Banham Marshalls Services UnLtd v Lincolnshire County Council & Ors

A contractual term may be implied only where necessary to make the contract workable, not merely because it would be reasonable or would reflect a statutory duty. In a residential special school contract, permitting a person who had committed child cruelty to exercise managerial control could amount to a repudiatory breach because it went to the root of the contract. Acceptance of repudiation must be clear and unequivocal, assessed objectively at the time. A temporary withdrawal of pupils amid uncertainty may not satisfy that requirement. Termination does not retrospectively discharge fees which accrued before termination, and frustration requires a supervening event that fundamentally changes the nature of outstanding obligations. Statutory interest may be remitted under the Late Payment of Commercial Debts (Interest) Act 1998 where the interests of justice require it.

Banham Marshalls Services Unlimited claimed unpaid fees from Lincolnshire County Council for residential accommodation and teaching provided at a special school for children with special educational needs. The council withheld fees after withdrawing four pupils in May 2003, relying on alleged repudiatory breaches arising from regulatory concerns, child-protection allegations and the involvement of George Robson in the College’s management.

The issues included the implied contractual terms, repudiatory breach, acceptance of repudiation, accrued term fees, frustration, liability for fees for another pupil, set-off and enhanced statutory interest. The claim was treated as the lead trial in consolidated proceedings involving other local authorities.

1. Contractual terms. A term is implied only where necessary to make the contract workable. Reasonableness, terms used in contracts with other authorities, or the existence of a statutory duty do not by themselves justify implication. A term requiring the school to safeguard and promote each pupil’s welfare was necessary and could be implied. A term preventing the employment or continued employment, in managerial or supervisory roles as well as direct-care roles, of a person who had committed child cruelty or assault was also justified. The proposed general term importing all relevant health and safety and employment legislation was too vague.
2. Repudiatory breach. The continued exercise by George Robson of managerial and supervisory functions as proprietor and/or acting principal, despite his having committed acts of child cruelty, was a breach going to the root of the contract. There was also a failure to ensure pupils’ welfare which, viewed objectively, qualified as a breach going to the root of the contract. Mount v Oldham Corporation [1973] 1 QB 309 was consistent with that conclusion. The court accepted that reliance could be placed on the fact that offences had been committed although this was not known at the time, referring to The Mihalis Angelos [1971] 1 QB 164 and Cyril Leonard & Co v Simo Securities Trust [1972] 1 WLR 80.
3. Acceptance. Acceptance of repudiation must be clear and unequivocal. The test is objective and is applied at the material time. The council’s communication that pupils were being withdrawn until the situation was resolved reflected uncertainty and did not unequivocally terminate the contracts. Subsequent correspondence and the return of one pupil reinforced that conclusion.
4. Accrued fees and frustration. The summer-term fees became due on the first day of term and could not be discharged by subsequent termination. There was no total failure of consideration. Frustration requires a supervening event, without default by either party and not provided for by the contract, which fundamentally changes the nature of the outstanding obligations. The contracts remained capable of performance, so frustration was rejected. The formulation in National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 was applied.
5. Other fees and interest. Lincolnshire bore the burden of proving that the College had excluded RK. On the available evidence that burden was not discharged, so the full spring-term fee was recoverable. Under section 5 of the Late Payment of Commercial Debts (Interest) Act 1998, the court had a broad discretion to remit statutory interest according to the interests of justice. The claimant’s delay justified ordinary interest after 1 April 2005 for LC and RK, and throughout for the other debts.