School Facility Management Ltd v Governing Body of Christ the King College

Christ the King College was a voluntary aided school maintained by a unitary local authority. The local authority approved the college’s request to expand into a sixth form college. However, after the 2008 financial crisis there were significant restraints on capital expenditure. This led to the college entering a contract in 2013 for the construction and hire, over fifteen years, of a modular building and associated equipment. In September 2017, the college was unable to pay its annual instalment and any further instalments.

The manufactures of the buildings and their associated finance companies claimed damages for breach of contract, against the college’s governing body and the local education authority. The college and the local authority proposed that the contract was ultra vires. They resisted the claims for debt and damages and requested to recover the amounts it had already paid as unjust enrichment. The judgement was heard on the 7 May 2020.

Ultra vires is a private law defence which aims to show that the college lacked the capacity to enter the contract which would therefore mean it was not binding. The college asserted that the contract was void because it involved borrowing for the purposes of the Education Act 2002. The contract was a ‘finance lease’ which means it is regarded as ‘borrowing’ under schedule 1 of the act. To borrow schedule 1 states that permission from the Secretary of State must be obtained.  Consent was not obtained which meant it was beyond the college’s capacity to enter the contract. Due to this the claims against the college and local authority failed. The college’s claim to recover the payments already made as unjust enrichment also failed as School Facility Management Ltd had a defence of change of position. Change of position is a defence to a claim of unjust enrichment. It can apply when the defendant’s circumstances have changed detrimentally so that it would be unjust to require them to repay money received at the claimant’s expense. This meant the management company was entitled to the payments from the college payed between 2013 and 2017. It also meant the management company could recover in unjust enrichment the payments not payed between 2017 and the trial.

On the 10 June 2020, the judgement was heard on the succeeding case regarding the unjust enrichment issue. The college submitted that the total market rental value of the building received by the college from 5 September 2013 to the date of trial is £1,625,000. However, the college had paid £3,205,636.80. They therefore argued that as the claimants had received substantially more than the market rental value, nothing further should be owed when applying the principles of unjust enrichment. The court concluded that there was never a point in time where the college was entitled to recover the payments it had made because, School Facility Management Ltd had incurred expenditure significantly in excess of those amounts in anticipation of receiving them. This meant the college was not entitled to use the payments already made as some form of ‘restitution voucher’ to net-off against any subsequent enrichments it received at the management companies’ expense. The college was granted permission to appeal on a certain point of law.

The college applied for a stay of execution which would impose a halt on the management company proceeding with recovering money owed from unjust enrichment until the appeal is heard. If the college succeeds in its appeal it will have been under no liability to the claimants at the date of the judgement. As the college’s most recent deficit is just under two million it would be placed in severe difficultly if it were required to make a payment now, only for it to succeed in its appeal at a later stage. Considering this and other factors a stay was granted regarding the amount awarded in the management companies favour pending the determination of the colleges appeal.

It has recently been reported in the local news that the college stopped using the building on the 15 July since an appeal has been filed. The case continues….

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