Bunbury v Lautro Ltd [ChD]
| Jurisdiction | England & Wales |
| Judge | Lindsay J. |
| Judgment Date | 13 March 1996 |
| Court | Chancery Division |
| Date | 13 March 1996 |
Chancery Division
Lindsay J.
Robert Denman (instructed by Silvermans) for the plaintiff.
Nigel Pleming QC (instructed by Slaughter & May) for the defendant.
The following cases were referred to in the judgment:
Eastham v Newcastle United Football ClubELR [1964] 1 Ch 413.
Knoors v Netherlands' Secretary of State for Economic AffairsECAS (Case 115/78) [1979] ECR 399; CMR ¶8534.
Lonrho plc v Fayed (No. 2)WLR [1992] 1 WLR 1.
Mercury Communications Ltd v Director General of TelecommunicationsUNK [1996] 1 All ER 575.
Nagle v FeildenELR [1966] 2 QB 633.
O'Reilly v MackmanELR [1983] AC 237.
R v General Medical Council, ex parte ColmanUNK [1990] 1 All ER 489.
R v Lautro, ex parte Kendall (unreported, 26 November 1993).
R v SaundersECAS (Case 175/78) [1979] ECR 1129; CMR 18558.
Financial services — Lautro rules — Life assurance agent — Lautro rule preventing life assurance agent from working for Lautro member while owing debt of more than £1,000 to another company — Life assurance agent left company owing £25,000 — Lautro r. 3.5(4) introduced — Lautro member unable to employ him — Whether rule in restraint of trade — Whether private law remedy available to agent where no contract between agent and Lautro — Whether statement of claim abuse of process.
This was a defendant's summons to strike out the plaintiffs statement of claim as disclosing no reasonable cause of action or as an abuse of process.
The plaintiff had worked for some years for insurance agencies dealing with life assurance. From 1978 he worked self-employed as a life assurance agent. After the Financial Services Act 1986 came into force he became a tied agent working first for Irish Life Assurance Co Ltd (“Irish Life”), from which he received a business development loan to equip an office. In 1990 the plaintiff terminated that tied agency and made a similar agreement with Oak Life Assurance Co Ltd (“Oak Life”), a member of the defendant regulatory body, Lautro Ltd. Oak Life lent the plaintiff sufficient to repay the balance he owed Irish Life and an advance for his expenses against future commissions. In May 1991 the plaintiff terminated his agency with Oak Life on 30 days notice. He owed Oak Life £25,000 when the notice period expired. During negotiations for the plaintiff to become a tied agent for another Lautro member, MGM Life Assurance Society (“MGM Life”), Lautro introduced r. 3.5(4) to take effect from 1 September 1991. MGM Life's terms were more onerous than those offered by Oak Life. The plaintiff therefore proposed to repay Oak Life by instalments, an arrangement acceptable to Oak Life and MGM Life, but not permitted by the new Lautro rule.
By r. 3.5(4) of the Lautro (Representatives) Rules a Lautro member was not entitled to appoint as an appointed representative anyone indebted to another member where by r. 3.5(6) the debt arose in the course of investment business and exceeded £1,000. Although a Lautro member could apply to alleviate the rule in a particular case, representatives had no such right. MGM Life made no application in respect of the plaintiff. In consequence of his outstanding debt to Oak Life the plaintiff was unable to work as a life assurance agent. He issued a writ against Lautro claiming that he was unable to carry on his trade as a result of the rule change, which constituted an unreasonable restraint of trade. Lautro issued a summons to strike out the statement of claim as disclosing no reasonable cause of action or as an abuse of process.
Held, giving judgment for Lautro and striking out the plaintiffs statement of claim:
In the absence of a contractual relationship between the plaintiff and Lautro the plaintiff had no remedy in private law and had not made an application for judicial review or any other public law remedy. Accordingly the plaintiffs statement of claim was struck out as an abuse of process.
Per curiam. Rule 3.5(4) of the Lautro rules failed to serve its avowed object and actually conduced to a failure to achieve that object by allowing a representative to build up debts to the company to which he was tied without any obligation on that company to ensure that the terms of loans to its agents were not likely to conduce to poor selling practices. The rule was unjust in providing no exemption for industry debts incurred before it came into force, when such borrowing from employers was not unusual.
Lindsay J: For some years before 1978 the plaintiff, Mr Bunbury, was an employee of a number of different insurance agencies dealing with life assurance. From 1978 he worked as a self-employed life assurance agent for a number of different life houses. When the Financial Services Act 1986 came into force he chose to become a tied agent and was engaged as such by Irish Life Assurance Co Ltd. In order that he should be able to equip a second office, Mr Bunbury took a business development loan from Irish Life. In the first half of 1990 Mr Bunbury terminated his tied agency with Irish Life and entered into a similar agreement with Oak Life Assurance Co Ltd, a member of the defendant, Lautro Ltd.
Mr Bunbury repaid his borrowing from Irish Life partly from commissions owed to him by Irish Life and partly from a fresh borrowing from Oak Life. It was a term of his agreement with Oak Life on his becoming a tied agent for it that it would lend him sufficient to repay the balance owing to Irish Life and would also give an advance against prospective future commissions. As any agent has not only ordinary living expenses but business expenses until commissions begin to come in it is usual, I am told, for life houses to make advances to their tied agents against future commissions.
Another term of Mr Bunbury's arrangements with Oak Life was that Oak Life could terminate his tied agency on only 30 days' notice which, in May 1991, is what Oak Life chose to do. The notice expired on 28 June 1991. At the expiry Mr Bunbury owed Oak Life £25,000 in respect of the loans to him which I have described.
Mr Bunbury, then aged 40 or 41, looked about for further employment in the industry in which he had been engaged for a large proportion of his working life. In the late summer of 1991 he negotiated with MGM Life Assurance Society with a view to becoming its tied agent. MGM Life was also a member of Lautro. Mr Bunbury was able to agree terms with Oak Life for the repayment of his debt to Oak Life by instalments. The terms on which MGM was prepared to take over Mr Bunbury's debt to Oak Life were too onerous for him to undertake, terms less attractive than the instalments agreeable with Oak Life.
MGM Life and Mr Bunbury were agreed in principle as to Mr Bunbury becoming a tied agent but no firm agreement emerged because, says Mr Bunbury, of a rule change which Lautro introduced and which bound its members from 1 September 1991.
Mr Bunbury claims that he has, by reason of Lautro's rules, been unable to carry on his trade from then on. Aggrieved on that score, Mr Bunbury issued a writ with an endorsed statement of claim against Lautro on 5 August 1994. It is largely from that statement of claim that I have derived the matters to which I have so far referred. In the usual way on this kind of application I shall take the allegations in the statement of claim to be true, but it is to be remembered, in Lautro's favour, that I am proceeding on assumptions rather than on facts proved against Lautro.
On 28 September 1994 Lautro served a defence, the first paragraph of which averred that the statement of claim should be struck out. Later, Mr Bunbury served further and better particulars of his statement of claim and a reply. Then, in November 1995 Lautro issued the summons which is now before me. As had been foreshadowed in Lautro's defence, it asks that the statement of claim be struck out as disclosing no reasonable cause of action or as an abuse of process under RSC, O. 18, r. 19 or under the inherent jurisdiction.
Mr Pleming, QC on behalf of...
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