England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
CIVIL DIVISION
ON APPEAL FROM TORQUAY AND
NEWTON ABBOTT COUNTY COURT
(Mr Recorder Moxon-Browne)

		The Royal Courts of Justice The Strand London Friday 28 January 2002

Monday 28 January 2002

1. LORD JUSTICE LAWS: This is an application for permission to appeal against the decision of Mr Recorder Moxon-Browne made in the Torquay and Newton Abbott County Court on 25 September 2001. The Recorder dismissed the applicant's claim against the respondent Federation of Small Businesses. In 1992 the applicant joined the respondent Federation, as he says, on the basis of promises about a range of benefits including, as the Recorder described it:

".. access to legal advice 24 hours a day, seven days a week, and various other types of legal and accountancy support, including what was described in an advertising leaflet as 'payment of legal and accountancy costs up to £50,000 in dealing with in-depth Inland Revenue investigation.'"

2. In fact, as he acknowledged, the Recorder was there quoting from a later leaflet. It seems that the money limit for this benefit in 1992 was put at £35,000.
3. In 1994 and 1995 the applicant was the subject of an in-depth investigation by the Inland Revenue. In consequence he laid out expenditure on accountants and tax consultants. He made a claim through the respondents in accordance with the rules of the scheme. The scheme in question was administered by a company called Abbey Legal Protection Ltd ("Abbey") on behalf of various Lloyds syndicates. Abbey first declined to meet the applicant's claim at all, relying on a provision in the insurance policy, but then paid out some small sums. However, they continued to reject the major part of the claim, now relying on a different exclusion provision.
4. Rather than go to arbitration (which I think was provided for) the applicant sued the respondent Federation. As the Recorder said, there was only one issue in the case: did the applicant have a contract with the Federation such that the Federation were to support him in relation to any Inland Revenue in-depth investigation to the tune of £35,000 or £50,000 or was the respondent Federation's obligation limited to arranging insurance cover of the sort that was put in place? If the latter were right then the claim as formulated against the respondent would be misconceived. This is what the Recorder said (transcript 4G):

"In my judgment these arrangements can be analysed as a matter of law by reference to a contract between insurers and the Federation, whereby insurers bind themselves to provide members with the insurance described on payment of the requisite premiums, and secondly, a contract between the insurers and each member, whereby the insurers bind themselves to indemnify the member in terms of the policy.

See Swain v The Law Society, 1982, Appeal Cases, 598, to which I was referred by Counsel on behalf of the Defendants, where at page 616, letters F-H Lord Brightman said this, 'My Lords, it appears to me that once the master policy is in force and certificates of insurance are issued, the legal position can be analysed as follows. One, the master policy is a contract between the insurers and the Law Society under which the insurers bind themselves to provide solicitors with insurance on the terms of the certificate of insurance on payment of the appropriate premium, and to provide insurance for all solicitors without payment of premium. The certificate of insurance evidences a contract between the insurers and the named solicitor under which the insurers bind themselves to indemnify the solicitor and all others who come within the definition of the assured.' In my judgment, if the position of the Law Society is changed to the position of the Federation and the position of the solicitor is changed to the position of the member, that analysis applies aptly to the situation that we have in the present case."

5. Then at 5H:

"I agree with Mr Lam [the applicant] to the extent that it would, perhaps, have been advisable and may remain advisable for the Defendants to make it clear by their promotional literature that what is on offer is the benefit of insurance cover subject to terms and conditions and not an independent and unfettered promise by the Federation to give the support described free of any terms and conditions.

But so far as the contract is concerned, which is what I must focus on, I am left in no doubt that the agreement annually renewed between the parties was that, in return for the subscription, the Defendants would arrange the insurance which I have described and which is set out in detail in the documents [and he gives the reference]. Whatever Mr Lam's original understanding , or whatever it was that initially persuaded him that membership of the Federation would be beneficial to him, there must have come a time when he understood that the agreement annually renewed by him was an agreement which gave him the benefit of insurance cover. Once he had understood that, there was not, I think, really any room for the existence of some collateral and wholly unqualified promise that the Federation would provide benefits and support up to the level of £50,000 entirely free of any terms and conditions."

6. I should say that on 12 January 2001 His Honour Judge Overend had overturned a decision of the district judge who in his turn had struck out the applicant's claim as showing no cause of action against the respondent. The applicant in his ground and skeleton relies on this. There is nothing in that. His Honour Judge Overend was not deciding that the applicant's case was good, only that it was arguable. The applicant's grounds and skeleton challenged the conclusion that there was no contract such as was asserted by the applicant to have been made between himself and the respondent. The case of Swain to which the learned Recorder referred was clearly central. In that case, Slade J had said at first instance ([1980] 1 WLR 1335 at 1344A):

"There have been suggestions on both sides in the present case that the Law Society would be entering into [the master policy] as agent on behalf of the persons from time to time falling into the two categories [that is, solicitors and former solicitors]. A large number of such persons, however, would not be ascertained or capable of ascertainment at the date when the master policy would be effected. As I understand the law, if a contract is to be concluded effectively by a principal as agent for another party, that party must be both in existence and ascertainable (even if not actually ascertained) at the date of the contract. If he is not in existence and ascertainable at that date the supposed principal cannot even subsequently ratify it."

7. In consequence Slade J held that the Law Society held the benefit of the master policy as trustee for its members. The Court of Appeal [1982] 1 WLR 17 agreed. The House of Lords said that would be correct if one were dealing with a scheme under private law; but this was a statutory scheme and therefore not subject to the limits of a private law scheme. The statute had the effect of giving solicitors a direct remedy against insurers.
8. In this case, so far as I can see, it is plain that the Federation and its insurance arrangements are governed only by the regimes of our private law. Accordingly no statutory solution to the case seems to be available. The Federation would as I see it apparently have the same problem in arguing an agency as did the Law Society. When the Federation concluded the master policy in a given year its members, one supposes, were then ascertainable; but it signed up new members within the year and brought them within the scheme without the insurers issuing a new policy or (as happened in the Law Society case) issuing a certificate to the new members and obtaining premium from them. Perhaps the answer to this conundrum is that the Federation was acting as agent for the insurers. In that case the Federation would have authority from the insurers to offer cover to new members recruited during the year, that to be the contract between the insurers and new member. That might be a surprising solution but the outcome would be consistent, I suppose, with the exception of members in group insurance schemes.
9. It may be that the applicant will have a great deal of difficulty and an uphill struggle to persuade the full court that he has in truth an enforceable contract against the Federation but I cannot see that the matter is unarguable given the difficulties that arose in the Law Society case. Accordingly it seems to me right to give permission.
ORDER: Application allowed. Appeal to be listed before two Lord Justices, one of whom may be a High Court judge. (Order not part of approved judgment)