BL-2022-002117 - [2025] EWHC 2794 (Ch)

The Company and the SFA were parties to a commercial contract. The contract was for the delivery of a service by the Company to the SFA. The contract did not involve the SFA being engaged to provide a professional service (as has been the case in most Hedley Byrne cases). On the contrary, the SFA was the Company’s customer: it agreed to pay sums of money to the Company in return for the delivery of apprenticeship services.

The provision of that contract to which the task ostensibly related, clause 5.10, was a provision conferring an “absolute discretion” to terminate the agreement if, in the event of a change of ownership, the SFA considered that “the change in ownership would prejudice the Contractor’s ability to deliver the Services.” It is inherent in the right of termination that the exercise of the right is capable of being adverse to the interests of the counterparty. That is a feature of the rights and obligations the parties have agreed.

The right was never exercised. Instead, the SFA was asked to give an assurance that the right would not be exercised upon the occurrence a particular future event, namely a change of control to Trilantic. There was no provision under clause 5.10 or the commercial contract for such a request to be made and no provision requiring a response.

In other words, the task was to decide whether or not to provide a response to the request of the counterparty, and if so whether or not to waive, prospectively, a right enjoyed under a commercial contract with the counterparty. The SFA was under no contractual obligation to the Company to perform the task and owed the Company no contractual duties in respect of the task. Nevertheless, it is said that there was a duty on the part of the SFA owed to the Claimants, as the indirect owners of the Company, to act with reasonable care in the performance of the task.

The SFA was not deploying special skill or knowledge and it was not deploying it for the benefit of the Claimants. In dealings with a counterparty to a commercial contract, the other counterparty is entitled to have regard to its own interests alone. As Hobhouse LJ has observed, “in a competitive economic society the conduct of one person is always liable to have economic consequences for another and, in principle, economic activity does not have to have regard to the interests of others and is justifiable by the actor having regard to his own interests alone”; Perrett v Collins [1999] PNLR 77 at 84. The SFA’s interests include delivering education and skills in accordance with the policies and priorities of the government and providing value for public money. Those interests are in conflict with the commercial and economic interests of the counterparty to the contract and the persons who are directly or indirectly its owners, whose interests are ordinarily to maximise profit. The existence of that conflict of interest is not consistent with an assumption of responsibility by the SFA to the Claimants to take reasonable care in its dealings with the Company.

The Claimants were not relying on the SFA for advice as to the meaning of the contract or clause 5.10. They had their own legal advisors. They were perfectly capable of forming their own view as to whether or not a future termination of the contract by the SFA would be a breach of clause 5.10 and what their remedies might be pre-emptively or after the event. The Claimants submit that “the SFA” knew that the Claimants were “relying on its answer to the change of control request in order to proceed with the sale and so were relying on the SFA to provide its answer with reasonable care”. But that goes no further than saying that it was foreseeable that there would be an impact on the Claimants if the decision went against them. That is obviously not enough in itself to give rise to a duty of care.

Mr Solomon sought to escape these conclusions by describing the task which the SFA undertook as the task of making a decision as to whether or not it should approve or refuse the proposed change of control to Trilantic. There is no dispute that there is no power in the contract with the Company for the SFA to refuse and thereby block a change of control. If this is what the SFA was doing, the purported decision had no legal effect. All the parties to the SPA will have known that with the benefit of the expert advice they had and the due diligence they had undertaken. If the parties wished to proceed with the SPA there was nothing to stop them. It was not reasonable to rely on the SFA taking care in relation to that ineffective decision. Moreover, the points made that the SFA’s entitlement to act in its own perceived interests and the conflict of interest which exists with the interests of the sellers under the SPA, continue to apply. The Claimants’ real complaint is that anything other than approval was likely to spook a buyer in circumstances where the SFA was almost the only source of the Company’s funding. But that only highlights the conflict of interest.