![HT-2020-000448 - [2024] EWHC 1185 (TCC)](https://backend.juristeca.com/files/emisores/logo_yJUntHA.png){kind=logo}
The Charges Variation Dispute Introduction
The Charges Variation Dispute
Introduction
TCS’s fees for providing the operational services under the Agreement were principally in the form of Volume Based Service Charges. These were per-transaction charges payable in respect of each disclosure application processed by TCS during each Service Year. The scheme of charges, which is set out in paragraph 2.3 of Schedule 2-3 to the Agreement, specified a unit charge for each type of disclosure application (Basics, Standard, Enhanced and Update) for each Service Year as follows:
The parties also agreed a mechanism to vary those charges for the following service year based on the number of transactions in the prior service year (‘the Charges Variation Clause’): Section 2.8 Schedule 2-3. The relevant provisions are:
‘2.8.4 If the Actual Transaction Percentage exceeds 110% (one hundred and ten percent) then the Transaction Charges for the subsequent Service Year may, at the Authority’s option, be reduced such that in the subsequent Service Year, the reduced Transaction Charges multiplied by the Predicted Transaction Volumes would give an under-recovery of Forecast Revenue in that Service Year equivalent (within 2%) to the over-recovery of the Forecast Revenue in excess of the 110% cap in the prior Service Year. The revised Transaction Charges shall apply from 1st April of the relevant year.
If the Actual Transaction Percentage is lower than 85% eighty five percent) but greater than 75% (seventy five percent) then the Transaction Charges for the subsequent Service Year shall be increased such that in the subsequent Service Year, the increased Transaction Charges multiplied by the Predicted Transaction Volumes would give an over-recovery of Forecast Revenue in that Service Year equivalent (within 2%) to the under-recovery of the Forecast Revenue in excess of the 85% cap in the prior Service Year. The revised Transaction Charges shall apply from 1st April of the relevant year. For illustration purposes only if the Actual Transaction Percentage equals 82% then the increase in Transaction Charges for the subsequent Service Year shall be such that the over recovery in the subsequent Service Year is equivalent to 3%, the difference between 82% and 85%.’
There was a slightly different procedure relating to the final service year: Sub-Section 2.8.8:
‘2.8.8 At the end of the Service Year 4 a minimum Transaction Volume shall be agreed for Service Year 5, on which the Volume Based Service Charge shall be calculated. This minimum Transaction Volume shall be 85% of the current Predicted Transaction Volume prevailing after any variation to the Predicted Transaction Volume made at the end of Service Year 4.’
Relevant terms within these clauses are defined as follows:
‘Forecast Revenue” is defined as “the revenue earned by the CONTRACTOR as stated in the Financial Model, cell Y21 in the summary worksheet”
“Predicted Transaction Volume” is defined as “the entries within the Financial Model for each of the Basic Disclosure, Standard Disclosure, Enhanced Disclosure, Updated Service Applications and Update Service Renewals’.
The FM is referenced at Clause 20 of the Agreement, headed ‘Financial Model’. It states simply:
‘The provisions of schedule 2.3 (The Charges and Charges Variation Procedure) shall apply in relation to the Financial Model and the parties shall comply with their respective obligations under schedule 2-3 (The Charges and Charges Variation Procedure) in this regard.’
It is also relevant that Clause 2.3.3 of Schedule 2-3 states;
‘2.3.3 The Volume Based Service Charges shall be calculated each Month as follows:
2.3.3.1 for each type of Transaction, the actual volume of transactions in the Month shall be multiplied by the Transaction Charges in Table 1 or Table 2 above (as applicable), subject to any variation to the Transaction Charges arising from the provisions in paragraph 2.8, Charges Variation, of this Schedule 2-3.
2.3.3.2 the total Transaction Charges for each type of Transaction are then summed to give the monthly Transaction Charge.’
The parties disagree in two respects about the proper construction of these provisions, and, as the case was closed, one remaining factual dispute. These issues are relevant to the proper calculations to be carried out pursuant to the Charges Variation Clause. The three remaining issues are (numbered as per the parties’ submissions prior to Issue 3 falling away):
Issue 1: How the amount of an ‘over-recovery of the Forecast Revenue’ (Clause 2.8.4) or ‘under-recovery of the Forecast Revenue’ (Clause 2.8.5) is to be measured. This is an issue of construction.
Issue 2: Whether the Predicted Volumes for Basics in Service Year 4 were 1,000,000 (TCS’s case) or 320,374 (DBS’s case). This is an issue of fact.
Issue 4: How Clause 2.8.8 of Schedule 2-3 applied to Volume Based Service Charges in Service Year 5. This is an issue of construction.
The forensic accountant experts have agreed the results, depending upon the resolution of the points of contractual and factual difference, as set out in the following table:
Issue 1 | Issue 2 | Issue 4 | Under/(Over) Payment |
SY4&5 ATC | 1m v 320k | 85% floor v fixed | |
TCS | TCS | TCS | 15,164,816 |
DBS | 4,467,391 | ||
DBS | TCS | 14,373,890 | |
DBS | 4,711,157 | ||
DBS | TCS | TCS | 6,976,737 |
DBS | (2,024,573) | ||
DBS | TCS | 5,132,634 | |
DBS | (2,329,641) |
Thus it can be seen that the result of the Court deciding each sub-issue in accordance with TCS’s case is that TCS would have been underpaid by £15,164,816. If each issue were determined in accordance with DBS’s case, DBS has overpaid TCS by £2,329,641.
I will deal with Issues 1 and 4 (the issues of construction) first.
- Heading
- CONTENTS
- IntroductiON
- The Factual Witnesses
- Expert Evidence
- Programming Experts
- Forensic Accounts
- The Parties Submissions
- Principles Applicable to Issues of Construction
- The Defendant’s Obligations and Responsibilities
- Clause 15
- Clause 9.5 which states
- Clause 14.5 of Schedule 2-6 which states
- The Delay and Notice Provisions
- Clause 7
- Conditions Precedent: Clauses 5 and 6
- Conditions Precedent: the authorities
- Clause 5.6
- Clause 6
- Clause 8
- Limitations of Liability
- A single or multiple caps?
- The Delay Damages cap under Clause 52.2.5
- Is TCS’s claim for loss of anticipated costs savings excluded by Clause 52?
- Compliance with Clause 5.3, Agreement and Estoppel Introduction
- Express Agreement
- Estoppel
- Introduction
- R1 B&B Delays
- Mr Britton’s First Analysis
- Mr Britton’s Second Analysis
- Conclusion on Mr Britton’s Analyses
- TCS’s submission based upon Mr Jardine’s analysis
- Responsibilities for Delay on the ‘Infrastructure’ Critical Path
- R1-D
- Compliance with Notice Provisions
- Analysis of Delays
- Up to August 2017
- From August 2017 to 19 September 2018
- Analysis
- Failed to confirm its desired functional scope of R1 Disclosure in relation to the Customer-to-Business portal and Accountable Officer’s Update Service functionality. Such confirmation was a prerequis
- Failed to make available an end-to-end test environment for the Interactive Voice Response system
- Failed to agree upon a data migration approach, without which the Claimant could not complete the build of a data migration environment so that anonymised data could be made available for testing
- Failed to ensure that relevant external stakeholders were available to participate in Final Systems Integration Testing
- Partial Termination
- TCS’s Claims
- Non-Manpower Costs
- Anticipated Cost Savings
- Summary of TCS’s Delay Claim Recovery
- DBS’s Claims
- Delay Payments
- R1-B&B Delay
- Disclosure Scotland Extension Costs – Item 1 of the Updated Schedule of Loss
- Loss of Anticipated Savings – Item 3 of the Updated Schedule of Loss
- R1-D Delay
- R0 Licence Costs – Item 4 of the Updated Schedule of Loss
- R0 Hosting and Infrastructure Costs - Item 5 of the Updated Schedule of Loss
- R0 Technology Refresh – Item 6 of the Updated Schedule of Loss
- R0 N-1 Sustainment Costs – Item 7 of the Updated Schedule of Loss
- R0 Maintenance Costs – Item 8 of the Updated Schedule of Loss
- Savings
- Introduction
- Quality-related Obligations
- Good Industry Practice and Defects
- Digital by Default Standards
- Section 71
- The Basics Portal
- Section 73
- The Barring Portal
- Section 75
- Section 76
- Barring Portal: Loss of productivity - Item 11 of the Updated Schedule of Loss
- LPF Portal
- Siebel Useability Issues
- Redaction
- Document naming, bundle creation and performance
- Adobe Licence (Item 20)
- Document Storage (Item 21)
- Other B1 Barring Quality Issues
- Scan on Demand
- Special Characters
- Letters
- Item 24 : Loss of Efficiency Claims arising out of R1 Barring Quality/Useability Issues
- N-1 Sustainment Costs
- Causation and Loss
- Exit/Service Transfer
- Identification of all services (3.2.2)
- Knowledge Transfer (3.2.6 and 3.2.7)
- Section 95
- Providing all documentation to a replacement contractor (3.2.1 and 3.2.10)
- The identification of all leases, maintenance agreement and support agreements in connection with the provision of the services (3.2.3)
- Providing any other information or assistance reasonably required by a replacement contractor (3.2.14)
- Causation and Loss
- The Security Incidents
- The Charges Variation Dispute Introduction
- Issue 1: How the amount of an ‘over-recovery of the Forecast Revenue’ (Clause 2.8.4) or ‘under-recovery of the Forecast Revenue’ (Clause 2.8.5) is to be measured
- Section 104
- Issue 4: How Clause 2.8.5 of Schedule 2-3 applied to Volume Based Service Charges in Service Year 5
- Issue 2: Whether the Predicted Volumes for Basics in Service Year 4 were 1,000,000 (TCS’s case) or 320,374 (DBS’s case)
- Conclusion on Volume Based Service Charge
- Conclusions