HT-2020-000448 - [2024] EWHC 1185 (TCC)

For the reasons set earlier in this judgment, I consider that recovery of these costs is excluded by Clause 52.3.

I nevertheless address therefore what TCS’s recovery would have been but for the existence of the exclusion clause. TCS’s pleaded claim is for £77,314,727 and, as clarified in its response to a Request for Further Information dated 5 February 2021, is advanced on the basis that (i) the per transaction cost to TCS of processing each of Basic Disclosure, Standard Disclosure, Enhanced Disclosure and Update transactions was anticipated to fall substantially on Go-Live of R1 owing to the efficiencies of operating the Solution compared with the legacy R0 process; (ii) the contractual charging scheme reflected that anticipated lower cost to TCS, principally by means of a substantial drop in the Transaction Charges after Service Year 3; (iii) by reason of the delay to Go-Live of R1-B&Band the lack of Go-Live of R1-D, TCS was not able to achieve the contractually anticipated savings but was still subject to the reduced Transaction Charges; (iv) the result was that the Claimant’s net revenues from Transaction Charges were substantially lower than they would have been but for the delay in relation to R1-B&Band non-implementation of R1-D.

As set out in her First Report, Mrs Wall performs three different calculations of TCS’ lost anticipated costs savings, all of which are based on the Financial Model (‘FM’). The first is based on the use of the Transaction Charges as a proxy for calculating TCS’s loss of anticipated savings. This yields a sum of £54,056,959. As pointed out in her first report, her view was that ‘it is not clear that the reduction in Transaction Charges following the planned go live date for R1, as used in TCS’s calculations, would be an appropriate proxy for calculating loss of anticipated cost savings.’ Mrs Wall accepted in the Joint Report that, whilst the loss of anticipated cost savings ‘could possibly’ be as high as £54m, they were more likely to be within the £8-13 million range calculated by her second and third approaches.

Mrs Wall’s second approach was to consider the anticipated cost savings in the FM (calculated at £13,138,959), and the third was to consider the anticipated cost savings in the FM expressed as a percentage reduction in operating costs incurred prior to the R1 Go-Live date, applied to TCS’s actual costs from January 2017 to March 2020 (calculated as a range from £8,166,753 to £12,731,575, depending on whether the percentage reduction is calculated on aggregate average operational costs (the lower figure) or average operational cost per transaction).

Mrs Wall confirmed in cross-examination that her third approach was her most preferred approach in terms of accuracy and reliability (Day24/155). In light of this, I do not consider Mrs Wall’s first two suggested approaches further (save that some of the criticisms of the third approach were explored in evidence in the context of the second approach and are equally applicable) insofar as they relate to issues around use of the FM.

The third approach uses a comparison of the forecast operational costs in the FM before and after (anticipated) Go-Live. That generates a percentage (22.9% or 35.7%) and that is then applied to actual cost data.

DBS advance a number of criticisms. The obvious point is made that the claim is based upon the forecasts with the FM, which were made a number of years prior to the relevant events, and some of the assumptions, unsurprisingly transpired not to be correct. For example, TCS ended up processing more transactions than forecast within the FM. TCS did not use contemporaneous budgets or forecasts of future costs, which Mrs Wall fairly accepted it would have expected an organisation like TCS to have, and which Mr Hain also considered would ordinarily be readily available. The use of the FM therefore invites the inevitable question: why not use a more up to date forecast of likely costs post Go-Live? DBS does not, in its Closing Submissions, say that this point is fatal to the claim as a whole, but argues that in light of it, the Court should err on the side of caution and the claim should be ‘reduced further’. There is force in the point made by DBS.

DBS raises two further points which, in my judgment, are valid. The first is that the percentage calculation deriving from a cost-per-transaction approach assumes that all costs were variable, when only some would be. This would tend to overestimate the saving. The second is that Mrs Wall’s calculation includes the effect of an efficiency benefit derived from the introduction of R2, which it would be appropriate to strip out. This would reduce Mrs Wall’s 22.9% to 18%.

There is inevitable uncertainty given the factors set out above. Indeed, this is precisely the sort of uncertainty of which Coulson LJ observed when comparing a loss of profits claim to a true wasted expenditure claim (based on actual invoiced costs incurred but to no end, in light of a termination). In my judgment, it is appropriate in all the circumstances to use the lower bound percentage of 18% to reflect the likely saving that TCS would have made.

This saving then needs to be applied in the same way as the analysis for non-manpower costs, to those actual costs which were incurred after the date that, but for the matters of which TCS complain, it would have achieved Go-Live of R1-D.

This can be calculated from Mrs Wall’s appendix VW-3A, by:

This amounts to (£2,653,289/22.9)*18 = £2,085,555.