those specifically recruited in order to be agents/representatives for students on the on-line course.
- Professor Vass supported Mr Nisbet's optimism. The main points in her evidence may be shortly summarised as follows.
(1) There is a worldwide demand for UK degrees, and the private market for degree study in the UK was strong in 2012 and has remained so, particularly for colleges that can offer the attraction of study in or near London. The buoyancy of the market extended to UK, EEA and non-EEA students and was reflected in research that showed general optimism among privately funded higher-education providers in the UK.
(2) There were sufficient UK and EEA students, and non-EEA students not requiring CAS, to enable the College to achieve the anticipated intake numbers without having to recruit students requiring CAS. The anticipation of those numbers was reasonably justified, in particular because of (a) the amount of overseas marketing carried out by the College, (b) the competitive level of the College's fees, (c) the availability of on-line study for the MBA, (d) the availability of a two-year BA course, (e) the availability of student loans for UK and EEA students, and (f) the "scarcity of places for a growing student body" resulting from "the sudden closure of hundreds of private higher education colleges, many in the London area, in 2011/2012".
(3) Once the suspension of the Tier 4 licence was lifted on 31 August 2012, the College would have had time to recruit CAS students for the final intake of the year. The College's records show that since April 2010 only 13% of its MBA students had applied more than 35 days before the start-date of the course and 3% had already been on the College's courses leading to the MBA; the vast majority of MBA students had applied less than 36 days before the start-date of the course, and over 50% had applied after the course had actually started. The College could have fixed a start-date towards the end of September 2012 and a cut-off date 30 days later and would therefore have had a good eight-week period in which to recruit and undertake any necessary checks before registering students with the University. "I have been informed by the college, and am also aware from my own experience, that such a due diligence process need not have been extensive in terms of time. All of [the steps identified by the University] are a simple process for experienced admissions staff." (Response to Q8b in the University's Part 35 questions)
- Professor Vass drew attention to some relevant data that to a degree bear out observations made by Mr Nisbet. Of interest are the figures produced by the Higher Education Statistics Agency ("HESA") and by the Department for Business, Innovation and Skills ("BIS") for the number of registered students at privately funded higher education providers, in business, management and law, in the academic years 2009/10 and 2010/11 respectively:
| |
2009/10: BA |
2009/10: MA |
2010/11: BA |
2010/11: MA |
| UK |
3362 |
5996 |
3123 |
7553 |
| Other EU |
1108 |
338 |
1636 |
983 |
| Non-EU |
3622 |
5597 |
6482 |
6518 |
These figures show no growth in UK undergraduate students and roughly 25% growth in UK graduate students. There was significant growth among other EU students, although the numbers remained small. Growth among non-EU graduate students was modest, but there was a substantial growth of nearly 80% in the number of non-EU undergraduate students.
- However, although Professor Vass's expressions of opinion are entitled to respect on account of her long involvement in higher education, I have concluded that I ought not to place great weight on them.
- First, Professor Vass's academic expertise does not lie in the field of the higher education market. Her qualifications are in psychology, with a component of economics, and her publications—none of them more recent than 2000—reflect those qualifications. She has not published or, as I understand it, carried out research in respect of the higher education market. (If she has ever carried out research, she has not done so recently.) Professor Vass's relevant expertise seems to me to come mainly from her long experience of senior management in business colleges and faculties. That experience has involved work on validation services and the forecasting of student numbers. However, nothing in her evidence persuaded me that Professor Vass has any experience that gives her real expertise regarding the business of an institution such as the College, at least as regards issues concerning the realism of the claims it makes for its likely business performance. She is now Pro Vice-Chancellor of Buckinghamshire New University; the description of that role in her CV has no real connection with the issues in the present case. From 2011 to 2014 she held a similar position at Ashridge Business School, which is a not-for-profit organisation and, as she acknowledged, is not directly comparable with the College. From 2004 to 2011 she held senior management roles in two public universities; nothing in the job descriptions discloses particular engagement with the issues that fall for consideration in this case. In my judgment there is force in Mr Capewell's submission that Professor Vass's evidence was "a product of her own anecdotal experience and her own interpretation of the open-access research of others" and that "her own personal experience was ... of limited relevance given the issues in dispute."
- Second, I was unimpressed by Professor Vass's use of two supposed comparables in support of her opinion. The first, Greenwich School of Management Ltd ("GSM"), was said to be an example of "what private higher education colleges were able to achieve during the relevant period". I am unable, however, to accept that any relevant conclusions or inferences can be drawn, for the purposes of this case, from considering GSM. Its turnover in the year to 30 September 2011 was £7.9 million, which is more than five times that of the College. In the year to 30 September 2012 GSM's turnover increased to £13.2 million, and it achieved a pre-tax profit of £383,492 as compared with £19,462 in 2011. In 2013 the turnover was £23.7 million and the pre-tax profit was £3.1 million. The directors' report in GSM's financial statements for the year ended 30 September 2012 shows that that was the first full year of trading since the company was acquired by Clipper Bidco Ltd, a private equity company: "The directors are pleased that the strategic initiatives initiated in the previous year are beginning to impact positively on performance. Significant investment continues to be made in the academic, quality assurance and management teams, together with student support functions, information technology and learning resources ..." The directors reported that two new study centres had been prepared for use in autumn 2012 and that the existing facilities at Greenwich had been expanded and enhanced. Professor Vass confirmed that GSM held HTS status; she did not know of any suspension of that status. She insisted that the potential for growth, exploited by GSM, existed also for the College. But the very different scale of operations of the two institutions, the investment of private equity at GSM and the absence of any clear similarity between their positions regarding CAS mean that GSM is not a useful comparable in this case. When she was asked about the relevance of private equity investment to GSM's growth, Professor Vass responded that she was not qualified to say whether the growth was accelerated by the investment. The emphasis was intended to be on the word "accelerated". The difficulty, however, is that once the differences between the institutions and the limitations of Professor Vass's analysis are taken into account, one is left with no more than the observation that over the relevant period another college providing broadly similar courses, but differently situated in place, scale and circumstance, was able to thrive and expand.
- The second supposed comparable mentioned by Professor Vass was Essex International College ("EIC"), which she said in oral evidence was "broadly comparable" to the College as offering "broadly similar courses" and which had seen a growth of Student Loans Company Ltd funding from £1.5 million to £14 million in a single year. (It is unclear which year was being referred to; I think probably 2013.) Again, however, I am doubtful whether EIC is a sufficiently clear comparable to be helpful in this case. In the year to 31 October 2011 its turnover was £65,929 and its pre-tax loss was £52,250. The corresponding figures for the year to 31 October 2012 were £434,204 and a pre-tax profit of £172,686. The scale of the operation of EIC was therefore very much smaller than that of the College. The evidence discloses little else about the nature of EIC's business, except that its principal activity was the provision of first-degree-level higher education; Professor Vass accepted that it did not offer postgraduate courses.
- In cross-examination Professor Vass said that the point arising out of EIC's figures was one of trajectory: as in the case of GSM, there had been a marked increase of turnover and profit in 2012 over 2011. That is correct. Both comparables show that, despite generally difficult conditions, it was possible for private colleges that provided business qualifications in and around London to thrive in 2012 and to improve their performance in that year by comparison with that in 2011. They therefore demonstrate that the figures proposed by the College cannot be dismissed merely because they would represent a significant upturn over previous years. But in my judgment the comparables do nothing to indicate that the College would in fact have been likely to achieve the levels of performance that it now suggests.
- Third, in paragraph 13 of her report Professor Vass referred to facts concerning student funding that were set out in a "report" by "IELTS". In cross-examination she said that she had not appended the report and could not remember what IELTS stood for. After further questioning she accepted that she might have been referring to an article in the Times Higher Education Supplement. ("IELTS" actually stands for International English Language Test System.) This did not improve my impression of the rigour of Professor Vass's evidence.
- Fourth, the statistics for student numbers relied on by Professor Vass do not specifically demonstrate market growth during the period to which this claim relates.
- Fifth, the research that formed the basis of BIS Research Paper No. 111 sought views as to the likely development of the higher education market "over the next five years". Two-thirds of respondents expected the number of UK and EEA students to increase over that period, as compared with 56% of respondents who thought that the number of international students would increase. However, 71% of respondents reported that they had experienced a fall in the number of international students since immigration regulations had removed the right of international students to work while studying. Page 74 of the Research Paper recorded:
After being asked about their expected activities in the next five years, survey respondents were asked to outline the factors that may inhibit them from achieving their future plans. A substantial proportion focused on the development of UK immigration policy in recent years, which respondents believed would adversely affect the demand for HE courses by overseas students. Problems identified included regulatory changes around sponsor status and student and family visas. [Illustrative quotes included the following:] "The demand for UK HE courses has been seriously damaged by the policies of the UKBA. Students report that the UK does not feel welcoming anymore." When participants were asked what could help them meet their future goals, immigration policy was again the main topic discussed by providers, with calls for more relaxed laws and consistency.
In cross-examination Professor Vass said that the impact of changes to immigration regulation on the College would be offset by the introduction of the on-line MBA. I shall consider the extent to which that is so. However, the statistics do not provide straightforward support for the contention that the market was simply expanding in 2012. Further, the Research Paper (p. 115) identified risks as well as potentials in what it described as a "diverse, dynamic market":
Privately funded HE provision in the UK is diverse and complex, covering a wide range of institutions. Many of these institutions have particular specialisms, either in terms of model of delivery or subject area. The principal advantage and strength of this is that privately funded providers can offer variety and choice, as well as just additional capacity for HE. A key risk however is the potential for greater volatility across the sector and providers, with possible negative effects for students. The medium and long-term effects of the new increased fee levels in England and Wales are still not fully understood, and it will be interesting to understand how student demand for HE develops, including for privately funded HE. ...
The majority of privately funded providers have not been offering higher education for long. While a small number of institutions are many decades old, the majority have only been established or moved into the higher education sector in the last two decades. In the last five years in particular, a significant number of for-profit institutions have emerged, which may be due to more providers seeing opportunities to generate surpluses in this market. Conversely, we have identified significant numbers of providers that have ceased trading even during the course of our research.
- In this regard, it may be noted that the BIS research team found a larger number of privately funded providers (a minimum of 674) than it had expected. Of those identified, 30% specialised in business and related subjects.
- Fifth, more generally, Professor Vass's expressions of opinion lacked solid evidential underpinning but tended towards advocacy of the College's case. This was rather highlighted by two pieces of evidence. One came at the end of her cross-examination, when she confirmed that her views of what was reasonable to expect in 2012 were based on the figures contained in the Validation Agreement; these figures would have been agreed after a process of "due diligence", and student intake falling within the permitted figures should be accepted as reasonably likely to be achieved. In my view the use of that sort of reasoning betrays a lack of underlying substance in Professor Vass's evidence. The other piece of evidence was her defence in cross-examination of the assertion in her report that there had been "a significant level of interest" in the College's courses at a time when it had not commenced recruitment for the April 2012 intake. Professor Vass did not appear to know the actual figures for applications by the end of March 2012, but when informed of the figures she maintained that they supported her expressed view that the level of interest was "significant". The reasons why I find that evidence unconvincing will appear from the discussion that follows.
- It is necessary, therefore, to consider whether the available evidence lends credence to the contention that, in the face of significant adversity, the College would have achieved the kind of results it suggests.
- Does the evidence in respect of applicants or expressions of interest for the April 2012 intake lend credence to the claim that significant numbers of students would have been enrolled? No. By the date of the suspension of the Validation Agreement on 29 March 2012, only six students had applied to enrol in the April intake (it is unclear whether all six were for the MBA or whether two of them were for the BA course). Five of the applicants were overseas students but none required a visa; four of the applicants made payments for fees, which were later refunded. Mr Nisbet's evidence was that, although the nominal date of the second intake of the year was April, in the interests of the better spacing of the three intakes it was the accepted practice to commence the courses for the April intake rather later; the courses for the April 2012 intake were planned to commence on 8 May, and, as the window for applicants was always held open for thirty days from the first day of course lectures, the window for late applicants would have been open until 9 June 2012. Nonetheless, one may note that of the intake in April 2011 five out of nine students on the BA course and 26 out of 94 students on the MBA (overall, 30% of students) had enrolled 40 days or more before the commencement of the courses. If that profile were repeated in March 2012, the total intake would have been twenty students. Of course, the data are insufficient to permit any such simple extrapolation. I entirely accept that scientific conclusions cannot here be drawn on the basis of statistical analysis. It does not, however, follow that the low number of applicants is irrelevant when forming a judgement as to what would have happened if the April intake had proceeded. If considered in conjunction with other evidence, it seems to me to be highly relevant.
- Also relevant is the College's disclosure of the potentially unique enquiries that it received in respect of its 2012 courses. This shows that a total of 160 potentially unique enquiries were received; of these, 59 pre-date the suspension of the Validation Agreement, 13 more were received before the course-commencement date on 8 May 2012, 86 were received between the course-commencement date and 2 November 2012, and 2 were undated. None of these enquiries appears to have related to the FC or MED.
- Much the same picture emerges when one considers the claim that the College's recruiting agents had large numbers of students waiting in the wings. The College disclosed only two communications, both emails, from agents who claimed to have students interested in enrolling on its courses. One email, dated 11 May 2012, was from an agent in India: "I have 10 students who have done their Edexcel PG Diploma in India. Can they do a top-up MBA with LCB in a special fees[?]" Although technically sent by way of a reply to Mr Nisbet's email in December 2011 enquiring in respect of students for the on-line MBA, the agent's email does not appear to have been in reference to the on-line course. Mr Nisbet stated that the students certainly could have enrolled for the MBA, presumably in September 2012, but for the suspension of the Validation Agreement. However, there is insufficient evidence to know whether the students would have applied or, if they had applied, whether they would have been qualified to enrol.
- The other email was dated 4 April 2012, from the Admission Director in Giza, Egypt, of a Canadian college called Universal for Educational Development. It read in part:
[W]e want to inform you that we want to send you around 132 students to study in your campus and most of them as other previous students have High school from recognized schools and other have diplomas 2 years from recognized and accredited institutions.
Kindly send me your application form.
On 12 April 2012 Mr Nisbet forwarded that email to the College's moderator, Chris Parry of Cardiff Metropolitan University. The terms of the email are of interest:
Our current situation with the Canadian college is that they have a number of students who wish to study both BA and MBA courses with LCB.
They currently have over 130 students in Egypt, waiting for admission onto the BA programme, either as online students (once our BA is validated to run in online mode) or as students in an LCB Egypt campus, if this is approved by the university.
Also, there are a number of other Arab and Asian countries who have similar requirements for BA students.
Regarding MBA students, they have sent me details of a few students to be enrolled on the online MBA, and have more in Canada and overseas who want Advanced Entry, after approved mapping of their Edexcel programme to some of our MBA modules.
There are also more potential MBA students who would like to study in an LCB overseas campus.
Finally, there are also some students from Canada as well as from the Arab and Asian countries who may travel to the UK to study with LCB, all or part of the BA or MBA, however, we have not yet discussed actual numbers yet. The UKBA situation obviously affects this a lot.
The moderator's reply was to the effect that the University needed to complete its review quickly, as the suspension of the Validation Agreement was damaging the College's business. However, apart from the reference to some potential students for the MBA, the business mentioned by Mr Nisbet related to courses that the College could not offer anyway: on-line BA courses, courses at overseas campuses, and courses in the UK requiring CAS for non-EEA students.
- The College disclosed no other emails or other communications from overseas agents, whether mentioning interest on the part of prospective students or expressing frustration that either the University's or UKBA's suspension was preventing recruitment. In his oral evidence Mr Nisbet said that most of the College's business came not from overseas agents but from a network of agents who were situated in the UK and would make personal introductions of prospective students not requiring CAS at the College's premises. However, there was no disclosure of communications from these in-country agents and, unlike the overseas agents, they are not referred to in the second report of Mr Makin or in Mr Nisbet's witness statements. I have found no good reason to suppose that these in-country agents held any key to significant expansion of the College's business.
- The College also disclosed details of enquiries from potential applicants. Mr Smith's analysis of the disclosure was not challenged and was to this effect. Once repeated and duplicated enquiries were discounted, there were 160 enquiries in the period 9 January 2012 to 2 November 2012. Of these, 59 were prior to 29 March 2012, thirteen were between 29 March and 8 May 2012, and 86 were later; two enquiries were undated. Of those 160 enquiries, only six resulted in applications; see above.
- None of the enquiries related to the FC or MED. Mr Nisbet acknowledged that the decision whether to run those courses in April 2012 would have turned on the level of demand for them. He said that the absence of email enquiries did not necessarily indicate a lack of demand, because there might have been other enquiries; he did not know what other enquiries there might have been. It follows that Mr Nisbet was unaware of any other enquiries and that there is no documentary record of other enquiries, whether in the form of notes of meetings or telephone calls or in any other form.
- Mr Nisbet denied that the College had made no effort to market the FC and MED: the courses were in the College's prospectus; the fees were on the website; and most of the marketing was done by word of mouth by the agents, who had been given the necessary information, and more generally (though not with regard to the new courses) by existing students. To some extent this accords with what the College told the University in the spring of 2012, as recorded in the University's "Report of an interim review" of the College:
LCB maintained that they class the students who are introduced to them by the freelance agents as "referrals". Although these agents receive a fee for each student that they introduce to LCB, they are not regarded as "agents" as such. They also pointed out that students can refer other students, and students get £500 for each referral. LCB do not advertise heavily in the UK, so rely on word of mouth as their advertising.
- This provides only limited assistance to the College, having regard to the way in which it has advanced its case. First, in circumstances where the College's Tier 4 licence either had a nil CAS quota (as from February 2012) or was entirely suspended (as from 29 March 2012), recruitment from outside the EEA—and, as the catchment figures for the College's students indicate, from outside the UK—was severely curtailed, other than for the on-line MBA. Second, the FC and MED courses were not on-line and were only likely to be relevant to non-EEA students. Third, marketing by means of word-of-mouth recommendations within the UK does not seem a promising method of achieving significant expansion or of exploiting previously untapped markets. As practically all of the College's students had been non-EEA students, it is not very realistic to think that they would have much effect on the College's share of the domestic UK, or even the EEA, market. And the new courses were strongly targeted at overseas students who either did not intend to come to the UK to study (i.e. those interested in the on-line MBA) or had not yet come to the UK to study (which would be the case for most FC and MED students, as the courses were predicated on them not having recognised UK qualifications). Fourth, and generally, the evidence shows clearly that the College's only proactive strategy had focused on the non-EEA market and that, when it found that market largely collapsing, it did not implement any substantial alternative strategy. I deal with this point in more detail below.
- The points made by Mr Nisbet regarding supposed cost benefits of the College's courses are also unconvincing. The two-year BA course does not appear to have been a market-leading initiative; the University's "Report on a validation exercise" in 2009 recorded that the College's undergraduate programme had proved "slow to develop" and that the proposal for validation of a two-year BA was in consequence of "significant competition from rival colleges that are able to offer their programme over a two-year period". Mr Nisbet acknowledged that the BA had not proved an attraction for UK students; it seemed to be popular with Indian students. In the light of the figures regarding the student intake in 2011, it is clear that the BA had not broken into the domestic UK market. Given the College's marketing strategy, that is hardly surprising. As Mr Capewell observed, although the College had been aware of the increase of student fees since 2009 and had been registered with the Student Loans Company since 2010, it has disclosed no plans to market its BA course to sixth-form colleges in the UK or to students in other EU countries, and the agent agreements it entered into in 2011 did not include agreements with agents based in the EU. Further, it does not seem realistic to view the option of a two-year study course at the College's premises at Barking, Birmingham or Central London as an attractive alternative, for UK students, to a three-year study course at a publicly funded university.
- Mr Nisbet made much of the College's access to funding from the Student Loans Company and of the widespread increase of tuition fees to £9000 at publicly funded universities in September 2012. This reflected three of the points put in December 2014 to Mr Makin by Anand Venkoba, a freelance management adviser acting for the College, as showing that the College would have increased its intake on the BA:
The college became listed with the Student Loans Company (SLC) in 2010, so that UK and European students could take advantage of this from 2012 after the UK universities were allowed to charge up to £9000 in fees. This would have had a strong effect on the January 2013 intake. The effect would have been huge, so BA students are projected at the maximum validated numbers from 2013.
The UK government had increased the university course fee to £9000 for local students, and this high fee impacted the student market to reflect on cheaper fees which private colleges such as LCB were offering. This would have benefited the college immensely, to market and recruit higher numbers of students into its BA 2-year programme.
In 2012 we met a very successful marketing company who had placed thousands of SLC students in private colleges. Our BA and Masters Entry Diploma were fairly unique in London private colleges, so we would have been very popular.
- Again, this is unpersuasive. First, it is of interest to note that the case originally put to Mr Makin was that the "strong effect" of the combination of the lower fees and the availability of student loans was expected from the January 2013 intake, which is no longer relevant in the light of my earlier judgment. Despite this, Mr Nisbet insisted at trial that a "significant" effect would have been apparent in 2012. I found it hard to avoid the impression that the College has been willing to shift its ground in whatever manner is necessary to lend support to a claim for the largest possible damages. Second, such evidence as I have seen indicates that, to the extent that the increased availability of student loans led to a significant expansion of the market, the effect was principally in connection with HNC and HND courses (cf. House of Commons Library Note SN/SP/6961, Expansion of private higher education provision in England, 13 August 2014). Third, student loans were available to students at publicly funded institutions also. Fourth, the likely effect of the availability of student loans would be to mitigate the adverse consequences for intake numbers of the increase in fees at publicly funded universities. The College adduced no substantial evidence to show that the increased fees at publicly funded universities had a significant effect either in reducing student intake at those universities or in increasing student intake at private colleges. Mr Venkoba's comments and Mr Nisbet's evidence both seem to me to be at the level of assertion. Fifth, no substantial evidence was adduced regarding the marketing company mentioned by Mr Venkoba, and the problems facing attempts at overseas recruitment remained unresolved. I see no reason at all to believe that, but for the University's breach of contract, the College would have broken into the UK undergraduate market. In fact, as I shall mention in more detail below, it is quite clear that the College's strategy did not include any such development.
- It remains to consider the substantial negative impact on the College's business by reason of its inability to exploit the CAS market. Virtually all students registered at the College were non-EEA students. Non-EEA students would ordinarily have required CAS to study at the College; the material exception would have been those students enrolling on the on-line MBA. The College has advanced its case on the basis that its intake in April 2012 would have included no students requiring CAS. It has included such students in its figures for September 2012, on the basis that it would have had sufficient time to process applicants after the restoration of its Tier 4 licence on 30 August 2012.
- Mr Nisbet strongly disputed the suggestion that the College's business was heavily dependent on its ability to award CAS. He said that, although the College obviously sought to exploit its full allocation and attempted to recover the quota of 2250 when it was cut to 134, it was an exaggeration to say that its entire business plan was predicated on the ability to recruit CAS students. There were four main planks to Mr Nisbet's contention. First, the on-line MBA was not dependent on Tier 4 entry visas or, therefore, on CAS. Second, the figures showed that only a relatively small proportion of the College's intake required it to give CAS. Third, the College would have responded to adverse circumstances by a change of strategy. Fourth, the reinstatement of the Tier 4 licence on 30 August 2012 gave sufficient time for the College to undertake an adequate marketing exercise for a full September intake.
- These arguments seem to me to have only limited force, for the following reasons.
- First, it is implausible to suppose that the suspension of the College's Tier 4 licence would have had no effect on recruitment of non-CAS students. I am satisfied that both UKBA's concerns over the conduct of some colleges and the robust measures it had taken to address those concerns were widely known; this is borne out by, for example, Mr Bartlett's evidence. The suspension of the College's licence would tend to cause a loss of confidence in the College as an institution. Mr Nisbet said that most students would not do sufficient research to know that the College had been removed from UKBA's list. That is not a convincing response. The recruitment agents and overseas institutions would know. An illustration of this obvious point is the email from the Rector of Universal for Educational Development to Mr Nisbet on 29 April 2012, less than a month after his earlier email quoted above:
It is with much regret that we have to inform you of our dissatisfaction with the current situation with LCB and its visa status.
As you know, we had started to promote the LCB courses heavily in the Middle East, especially in Egypt where we have at least 150 students who are ready to start the MBA. We have also had high level discussions with Libya's education ministry, to get official recognition of the LCB bachelors and MBA programmes. With over 30,000 students currently studying foreign degree courses in Libya, we expected to mark a significant entrance into that region. Indeed, we had already planned for 200 students to study from there this year. Finally, our Canada college had at least 1000 students that we had planned to start on LCB programmes this year.
However, due to the ongoing suspension, it is unlikely that we will be able to continue with these projects. When students check the UKBA website and discover that LCB is not even listed as a provider, even the prospective online students lose faith, as they view a significant risk in starting a course with a college that is officially being questioned about its suitability. They have heard so many stories of dodgy colleges in Britain and of students losing a lot of money as colleges are closed down.
Please let us know when this situation will be resolved, as I fear that we may no longer be associated with LCB if it does not come soon. In that case we may be forced to look for another British degree to offer to our students.
There is good reason to view the figures mentioned in this email with scepticism, and I cannot discount the possibility that its production was encouraged in order to place pressure on UKBA to lift the suspension. Nevertheless, the point it makes about loss of confidence, even among those not requiring a visa, is obvious and plausible.
- Second, although the potential attractions of the on-line MBA are obvious, there is little solid evidence to show that it would become very popular. The course was apparently made available to students as early as September 2011, despite the later date in the Validation Agreement. it seems that by January 2012 the intake had only reached 10.
- Third, there is no substantial evidence in the documentation that at any time before 29 March 2012 the College was either planning or hoping to achieve the kind of non-CAS-based expansion now being spoken of. I have already commented on the absence of any clear indication of a significant marketing strategy in the UK or the rest of the EU. Further, the documents show clearly both that the only strategy for expansion that the College had in place by the start of 2012 was based on exploiting an increased CAS allocation and that, when it became clear that such a strategy was undermined by the College's CAS position, no alternative was pursued of the kind now advanced in argument.
- It is illuminating to have regard to the Strategic Plan, which contains actual intake figures for 2011 and must therefore have been written no earlier than the final third of that year. The Introduction had this to say about the challenges the College faced:
We are in no doubt that, given the external economic climate, the College and many others in our sector and beyond will face considerable uncertainty and unprecedented pressure for the foreseeable future, but we have always evolved with, and adapted to, the changing environment in which we operate.
Section 13, headed "Financials", contained the following passages:
College's income trends for the past 3 [years] appear good, but due to limited licence quota of seats we expect a deficit situation in the current year. With our commitment to quality and genuine [commitment] to international student admissions, we are confident that we will be able to attract more international students in future once our licence seats controls are lifted.
The costs of education within the UK HE sector are still not recovered in full. Financial sustainability therefore remains an imperative and has become more pressing as a consequence of recent economic conditions. The College is a debt-free organisation all through, and aims to maintain the same position in future. In parallel with the management of our assets and liabilities, we will develop a more diverse range of income sources with the aim of securing our future financial sustainability. As part of this, we will work more closely with our agent partners and hope to sustain revenues through our online MBA Programme offering.
- Section 17, itself headed "Strategic Plan", reflects something of the redaction history of the document in the form in which it now appears. It begins by identifying "methods/strategies that will enable us overcome the challenges and weakness". The first such method was to increase student numbers; the way this was expected to work was explained as follows:
Our immediate challenge is to survive our operations and to improve our sagging bottom line and achieve our business objective. Hence the focus will be on increasing student numbers. We wish to approach this through a multi-pronged strategy of:
(a) Focus on marketing our Online Course programme offering across countries
(b) Increase the local student base through active collaboration with UCAS and local council bodies
(c) Increase the number of course programme offerings that will be more local community-based need, e.g. vocational programme at level 4 in hospitality
(d) Request QAA and UKBA to expedite their review processing time so as to enable restoration of our original licensed quota on Tier 4 sponsor licence allocation
(e) Renew our focus on overseas student recruitment through further active participation in student fairs, exhibitions and seminars in various countries.
- However, at pages 22-23 the Strategic Plan reflected changed circumstances: "due to immigration restrictions our plans have gone awry. This in turn also affected our financials, else our growth would have been more consistent from 2010." There then followed a summary of the College's actual financial position in 2008, 2009 and 2010 and its projected financial position in 2011, 2012 and 2013:
- Actual fee income in 2008: £558,979
- Actual fee income in 2009: £1,306,801
- Actual fee income in 2010: £1,470,719
- Projected fee income in 2011: £2,000,000
- Projected fee income in 2012: £2,500,000
- Projected fee income in 2013: £3,500,000
However, the projections had clearly been prepared before the plans went "awry"; the text that followed made clear the current status of those projections:
From the above, it can be made out that our projections are no longer relevant to the current scenario. Our strategic approach now therefore focuses on: (a) reduction of variable costs on all aspects; (b) immediate deferment of our capital investments; (c) reduction in provision for staff research and self-development; (d) focus on alternative revenue-generation options through earnings on online-course offerings; (e) work on designing of new short-term vocational programmes to generate base minimal working-capital resources.
Apart from the above, we hope to revive our fortunes once we are restored with our increased licences so that committed focus can be made on overseas student recruitment which is our market strength and potential to achieve our finance-oriented business objective.
- These several passages from the Strategic Plan show that the earlier projections of fee-income in 2011-2013 were premised on exploiting the College's market strength in overseas recruitment and that the restrictions imposed by UKBA on the College's CAS quota and the poor performance in 2010 and 2011 had both rendered those projections redundant and, importantly, led to a policy of retrenchment pending the return of more favourable circumstances. The redaction of the report that was put in evidence must have been produced after the College knew of its on-line MBA, after the announcement of the increased maximum fees that public universities were able to charge, and after the College had received approval from the Student Loans Company. There is absolutely nothing in the passages to indicate that adverse circumstances in the general education market were expected to work to the College's advantage, or that it was well placed to exploit the availability of student loans or the increase in the fees of the publicly funded institutions, or that it anticipated a sudden increase in the numbers of students drawn from the domestic market, or that it was developing expansionist strategies in any of these respects. Further, the relevant text, even in its later redaction, was apparently written before UKBA suspended the College's Tier 4 licence and thereby ended hopes of even a modest CAS-dependent intake in April 2012. The most that can be said is that the "alternative revenue-generation options through earnings on online-course offerings", which formed a component of what can only be described as a survival strategy, appear to have remained viable.
- In the course of his cross-examination, Mr Nisbet said that the inability of the College to issue CAS would have led to a change of strategy; it would have made a decision to market the availability of loans from the Student Loans Company ("Our competitors did that, at exactly that time, and saw massive growth."); the figures advanced by the College were based on this changed strategy. This gives rise to four particular observations. First, Mr Nisbet's attempts in cross-examination to belittle the importance of the Strategic Plan and to suggest that it did not reflect any serious strategic thinking that had been intended to guide the College for the future were totally unconvincing and contrary to the plain import of the Strategic Plan. Second, the UKBA suspension was at the time regarded by the College as a very serious problem for its business, not merely as something that could be overcome by shifting attention to non-CAS students. Thus in Mr Nisbet's letter of 5 July 2012 to Professor Simon Haslett of the University, he wrote of the College's dispute with UKBA about the legality of the suspension: "The UKBA is asking for more time to consider its position, but this continued delay is putting a very serious strain on the college resources." Third, the supposed potential of the change of strategy was clearly not appreciated by the College in the difficult circumstances in which it found itself in late 2011 or early 2012, when the latest redaction of the Strategic Plan is likely to have been written. If it had been, there would be evidence that such a strategy was actively considered as a response to the reduction of the College's CAS allocation, which, after all, had removed vastly the greater part of the College's ability to recruit non-EEA students, and the retrenchment evident in the Strategic Plan would have been unnecessary.
- This last point also emerges starkly from another relevant document dating from shortly before the twin upsets of the University's suspension of the Validation Agreement and UKBA's suspension of the Tier 4 licence: the "College Self-evaluation", produced by the College for the Quality Assurance Agency in December 2011. Page 5 contains the following paragraph (the emphasis is mine):
Despite a difficult worldwide economic period and changes in UK immigration requirements our student numbers have held up and we have seen growing successes in our students' progress together with increasing interest particularly in the MBA programmes. The College expanded its facilities by acquiring additional freehold premises at Gosport and Hasting, which are not operational due to the limited quota granted to LCB by the UKBA. The College was granted a quota of 2250 in late 2010; the new UKBA sponsorship guidelines reduced this allocation to 134, which dampened all our business plans and propositions. As we are in compliance and committed to all the UKBA guidelines, we hope this allocation will be revised by the UKBA in the year 2012 and we can thereby scale up to greater student numbers.
This passage shows not only that the reduction of the College's allocated quota from UKBA was regarded as highly damaging to its business but also that the College had not responded by exploiting or planning to exploit the alternative areas now suggested: the newly acquired additional premises remained non-operational, and the hoped-for increase in student numbers was dependent on a revision of the allocation from UKBA.
- Further insight into the College's business strategy is given by the witness statement, already mentioned, made by Dr Basha in 2012. He explained the strategy for expansion devised in January 2010 (see above) and described what actually happened; the following passages are particularly relevant to understanding the context of the present claim.
27. Once the College was granted HTS and its increased CAS allocation, we rolled out our new business strategy in January 2011. We dramatically increased our recruitment levels. Six members of College staff visited Dubai, Russia, India, Sri Lanka and China to recruit students. Our intention, once we had recruited 2011's cohort of students, was to establish LCB offices in each of these countries and employ suitable local staff to man these offices for marketing and administrative purposes. We expanded our courses to include pre-bachelor Foundation Certificate, pre-masters Masters Entry Diploma, and MBA (Online) courses in Business Management awarded by the University of Wales. We spent more than £100,000 on our business strategy to expand the College in accordance with our increased CAS allocation. When it had initially been granted in December 2010, our CAS allocation of 2250 was valid until 9 February 2012. We aimed to issue around 1000 CAS to students to enrol in our April 2011 and September 2011 intakes. In order to enrol as many students as possible we offered substantial discounts in course fees to students, and had more than 1000 students express an interest in our college.
28. Unfortunately, once the UKBA announced their intended Tier 4 reforms in mid-March 2011 ... it became apparent that prospective students were not keen to enrol on courses in the UK, and our investment and efforts had been futile. We also realised that our increased CAS allocation would become effectively redundant due to the forthcoming interim CAS limit ...
After mentioning the reduction of the College's CAS allocation to nil, Dr Basha continues:
45. We sent a further email on 24 February 2012 to UKBA seeking an explanation as to why our CAS allocation had been reduced to zero. We explained, at length, the difficulties we were suffering with our recruitment efforts. We noted that students could not apply for visas. We also stated that we were in receipt of 300 enquiries from overseas students, some of whom we had made conditional offers to and others we were in the process of offering places at the College to. We reiterated the damage to the "sizeable investments" made by us as a result of the zero CAS limit. We sought, as a matter of urgency, a minimum interim limit of 100 CAS.
(Paragraphs 18 to 20 of the statement mention how the lack of available CAS led to a reduced level of marketing of the MBA in 2010 and accordingly to a decline of student numbers, with the result that in January 2012, when only three students remained at the College's Birmingham campus, it was decided to leave only a skeleton staff at the campus and otherwise mothball operations there.)
- Dr Basha's statement does nothing to contradict the picture appearing from the other evidence; rather it confirms it. From the beginning of 2010 the College's business plans had been firmly predicated upon an increased CAS allocation. A combination of the discouraging effects of changes to the system for non-EEA students (cf. paragraph 28 of the statement), delay in receiving the allocation, and the introduction of the interim limit on the allocation rendered those business plans nugatory. This was clear from no later than April 2011, when the CAS allocation was reduced drastically. But the bright optimism and expansionist strategies retrojected onto the situation by Mr Nisbet are nowhere reflected in contemporaneous documents, which envisage little more than cutting costs and waiting for better times. Mr Nisbet seemed to suggest, in the course of his cross-examination, that no change of strategy was required as a result of the problems over the CAS allocation, because it was hoped that the situation was only temporary and would be turned around. Having regard to the seriousness of the position in which the College found itself from the spring of April 2011 and all the indications as to what it was in fact doing to address that position, I found Mr Nisbet's evidence on this part of the case wholly unpersuasive.
- The fourth observation concerning the significance of the suspension of the Tier 4 licence is that there is substantial reason to doubt Mr Nisbet's evidence that students requiring CAS from the College amounted to only a relatively small proportion of its business involving the University's qualifications. In this connection I refer to the contents of the Strategic Plan mentioned above and to the following statement in section 9 of the Strategic Plan:
Whilst total student numbers have increased in the years 2008-2009, we have seen a dramatic fall in student numbers in 2010 and 2011 due to reduction in our sponsor licence quota numbers.
I refer also to the figures set out near the beginning of this judgment, which show that almost all of the College's students were from outside the EEA. The Strategic Plan, which emphasised that the CAS allocation was fundamental to the College's business strategy, remarked that the College's "student market [was] mainly overseas oriented from developing countries", and the submission to the QAA in 2012 recorded that the student population was "mainly drawn from the Asian continent with a small number from Africa and Europe". The agreements entered into by the College with agents in 2011 were very largely with agents in the Indian sub-continent. An analysis by the University of the disclosed enquiries received by the College in 2012 shows that a very large majority were from students outside the EEA. The College's own updated Strategy for 2013 – 2016, prepared at around the end of 2012, made clear that the College's future recruitment strategy was to be based on Asia and left no doubt but that the ability to grant CAS was fundamental to the College's business plan.
- Against this, Mr Nisbet contended that on average only 30% of students enrolled at the College required CAS from the College. In the light of the other evidence, that figure appears implausible and I am satisfied that it is misleading. The analysis by Mr Smith of the methodology behind the College's figure of 30% indicates sufficiently why it cannot be relied on. Mr Smith has examined a schedule purporting to show the figures for the intakes from September 2010 to January 2012; the results of his examination are as follows, showing for each intake the total number of students, the number of those students who were issued with CAS (in brackets) and the percentage of those students who were issued with CAS:
| |
04/2010 |
09/2010 |
01/2011 |
04/2011 |
09/2011 |
01/2012 |
| BA |
___ |
12 (5) 42% |
6 (6) 100% |
9 (9) 100% |
6 (1) 17% |
___ |
| MBA |
67 (22) 33% |
128 (87) 68% |
69 (41) 59% |
90 (79) 88% |
304 (12) 4% |
12 (0) 0% |
- These figures call for more explanation than they received in the evidence adduced at trial. A number of things are immediately obvious. First, the intake figures do not correspond with the annual totals set out in the Strategic Plan (set out above) or the slightly different figures provided by the College in these proceedings; I address this point below. Second, the figure for intake on the MBA in September 2011 is anomalous, as being out of kilter with previous figures and nearly double the actual intake figure for the whole of 2011; the figures shown for January and April 2011 slightly exceed the total intake. The explanation lies in an influx of "Advance Entry" students who were studying at another college or colleges that closed during the year and who were admitted at the College for the purpose of completing their qualifications (cf. Mr Nisbet's comment, quoted above, concerning the students from the 750 closed colleges, who had to seek a new provider urgently). The case advanced by the College in these proceedings eschews reliance on Advance Entry students, although it is said that there might have been some in 2013. At all events, the inclusion of Advance Entry students in the figures materially affects the percentage requiring CAS. Third, the low CAS figures for September 2011 and January 2012 relate to the period when the College's allocation had been reduced to 134 for the period 24 April 2011 to 5 April 2012, when according to Dr Basha's statement only 33 of the allocation were used and it was intended to use the remaining 101 in the April intake. (Again, the figures used in the CAS schedule, on which Mr Smith's analysis was based, do not fully accord with the other evidence in the case.) In these circumstances the low CAS percentages for the later periods shown in the schedule are not a reliable guide to the CAS percentages that would apply in the ordinary course of the College's business, if that business were being conducted in accordance with the model set out in the Strategic Plan. That model would, in the absence of unforeseen and exceptional circumstances, have involved a large majority of students who needed CAS issued by the College.
- The question arises whether the restoration of the College's Tier 4 licence would have enabled the College to accept CAS students on the September 2012 intake. The higher numbers said to have been achievable in September are because of the inclusion of CAS students for this later intake. This in turn gives rise to two distinct points for consideration.
- The first point is the extent of the College's power to issue CAS after August 2012. The only point adverted to in the course of the trial was the reinstatement of the Tier 4 licence on 30 August 2012. But of course the licence had a nil CAS allocation immediately before its suspension and a very low allocation before that. In the course of writing this judgment I asked both parties to direct me to such evidence as there was concerning the CAS allocation given upon reinstatement of the Tier 4 licence. The parties confirmed that no evidence directly on the point had been adduced at trial. However, under cover of a letter of 13 April 2016 the College's solicitors produced a letter dated 21 September 2012 from UKBA, headed "Request for Confirmation of Acceptance for Studies (CAS) for Tier 4 (General)", which contained the following material text:
In April 2011, all current Tier 4 sponsors not already subject to inspection or review by one of the approved educational oversight bodies and all sponsors who had not gained highly trusted sponsor status (HTS) became subject to an interim limit. In April 2012 we announced an additional allocation of confirmation of acceptance for studies (CAS) for sponsors who have not yet achieved highly trusted sponsor status (HTS) and/or had their application for educational oversight decided by the required deadlines. This additional CAS allocation will cover the 9 month period from April 2012 to the end of December 2012.
Your interim limit from 6th April 2012 is 101 CAS.
We have added your interim limit to any unused CAS from your previous allocation[,] giving a total of 223. This is the number of CAS available to you to assign to students.
...
If you attain HTS status and/or educational oversight with a UK Border Agency approved body you will no longer be subject to the interim limit and you will be eligible to apply for an increase in your CAS allocation.
- The letter from the College's solicitors observes that the interim limit of 101 was imposed because the College had not obtained full Educational Oversight. It continues:
It will be recalled that the QAA was ready to issue its oversight report in April 2012 but delayed doing so because of the University of Wales' suspension of the Validation Agreement and the suspension of the Tier 4 Licence on 29 March. However, the report was issued in September 2012 and put on the website of the QAA and of the College and full Educational Oversight had then been obtained[,] which would have entitled the College to request a higher CAS limit. However, with the suspension of the Validation Agreement still operating, there was no point in requesting a higher limit at that time.
- I took the view that, despite the College's failure to adduce evidence on this point in the course of the trial and the informal manner in which it belatedly sought to adduce such evidence, I could and should have regard to the further evidence contained in UKBA's letter of 21 September 2012. However, I also took the view that the letter had to be considered strictly in the context of such other evidence as had been adduced in the case and that, in that context, it provided only limited assistance to the College's case for the following reasons. The letter is retroactive, inasmuch as it provides an allocation with effect from an earlier date. But the Tier 4 licence had already been suspended when the interim allocations were issued in April 2012. There was no evidence to show that the College had been given an interim allocation at that date and there was good reason to suppose that, as it had previously had an interim nil allocation and had then had its licence suspended on 29 March 2012, it had not been given such an allocation. In the absence of other evidence, I accordingly considered myself justified in proceeding on the basis that the College did not receive a CAS allocation until 21 September 2012.
- On 18 April 2016 I sent to both parties a draft judgment that set out the substance of the reasoning in the last preceding paragraph. On the following day Mr Simms responded with an email that said that my assumptions as to CAS as at 31 August 2012 were "erroneous" and my conclusions "incorrect". He relied on a letter dated 5 April 2012 from UKBA to the College. The material parts of the letter were as follows:
From 6th April 2012 we are continuing to limit the number of Tier 4 (General) CAS available to sponsors who do not hold highly trusted sponsor status and who have applied for but have yet to attain educational oversight with a UK Border Agency approved body.
You are subject to this limit because you have yet to attain educational oversight.
We have not applied the limit of 101 to your allocation now because your licence is currently suspended. If your licence status changes in the future, we will consider whether to apply the limit then.
On the basis of that letter, Mr Simms submitted in his email: "When the licence was reinstated the 101 limit operated immediately and automatically and was increased to 223 retrospectively on 21 September."
- I have two comments on the letter of 5 April 2012. First, I do not regard it as admissible evidence. It is not open to the College to proceed in this manner. The time for adducing evidence is at trial. Although it was irregular for the College to respond to my earlier enquiry as to the evidence by producing, under cover of a letter sent by email, UKBA's letter of 21 September 2012, I was, as I have indicated, prepared to accept the letter as late evidence. But anything the College sought to rely on with respect to the CAS allocation ought to have been produced then. It is unacceptable to wait until I have produced a draft judgment and then seek to address its adverse findings by producing a further document that could and should have been produced in time for the trial. Draft judgments are not an opportunity for the parties to have a second bite of the cherry, whether by rearguing points or by plugging evidential gaps.
- The second comment on the letter is that it does not say what Mr Simms claims it says. The letter does not say that, in the event of the licence being reinstated, the interim limit of 101 CAS would automatically apply; it says that the limit was not applied to the licence while it was suspended and continues: "If your licence status changes in the future, we will consider whether to apply the limit then." Accordingly, even if the letter were admissible in evidence, it would not alter the conclusion in my draft judgment as mentioned above; if anything, it would reinforce it. In the absence of any other evidence—and there is no other evidence—the conclusion is that when the licence was reinstated it had no CAS allocation and that the allocation was determined, or at least communicated, albeit with retrospective effect, on 21 September 2012.
- These conclusions are material to the second point for consideration, as mentioned in paragraph 76 above, namely, whether the reinstatement of the licence came too late to be of use for the September intake. The evidence of Mr Nisbet and Professor Vass was that the necessary procedures for the issue of CAS to those students who required it could have been completed between the beginning of September and a date in late October that would have enabled students to commence a course in the autumn intake. The evidence of Mr Bartlett, however, was to the effect that the process required the institution to make a "robust assessment" of the student's compliance with the qualification criteria, after which the issue of a Tier 4 visa by UKBA would in 2012 have taken at least three weeks. "Institutions needed to allow at least one month for a student's Tier 4 visa application to be submitted and decided. Furthermore, where an institution had recently been subject to a suspension of its licence, it was not unusual for these applications to take even longer than normal due to the additional scrutiny applied by UKBA."
- If the relevant starting date were 31 August 2012, the most favourable conclusion possible for the College would have been that it would not have been impossible for CAS students to be enrolled on what was nominally the September 2012 intake but that, because of both the lateness of the reinstatement of the Tier 4 licence and the tightness of the timetable for marketing the courses and processing applications both within the College and within UKBA, it was unlikely that very many such students would have been enrolled. However, the allocation was received only on 21 September 2012. The difficulties of recruiting and processing significant numbers of CAS students in time to start the course would therefore have been considerably increased. It is improbable, albeit not impossible, that students would have started their studies before November. (Professor Vass's evidence, summarised above, implied that the process would have had to commence at the beginning of September for that to be possible.) The likelihood is that very few if any CAS students would have been enrolled in the September intake. That this is so is inherently probable, and some confirmation of it is provided by the narrative set out in paragraphs 47 to 50 of my earlier judgment. If a larger CAS allocation would have been of significant use to the College upon receipt of the letter from UKBA, as the letter from the College's solicitor appears to imply, it would have been expected that the College would immediately be proactive in trying to get the University to complete the formalities for the reinstatement of the Validation Agreement very quickly. But there is no evidence that it did so. The likelihood is, I think, that by then an increased CAS allocation was irrelevant.
- I have explained why I regard the way in which the College puts its case on student numbers to be unpersuasive. However, the task remains, in circumstances of incomplete knowledge and considerable uncertainty, to make the best attempt I can at assessing what the College has lost, taking into account all the factors and uncertainties that I have mentioned.
- If the assessment of the College's likely performance in 2012 is to have some evidential basis and not be merely speculative, four particular matters can provide guidance: (1) the College's past performance; (2) the College's own assessment of its prospects immediately before the suspensions of the Validation Agreement and the Tier 4 licence; (3) the success of the College's recruitment in 2012 as compared with its success at comparable times in previous years; (4) the suspension of the Tier 4 licence.
- The College's past performance has been discussed above. I have remarked that the figures are not all easy to reconcile. In the table below I show the figures as they appear in (a) the Strategic Plan, (b) the information produced by Mr Nisbet and included in Mr Makin's report and (c) Mr Smith's analysis of the documents that were produced for the purposes of considering the issue of CAS. Most of the variations are not significant for present purposes. The largest discrepancy, for the MBA intake in 2011, is mainly to be explained by the influx of Advance Students; this is also the reason for the variation in the figures for January 2012. As I have said, in these proceedings the College does not rely on Advance Entry students for its future projections.
| |
B.A. |
M.B.A. |
| 1st 2008 |
3 (b) |
25 (b) |
| 2nd 2008 |
7 (b) |
34 (b) |
| Total 2008 |
10 (a) (b) |
60 (a) or 59 (b) |
| 01/2009 |
0 (b) |
80 (b) |
| 04/2009 |
20 (b) |
237 (b) |
| 09/2009 |
27 (b) |
249 (b) |
| Total 2009 |
24 (a) or 47 (b) |
569 (a) or 566 (b) |
| 01/2010 |
7 (b) |
85 (b) |
| 04/2010 |
0 (b) (c) |
67 (b) (c) |
| 09/2010 |
12 (b) (c) |
128 (b) (c) |
| Total 2010 |
23 (a) or 19 (b) |
282 (a) or 280 (b) |
| 01/2011 |
6 (b) (c) |
71 (b) or 69 (c) |
| 04/2011 |
9 (b) (c) |
94 (b) or 90 (c) |
| 09/2011 |
4 (b) or 6 (c) |
315 (b) or 304 (c) |
| Total 2011 |
15 (a) or 19 (b) or 21 (c) |
156 (a) or 460 (b) or 463 (c) |
| 01/2012 |
5 (b) |
55 (b) or 12 (c) |
- The College's own contemporaneous assessment of likely intake appears from two sources, namely the Strategic Plan (paragraph 30 above) and the email of 20 February 2012 (paragraph 29 above). The Strategic Plan estimated, for all three intakes in 2012, a total of 100 BA students and 400 MBA students. However, the figures represent the numbers planned for, rather than true estimates, and had not been historically accurate guides to intake. Thus the intake figures for the BA in 2010 and 2011 had come nowhere near the planned figures, and the intake for the MBA had not matched the planned figures except in 2009, which saw a surge of applicants because of changes to the rules, and 2011, when the regular intake was only about 40% of the planned figure and the total intake was swelled by an influx of Advance Students. Further, the figures in the Strategic Plan are likely to date from the original version rather than a later redaction; they were thus produced long before 2012. Therefore little reliance can be put on the planned figures in the Strategic Plan, although they do place an outer limit on the credibility of any figures that might be considered. The email of 20 February 2012 was sent only about six weeks before the start of the April courses and, for reasons already indicated, is the best evidence of what the College actually thought it would achieve in April 2012. The email pre-dated the suspension of the Tier 4 licence. However, it post-dated the reduction of the CAS allocation to nil. This raises the question whether Dr Pascal's response was based on a nil allocation. I think it very unlikely that it was so based. The College had requested an increase to its former allocation in January and had very shortly before the email was sent made a request for the reinstatement of its allocation, to which it was awaiting a response. The strong probability is that in its dealings with the University the College was proceeding on the basis that it would have an adequate CAS allocation; if its efforts in that regard were unsuccessful, it would doubtless have informed the University when that became necessary. It may be noted that, as the table in the last preceding paragraph shows, the figures in the email—an intake in April of 10 BA students and 100 MBA students—are close to those for April 2011. Accordingly, it is reasonable to suppose that, in providing the estimate in the email, Dr Pascal had taken account of all relevant factors except that she was assuming a CAS allocation.
- The recruitment performance has also been discussed above; see in particular paragraphs 47ff. Taken with all the other evidence, it tends to indicate the probability, albeit by no means the certainty, that the intake in April 2012 would have been lower than that in April 2011, even regardless of the CAS position. There is some evidence, particularly from the figures for 2010, to support the proposition that, in the absence of Advance Entry students, the intake in September would have been greater than that in April, although the conclusions that can be drawn as to the extent to which that would have been so are not very firm.
- For reasons already explained, the suspension of the Tier 4 licence and the timing and manner of its reinstatement would certainly have affected the intake adversely.
- Mr Smith proposed a two-stage analysis, on which the University relies: first, in the light of the historic intake data and other relevant information, he estimated the likely intakes for the various courses in April and September 2012 on the assumption that the College faced no CAS restrictions; second, he adjusted those estimates in the light of the CAS restrictions that were in fact in place.
- I do not think that the exercise Mr Smith performed is properly to be considered an expert function. He has no expertise in education and has no underlying data to which the court does not also have access. The question what conclusions are to be drawn from the evidence of fact is one for the court. However, to say that Mr Smith's analysis is not expert evidence is not to say that there is anything wrong with it as a matter of reasonable inference. In fact, the basic approach seems to me to be an appropriate one to adopt in the circumstances, though it is necessary to consider what findings of fact are justified by the evidence. In what follows, I set out my own conclusions on the facts. To the extent that I refer to Mr Smith's observations, I do so for convenience and have firmly in mind the proper limits of his evidence.
- I deal first with the position on the counter-factual assumption that the intakes had not been constrained by CAS allocation issues.
93.1 I find that the face-to-face intake for the MBA would have been 80 in April 2012. This is the figure that Mr Smith proposed. His reasoning was that the College's estimate for the April intake was 100 students; the intake was 94 in April 2011; but the level of enquiries was lower than in 2011 and suggested a reduction in numbers; a simple average of the figures for 2010 and 2011 was 80.5; the 2009 figures were not a reliable guide, because there was an abnormal spike, as the College accepted. Doing the best I can, I think that approach to be reasonable.
93.2 I do not accept Mr Smith's suggestion that the September intake for the face-to-face MBA would have been 240 students. He based this on a weighted average of the September intakes for 2009, 2010 and 2011. This, however, ignores both the anomaly of the 2009 figures (which Mr Smith actually adverted to in other contexts) and the fact that the September 2011 figures were greatly distorted by Advance Students, who form no part of the College's projections for 2012. I consider that the evidence shows that the intake in September was likely to be higher than that in April. In the absence of any reliable basis on which to identify a probable number, I think it reasonable to select the intake in September 2010, namely 128.
93.3 I also reject Mr Smith's view that no adjustment should be made for the on-line course. It is probable that a course that had inherent attractions would have produced some applicants, and the fact that it was an on-line course means that the applications might very well have been later than those for courses requiring residence in the UK. It appears that the January 2012 intake included 10 students for the on-line course. It may be noted that, according to the agreed facts put to me at trial, January was the second time the on-line course had been run; the numbers are therefore solid but unspectacular and do not convince me of the merits of the optimistic view advanced by Mr Simms. Doing the best I can, I find that the intake would have been 15 in April and—as the course was relatively new and likely to be growing—20 in September 2012.
93.4 As for the BA course, Mr Smith estimated that the intake would have been 10 students in April 2012 and 10 students in September 2012. This estimate was based on the College's own estimate in February 2012 and on a consideration of the historic figures. I agree with the figure of 10 in April, for the reasons suggested by Mr Smith. It is possible that the figure would have been slightly higher in September 2012, but the small numbers in question and the lack of substantial evidence on which to base an assessment mean that I cannot conclude that the numbers in September would in fact have been higher.
93.5 In my view it is unlikely that the FC and MED courses would have run in April 2012. The College was entitled to run them, but that is not to say that it would have done so. As Dr Pascal acknowledged in an email exchange on 26 January 2012 and as Mr Nisbet accepted in cross-examination, the decision whether or when to run the courses would have depended on student demand. None of the student enquiries disclosed by the College related to those courses; there is no evidence at all of any demand. Dr Pascal made no mention of the courses in her email of 20 February 2012; that does not, I think, indicate a positive decision not to run the courses, but the absence of any mention of the brand new courses is nonetheless striking. The nature of the courses was such that the students would probably have required CAS in any event. I have mentioned in addition the effect on the College's reputation, which would be likely to affect applications even by those who did not require CAS. Mr Simms advanced several factors that he said pointed towards a start-date in April, but I did not find these convincing.
93.6 The probability is that the FC and MED courses would have run in September 2012. As Mr Smith accepted, the College is likely to have had reasonable grounds for believing that the courses were viable; if it had not, it would not have developed them and obtained their approval by the University. There is no reliable information on which to assess the likely numbers for what would have been the first intake. It is reasonable to suppose, as Mr Smith has done, that the numbers would have been those put forward by the College for April 2012, namely 10 for the FC and 20 for the MED.
- However, for reasons already stated I find that the College's situation regarding CAS would have had a seriously adverse effect on its intake, both directly and in respect of harm to its reputation. If the distorted figures for the intakes in September 2011 and January 2012 are discounted, the table in paragraph 74 above indicates that the proportion of students requiring CAS was about 65%. That accords with what one would expect, in view of the College's business model and the profile of its students. I find that the proportion of non-CAS students for the face-to-face courses in April and September 2012 would have been 35%. The effect on the FC and MED courses would, if anything, be likely to be rather higher, although it is not possible to make a precise arithmetical adjustment. The effect on on-line courses would be indirect rather than direct.
- In the circumstances, my conclusions as to intake are as follows:
- The intake for the face-to-face MBA would have been 27 in April 2012 and 45 in September 2012. In assessing these and other figures, I have regard on the one hand to the possibility that the College might have been able to get some very small CAS intake at September and, on the other hand, to the indirect as well as the direct harm that the suspension of the Tier 4 licence would cause to the College's business.
- The intake for the on-line MBA would have been 15 in April 2012 and 18 in September 2012.
- The intake for the BA would have been 3 in April 2012 and 4 in September 2012.
- The intake for the FC would have been nil in April 2012. Because of the low numbers that would have been potentially interested in September 2012, the course would not have run. Mr Simms made the point that the College had shown itself willing to run courses with as few as three students, which is what the foregoing reasoning might suggest for the FC intake in September. However, the FC was a new course and the College was clearly prepared to take a view on whether to commence it once it had seen the level of interest. The evidence has not persuaded me that the level of interest, which may have been three students but is unlikely to have exceeded that, would have led the College to think it attractive to run a brand new course of this kind in generally inauspicious circumstances.
- The intake for the MED would have been nil in April 2012 and 7 in September 2012.
Second issue: amount of fees
- The income lost by the College depends not only on the number of students who would have enrolled but also on the amount of the fees they would have paid.
- The College's case is that students would have paid the following annual fees:
- Those fees are the full course fees advertised on the College's website in January 2012, save for the MBA, which was advertised with a fee of £7,900 if classroom-based or £4,900 if combining classroom and on-line studies. The College's position in this regard is that it has allowed £2,000 for each non-on-line MBA student (i.e. a reduction from £7,900 to £5,900), even though not all students would have received a reduction in fact.
- In his report dated 11 September 2015, Mr Smith analysed the fees paid by students in previous years and calculated that the average fees paid by each student, after allowance for rebates and refunds, were £3,811 in 2011 and £3,420 over the period 2009 – 2011. This reflected what is acknowledged to have been the College's policy of attracting business by discounting fees from their advertised levels or giving rebates or scholarships with the same ultimate effect.
- In his witness statement dated 7 December 2015, Mr Nisbet complained that Mr Smith's method of analysis was "inaccurate" (he may perhaps have meant misleading or inappropriate; no obvious inaccuracy is involved in the method he complains of), because it simply divided the total fee income by the number of students. Instead he proposed that the most appropriate method was to identify the total income to be expected to be received from each "completed student" on a course-by-course basis. Accordingly he analysed the fees paid by every student from January 2010 to December 2012, comprising 815 MBA students and 43 BA students. In most cases he took the information regarding the amount of the fees and the discounts from the paper enrolment letter; in the cases of 183 MBA students and 4 BA students the paper enrolment letter was unavailable and the information was taken instead from the database record. The average annual fees for each student shown by that exercise were as follows:
| |
01/10 |
04/10 |
09/10 |
01/11 |
04/11 |
09/11 |
01/12 |
| MBA |
£6,219 |
£6,180 |
£4,952 |
£5,069 |
£5,074 |
£3,230 |
£3,246 |
| BA |
£6,400 |
N/A |
£4,900 |
£5,100 |
£4,720 |
£1,913 |
£7,350 |
- There is, in my judgment, force in Mr Smith's criticism of Mr Nisbet's approach. Unless all students who enrol on a course also complete their studies, the relevant question concerns not the average fees paid by students who stay the course but the average fees paid by students who enrol. In fact, there has historically been a significant drop-out rate; the rates for intakes after 2009 are as follows:
| |
01/10 |
04/10 |
09/10 |
01/11 |
04/11 |
09/11 |
01/12 |
Average |
| MBA |
29% |
33% |
14% |
24% |
17% |
16% |
25% |
20% |
| BA |
43% |
N/A |
58% |
17% |
44% |
50% |
60% |
47% |
- It does not follow, however, that the drop-out figures in this table can be applied without more to the proposed intake numbers. The drop-out rates do not show clearly at what stage of a course students dropped out; the BA, for example, was a two-year course and a student who dropped out after the first year would still pay one year's fees; and MBA students might drop out after paying a significant part of their fees. This must be taken into account in any assessment of the likely fee income.
- On the other hand, both Mr Smith's approach and his comments on Mr Nisbet's approach must be treated with some caution. As for Mr Smith's approach, I do not think that it will do to work on the basis of simple average fees over time. The evidence shows that the MBA intakes in September 2011 and January 2012 were predominantly Advance Entry students, who would pay lower fees. The College's case in these proceedings is put on the assumption that it would have no such students in April and September 2012. Inasmuch as Advance Entry students depress the average fee income, they ought not to be counted in the exercise. As for Mr Smith's comments on Mr Nisbet's approach, in his supplemental report he adds below Mr Nisbet's figures a "simple average of intakes"; this shows annual income expected from completed students as £5,064 for a BA student and £4,853 for an MBA student. Those figures are of interest, but they are only averages of the yearly figures shown by Mr Nisbet (i.e. the sum of the annual averages divided by the number of years). As the number of students varied from intake to intake, the average figures do not give an accurate average figure for individual students over time.
- Doing the best I can, I proceed as follows.
104.1 I find that the College would have continued its historic practice of giving substantial discounts on the advertised fees for its courses. The reason for that approach is obvious and was stated by Dr Basha in his witness statement: "In order to enrol as many students as possible, we offered substantial discounts in course fees to students ..." The Strategic Plan expressly stated that a scholarship of about £2,000 was considered during the enrolment process. And a report in June 2013 by UK Visas and Immigration, UKBA's successor, recorded that all students enrolled on the BA course in September 2011 had received a £2000 discount on the fees.
104.2 In making that finding, I reject the two reasons advanced by the College for supposing that it would not have given the discounts in 2012. The first reason is that its strong market position would have made it unnecessary to reduce fees in order to attract business. I have set out sufficiently the considerations that compel a contrary conclusion. The College would have been under considerable pressure to get in such business as it could and would have used competitive fees as a method of achieving that end. The second reason advanced by the College is that the availability of student loans would make higher fees less significant in terms of attracting students. Although there may possibly be some force in that argument, I do not believe that it would have been thought a sufficiently strong consideration to justify a change in the previous policy of discounting fees. First, the point has no application for students who do not have student loans. Second, even for students with loans the amount of the fees is highly material, because the fees are converted into debt. Third, as I have said, the College was not in the strong market position that it now claims to have been in.
104.3 I find that the annual fees for the BA course would have been on average £4,900. It is harder to know what the fees for the MBA would have been. The MBA was the College's flagship course, on which it most heavily depended, and the pressures to discount the fees would have been the greater. Having regard to historic figures and to the different pricings, I find that the annual fees would have been on average £5,500. Although it is possible that they would have been higher, as the College contends, neither the evidence of the fees charged in recent intakes (ignoring the artificial depression in September 2011 and January 2012) nor the College's difficult trading position makes that likely. The College points to increases in its fees in the period 2009 to 2012, most recently an increase of the MBA fee from £6,600 to £7,900 in January 2012. But the crisis over CAS allocation makes it unlikely, in my view, that the new fee structure would have been maintained. It may be noted that £5,500 is approximately the adjusted average figure for the January 2012 intake, if Advance Entry students are ignored. The on-line MBA would probably not have been discounted heavily; a 10% reduction is inherently likely to have been given, but no more. If the FC and MED courses had run, each would probably have been subject of a £2,000 reduction on the advertised price; that is the more likely as they were new courses that might have been priced attractively to encourage students at the outset.
104.4 I would apply a discount to the intake numbers for each course in April and in September 2012 to take account of drop-out rates. For the reasons already indicated, the discounts cannot simply equate to the proportion of students who are likely to fail to complete the course. They must also take account of the different lengths of the courses, as well as the different non-completion rates. It is inevitable that a broad brush must be applied at this stage. I would apply a discount of 25% to the BA intakes and a discount of 12% to the MBA intakes. There is of course no historic information regarding the MBA on-line or, for what it is worth, the FC and MED courses. I think it reasonable to suppose that the drop-out rate for the on-line MBA would be slightly lower than that for the face-to-face course; I adopt a 10% discount. I think it reasonable to suppose that the drop-out rate for the FC and MED courses would be higher than those for the MBA but lower than those of the two-year BA degree; I adopt a 20% discount.
Third issue: additional teaching costs
- The additional fee income from the April and September 2012 intakes would not have been pure profit; in earning it, the College would have incurred additional costs. For the most part, the experts have reached sufficient agreement on what those costs would be to enable a calculation of profit to be made. The remaining issue is the extent to which the College would have incurred additional costs in respect of teaching personnel, whether employed staff or tutors.
- The College's contention is that, in circumstances where it maintained its staffing levels in anticipation of prompt restoration of the Validation Agreement, it could have taught the new intake at very little additional teaching cost. It relies on a timetabling analysis carried out by Mr Nisbet and explained in his final witness statement, which purportedly shows that the student numbers estimated by the College could have been accommodated efficiently within teaching schedules that required little additional input from outside tutors. As put forward by Mr Simms in his final submissions, the analysis shows an incremental total teaching cost of £129,819 and an incremental staff cost per student of £219 for the period April 2012 to August 2014.
- As it was based on the College's proposed figures for the 2012 intakes, the timetabling analysis is not directly relevant to the findings that I have made, but I shall express some views about it before considering an alternative approach. First, Mr Nisbet's evidence is forensic; it is not grounded in facts as to the College's conduct of its business but reflects an exercise undertaken to establish a putative level of profits. Second, Mr Nisbet's evidence is neither useful factual evidence nor admissible opinion evidence. Third, the way in which the College puts its case is insufficiently supported by a factual basis.
- As to the first point, it seems to me that Mr Nisbet's latest way of putting the College's case is an example of the way in which he retrospectively sees the College's position in 2012 as far better than it had seemed at the time or had ever been. This phenomenon has already become apparent in considering the intake numbers for students. The College's proposed figures for incremental teaching costs have repeatedly been reduced in the course of these proceedings, and there is in my judgment much force in Mr Capewell's complaint that "the efficiency in timetabling has been learnt in the course of the litigation process as the timetable has been continuously refined in order to reduce incremental costs as much as possible."
- As to the second point, Mr Nisbet's evidence in respect of the timetabling analysis would be inadmissible as expert evidence but is not straightforwardly evidence of any fact. Mr Nisbet accepted that no timetabling exercise such as the one on which he now relies had been performed in previous years. So it must presumably be considered as factual evidence of what could and would have happened. The initial difficulty concerning the feasibility of the proposals advanced by Mr Nisbet (the "could" as distinct from the "would") was raised by Mr Smith in his second report and his oral evidence. He accepted in principle that the sort of exercise that Mr Nisbet had performed could be useful in assessing likely costs, but he said that he did not have the necessary educational expertise to permit him to comment in detail on the way in which Mr Nesbit had carried it out; in particular, he could not assess the adequacy of the underlying assumptions, such as the number of hours that would be required for teaching particular courses. The problem is that Mr Nisbet's evidence involves saying not only what the College's intentions would have been in hypothetical circumstances but also that the hypothetical proposal made operational sense in educational terms. I think that Mr Smith was right to think that this latter aspect of the evidence went beyond his competence as a forensic accountant used to assessing business performance and prospects. The fact that it does so, however, shows that the evidence from Mr Nisbet is mixed fact and opinion: this hypothetical teaching arrangement would have been feasible and we would have done it.
- As to the third point, it is common in loss of profit cases to find claimants contending that, although their profit margins were relatively small, the revenue lost on account of the defendant's wrongdoing would have been almost pure profit because the overheads had been incurred. Life is rarely that simple. Several factors cast doubt on Mr Nisbet's hypothesis.
- As Mr Capewell points out, if the College's approach were correct one would expect that its profit would have been proportionately high in years of high turnover and proportionately low in years of low turnover, whereas that is not the case. In the years after significant expansion of the College's business, revenue increased and profit decreased: in 2009 net fee receipts were £1,306,801 and pre-tax profit was £108,110; in 2010 the figures were £1,470,719 and £29,015; in 2011 they were £1,542,349 and a loss of £46,082. Again, it is of interest to look at the annual costs as shown in the College's profit & loss accounts. In 2009 the total costs for employees and tutors was £257,499 (respectively, £101,661 and £155,838); in 2010 the figures were £484,474 (£156,358 and £328,116); in 2011 the figures were £603,288 (£230,852 and £372,436). The total figures represent respectively 20%, 33% and 39% of net fee receipts in each of those years. In 2012 the net fee receipts dropped to £854,164 and the combined employee and tutor costs reduced to £313,194 (37%). It is notable that the reduction of staff costs in 2012 was referable overwhelmingly to tutor costs, which were down to £110,790 from £372,436 in 2011).
- These figures indicate at least three things. First, the historic pattern was that increased fee income was associated with increased costs, but not with increased profits. Second, although the reduced fee income in 2012 was associated with significantly reduced staff costs, substantial use was still being made of tutors to meet the College's teaching requirements (Mr Nisbet's evidence was that on average a tutor cost £35 an hour). This casts doubt on the weight that can be placed on Mr Nisbet's assertion in cross-examination that the employed staff were underutilised and would have been able to teach more if there had been more students. Third, the timetabling efficiencies that are now relied on to show that the profit margins on lost revenue in 2012 would have been abnormally high do not reflect what had happened at any time in the past. The evidence does not offer a sufficient explanation of why, if the timetabling exercise was such a good idea, it was not adopted in the past or why, if it had never been adopted before, it would be adopted in 2012. (It is particularly strange that LCB should advance a case that it would have pared its costs to the bone at the very time when, on its own case, it was expanding its business so significantly. What is plausible is that it should be more cost-conscious in straitened circumstances.)
- In fact, the reasons why the exercise put forward by Mr Nisbet had not been implemented before are not hard to seek and are identified by Mr Smith in his supplemental report and by Mr Capewell in his submissions. I mention here only what I regard as the two most important:
1) In the University's report of a validation exercise conducted in July 2009 it was recorded: "LCB aims to work within a SSR ratio [i.e. students to staff ratio] of between 15:1 and 17:1." Further, Mr Smith points out that a document provided by LCB to the University in 2012 implies an SSR of 11.5:1. Yet Mr Smith's arithmetical analysis of Mr Nisbet's detailed timetable shows that it represented an SSR of 68:1. Mr Nisbet said in cross-examination that he disagreed with Mr Smith's calculation, although Mr Makin had in fact agreed with it. And he insisted that the SSR would not have exceeded 40:1 for the MBA and 30:1 for the BA. But that is still far in excess of the figures represented by LCB. In the light of the documentation and in the absence of supporting evidence, I do not think that I ought to place much weight on Mr Nisbet's assertion that the lower SSRs mentioned above were "obsolete".
2) Not only does the timetable greatly increase the SSR, it also squashes what I consider to be unrealistic amounts of teaching into the week, because it shows that in September 2012 all members of staff would be teaching for eight hours a day on five days a week. That plainly is not feasible, despite Mr Nisbet's efforts to say that other activities could be done in a two-week non-teaching period each semester. I agree with Mr Capewell that this is a further indication that Mr Nisbet has simply constructed the most pared-back timetable conceivable rather than one that might have been realistic.
- The University's approach, which is set out fully in the two reports of Mr Smith, relies on an analysis of historic average teaching costs for each student. Mr Smith starts from the premiss that tutor and staff costs are likely to vary directly with the number of students enrolled: "the more students that are enrolled, the more tutors would be required to teach those students and the more administrative staff would be required. Consequently, more costs would be incurred" (first report, paragraph 5.34). Accordingly, on the basis of Mr Nisbet's figures for student admission, Mr Smith calculated the average employee and tutor cost per student: in 2009, £656; in 2010, £1,037; in 2011, £1,490. Mr Smith said that he did not know why the average cost had risen between 2009 and 2011, and no explanation was given by the College. He accepted that factors such as wage increases, the structure of classes or modules, and the number and type of courses offered might affect the average employee cost per student and that therefore historical cost was not necessarily representative of future cost. But he concluded: "Whilst there is considerable uncertainty over the projected tutor costs, on balance and based on the limited evidence available to me, I have assumed that the incremental employee cost per student is £1,500 per additional student per annum." He noted that this figure was close to the average cost in 2011 (in fact, that seems to be why he chose it) and that it was broadly borne out by other calculations set out in paragraphs 5.40 and 5.41 of his first report.
- Mr Nisbet took issue with Mr Smith's calculation of the historic average teaching cost for each student, on the basis that Mr Smith had failed to take account of the fact that a student has, or might have, an impact on staff across multiple years. (In fact, Mr Smith did not make that error.) Accordingly he performed his own calculation, whereby the total staff costs over a three-year period, 2009 – 2011, were divided by the total number of serviced students. This gave a figure of £953 for the average tutor cost per student over the three years. (Of course, Mr Nisbet did not accept the appropriateness of using historic averages in this way.) Mr Smith was not cross-examined or challenged on his arithmetic and, in view of his apparently correct method of calculation, it appears that the different figure arrived at by Mr Nisbet is simply the result of taking an average over three years.
- In his first report (paragraph 5.34, footnote 60), Mr Smith made the point that the variation of staff costs directly with the number of students enrolled was particularly likely "in light of the significant increases of students anticipated by LCB. At modest levels of change, these costs may not change—for example, if there was one more student, it is likely that he/she could join existing classes." In cross-examination he accepted that, with a smaller number of students, there will tend to be a higher proportion of fixed costs. This is another way of putting the point that an average cost for each student is not the same as the additional incremental cost for each student, because the fixed costs of the teaching operation are not incremental costs. I agree with this as a general observation, and it is of relevance in the light of my findings as to the numbers of students who would have enrolled in April and September 2012.
- In these circumstances, I take the following approach.
117.1 I reject the College's reliance on Mr Nisbet's timetabling analysis.
117.2 In the absence of any surer ground on which to proceed, I shall start from the historical data on teaching costs. But I bear in mind that historic costs are an imperfect guide to future costs and that the very significant fluctuation in the costs for the period 2009 to 2011 is unexplained. Simply by weighting an average over this period in favour of the more recent years, one can identify £1200 as a reasonable cost for each student per annum. I acknowledge that there is a degree of arbitrariness in this calculation, but it is quite impossible to proceed in a purely scientific manner, at least in the absence of reliable information as to the reasons for the variations from year to year.
117.3 I then have to consider how to take account of the point noted in the last preceding paragraph. Because of the low figures that I have allowed for intake, it is likely that the impact on variable costs will be lower than it would have been if the figures advanced by the College had been accepted. However, in view largely of the extreme way in which the College has advanced its case, it is very difficult for me to know how this would have played out in practice. The College bears the burden of proving its loss. But there is a clear difference between simple average costs per student and incremental costs per student. And it is probable that the College would have sought to accommodate the relatively low number of students in an economic and efficient manner: note, for example, the explicit reference in the later redaction of the Strategic Plan to the focus on "reduction of variable costs on all aspects". Doing the best I can, I discount the average cost by one-half. This results in an average overall figure of £600 for each student per annum.
Conclusion
- The findings set out above will enable the parties to finalise the calculations necessary to quantify the damages on the counterclaim. I have mentioned that the manner of proceeding has meant that I do not know what the damages will be. If, as appears likely, the award will be modest, it will accord with the broader realities of the case, for reasons already explained.
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