Dec ’14 – Resolution of AFA Litigation
What happened?
As a consequence of perceived performance failures, the then board of VHMC terminated Alan Foster & Associates (AFA) contract as VHMCs managing agent on 27th Sept 2012. The termination was applied without regard to the agreed notice period incorporated within VHMCs contractual commitment with AFA. As a consequence, AFA have since pursued VHMC for recovery of monies due. The case has now been resolved by way of an agreed court sanctioned settlement.
Key points:
- On termination of AFAs contract, the then board of VHMC froze all VHMC bank accounts.
- Legal proceedings were issued in Mar ‘13 against VHMC by AFA citing wrongful contract termination on 27th Sept 12.
- Between Sept ‘12 and Mar ‘13, the board made an unsuccessful attempt to resolve outstanding issues through negotiation.
- In preference to reaching settlement through arbitration, the board approved by majority (3-2) to defend the case in court.
- Whilst court proceedings progressed, VHMCs accounts remained frozen.
- The case has now been resolved by way of an agreed court sanction settlement.
The impact of this action has been to:
- Divert directors focus away from the day to day & strategic management of VHMC
- Delay the implementation & execution of planned repairs and maintenance projects.
- Incur legal costs & associated settlement charges.
How much has this cost VHMC and its members?
- Prior to action, AFA sought £30,428.33 (Sept’12) from VHMC (£23,944.99 for payment in-lieu of notice and £6,483.34 as payment for services provided).
- In addition, once court proceedings had been initiated, AFA sought to recover their own legal (estimated at £15,024) and court (estimated at £395) costs from VHMC. The recovery sought was £45,847.33 (Mar ’13)
- In defending this case, VHMC incurred £50,395.98 in legal charges. Of this, £6,500 was recovered from AFA.
- In addition to these costs, the agreed settlement required VHMC to pay AFA the sum of £20,000.
- The total impact on VHMC is £63,895.98 (Dec ’14)
- The total cost per member is therefore £170.
Points to note:
- The two board members responsible both for the termination of AFAs contract and the instigation of court proceedings are no longer serving members of VHMCs board.
- The total impact on members (£63,895.98) is materially less than the worse case previously anticipated. This is as a consequence of (i) a favourable court ruling preventing AFA from recovering legal costs from VHMC and (ii) an out of court settlement being reached.
- In total, across all years, c£110k had previously been budgeted to meet the total anticipated cost of this claim. Of this, the current board has realised a saving of £45,270.
- The saving will contribute towards off-setting prior year deficits in FY12 & FY13 with any surplus to be offset against FY14 service charge accounts.
- At this time, VHMC has no plans to pursue action, for negligence or otherwise, against any former director in relation to this matter.
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To see the board resolution approving the agreed settlement, please click here.