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.

 

To see the board resolution approving the agreed settlement, please click here.