Andrew Wood v Sureterm Direct Ltd & Capita Insurance Services Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Christopher Clarke,Lady Justice Gloster,Lord Justice Patten |
| Judgment Date | 30 July 2015 |
| Neutral Citation | [2015] EWCA Civ 839 |
| Docket Number | Case No: A3/2014/3539 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 July 2015 |
[2015] EWCA Civ 839
Lord Justice Patten
Lady Justice Gloster
and
Lord Justice Christopher Clarke
Case No: A3/2014/3539
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
MR JUSTICE POPPLEWELL
Royal Courts of Justice
Strand, London, WC2A 2LL
Andrew Twigger QC (instructed by Birketts LLP) for the Appellant
Edward Cumming (instructed by Enyo Law LLP) for the Respondent
Hearing dates: 8 th July 2015
At issue in this appeal is the true construction of a clause in a sale and purchase agreement dated 13 April 2010 ("the SPA") in respect of all the shares in a company called Sureterm Direct Limited ("the Company"). The sellers were Mr Andrew Wood, the now Appellant ("Mr Wood"), Mr Christopher Kightley and Mr Howard Collinge. They owned the shares in the Company in the proportions 94%, 1% and 5%. Each of them was a director of the Company, Mr Wood being the managing director. He remained in that position after completion and until the end of 2010, but Mr Kightley and Mr Collinge did not. The purchaser was Capita Insurance Services Ltd ("Capita"), the now Respondent. The Company carries on business as an insurance broker, primarily offering bespoke policies to the classic car market.
Under clause 7.11 of the SPA the sellers agreed to indemnify Capita in respect of losses pertaining to the mis-selling or suspected mis-selling of insurance products or services in the period prior to the share sale. Mr Wood brought proceedings against Capita and Capita brought a counterclaim against Mr Wood under the indemnity. Mr Kightley and Mr Collinge were at one time, but are no longer, parties to the proceedings.
As the judge recorded [3] Capita's indemnity claim alleged the following facts:
" (1) In around August 2008 the Company began to sell motor insurance via online aggregator sites such as Confused. Com. Sales through those aggregator sites were not made automatically online; potential customers would obtain a quotation from the Company on the aggregator site, and the Company would then contact the potential customer directly with a view to confirming their risk details before selling them an appropriate insurance policy.
(2) Shortly after Capita's purchase of the entire shareholding of the Company, various employees raised concerns about the Company's sales processes, including in particular that certain customers had paid substantially more than they had initially been quoted in circumstances where neither their risk profile nor the underwriting premium had changed significantly upon the customer being contacted by the Company. Rather the Company had significantly increased its own fees without informing the customer of why exactly the quotation was increasing.
(3) In early 2011, in response to these concerns, the Company carried out a review of its sales. This found that for a period of approximately two years between January 2009 and January 2011 the Company had increased its own arrangement fee between quotation and sale in 28,575 instances out of a total of 81,002 sales made using online aggregator sites. In over 5,000 instances the arrangement fee had increased by more than £100 between quotation and sale, and in 158 instances the increase had been by more than £450. In most of the sales sampled, telephone operators had placed the customer on hold and given the customers the impression that they were in discussion with an underwriter, when it was likely that they were not. In the vast majority of cases sampled customers were misled as to the nature of the quotation given by the online aggregator site in order to justify the insurance policy offered being more expensive, and accordingly allowing the Company to charge a higher arrangement fee. In particular it was found that telephone operators consistently misrepresented the total price, comprising the underwriting premium and the Company's own arrangement fee, as being solely the underwriting premium. In more than 10% of the cases sampled undue pressure was placed on the customer, based on erroneous information, in order to ensure that the sale was made. In many cases sampled, changes were made to the customer's risk profile when information to make such a change had not been obtained from the customer.
(4) Capita and the Company were obliged to inform the Financial Services Authority ("FSA") of their findings and they did so on 16 December 2011. By a letter dated 21 September 2012 the FSA informed Capita and the Company that it considered that the latter's findings illustrated that customers suffered detriment at the hands of the Company's sales advisors; that the Company took unfair advantage of customers by misleading them, by manipulation of risk data, by taking advantage of vulnerable customers and through undertaking pressurised selling techniques; that customers were treated unfairly; and that detriment occurred and redress was due.
(5) In November 2012 the FSA conducted a Risk Assessment Visit in relation to the Company, at or following which Capita and the Company agreed with the FSA to conduct a customer remediation exercise for those customers identified as potentially affected by the Company's mis-selling ("the Remediation Scheme"). Deloitte LLP was appointed to provide independent validation of the Remediation Scheme.
(6) Capita claims that as a result, Capita, the Company, and Capita's other subsidiaries have suffered loss and damage, incurred charges, expenses and liabilities, and been required to pay compensation and make other payments relating to the period prior to the SPA which pertained to mis-selling and/or suspected mis-selling of insurance and/or insurance related products and/or services. The amount of loss identified includes an estimate of principal sums liable to be paid to customers by way of redress in an amount of approximately £1.35 million; interest of some £400,000; and costs involved in relation to the Remediation Scheme. The total claim is £2,432,883.10."
I refer to these facts, many of which are not seriously disputed, because they are the background which gives rise to the claim. They are not, however, (with the possible exception of (1)), facts by reference to which the SPA is to be construed. I should further record that Mr Andrew Twigger QC, for Mr Wood, observed that there can be valid reasons for an increase in the fee (such as an increase in the time that had to be spent dealing with the insurance); that in respect of about 17,000 of the 28,575 instances the increase was less than £ 50; and that the 75 cases sampled were all drawn from those where the increase was over £ 450. He also drew attention to the fact that the 4 October 2011 review report by the Company's Head of Compliance concluded that many policies had been sold at a price that was less than could be obtained elsewhere, that the charges made were disclosed, that any detriment to clients was immaterial and no further action was required. In addition there is a dispute as to (a) the extent to which there were reasonable grounds for suspecting mis-selling; and (b) whether, in any event, it was appropriate or reasonable to agree to implement the Remediation Scheme, which involved making payment to the clients involved in all 28,575 sales despite the fact that (as Mr Wood contends) none of them had issued a claim of any kind or made a complaint. There is an issue, which I do not propose to resolve, as to whether the Respondent's pleadings, and in particular the Respondent's Answer to the Appellant's Part 18 request, allege, at any rate with any clarity, that any claim or complaint has been made by any client.
As is apparent, the requirement to pay compensation is said to have arisen not from a legal claim raised by clients; nor from a complaint made by clients to the FSA or any other regulatory authority, but as a result of the referral by Capita and the Company of the findings of the review to the FSA, the requirement by the FSA that compensation should be paid for what it regarded as the Company's mis-selling and the agreement with the FSA to put into effect the Remediation Scheme.
The SPA
The SPA is a substantial, professionally drafted document. It was drawn up by Addleshaw Goddard, Capita's then solicitors. Clause 1 contained certain definitions including the following:
" Authority means any local, national, multinational, governmental or non-governmental authority, statutory undertaking, agency or public or regulatory body (whether present or future) which has jurisdiction over the Business or any decision, consent or licence which is required to carry out the Business and Authorities shall be construed accordingly.
Company means Sureterm Direct Limited …
Employees has the meaning given to it at paragraph 6 of schedule 4 [which refers to a list of all of the employees employed by the Company]
FSA means the Financial Services Authority and any body which supersedes it.
Regulatory Authority means any body by which any part of the Business is or was regulated pursuant to any Applicable Financial Services Laws (including, but not limited to, the FSA, the Personal Investments Authority Limited, the General Insurance Standards Council, the Insurance Brokers Registration Council and including the Financial Services Ombudsman and any voluntary regulatory body with whose rules the Company has agreed to comply)
Relevant Person means an Employee or a former employee of the Company and any dependant of an Employee or a former employee...
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