Clarion Ltd v National Provident Institution
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE RIMER |
| Judgment Date | 22 October 1999 |
| Judgment citation (vLex) | [1999] EWHC J1022-16 |
| Docket Number | No. CH 1998 C No. 218 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 22 October 1999 |
[1999] EWHC J1022-16
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Mr. Justice Rimer
No. CH 1998 C No. 218
MR. MICHAEL BRIGGS, Q.C. and MR. NICHOLAS ASPREY appeared for the Claimants.
MR. CHARLES FLINT, Q.C. and MR. CHARLES MARQUAND appeared for the Defendant.
Introduction
This judgment is on three preliminary issues which Master Moncaster directed to be tried by an order he made on 30th September 1999. He made it on the application of the seven claimants, of which the first is Clarion Limited ("Clarion") . They appear by Mr. Michael Briggs, Q.C. and Mr. Nicholas Asprey. The defendant is National Provident Institution ("NPI") , which appears by Mr. Charles Flint, Q.C. and Mr. Charles Marquand. The Master's order was made either with NPI's consent or at least on the basis that NPI did not oppose it.
The trial itself is due to start on 15th November 1999. In view of that my initial reaction was that it is now very late in the day to be raising these issues and that it would probably be more satisfactory for them to be dealt with at the trial, with the benefit of all evidence which might be said to be relevant to them. At the outset of the hearing Mr. Flint asked me so to direct, despite NPI's earlier attitude to the making by the Master of his order. The reason, however, why the issues have been raised is that to the extent that they are decided in the claimants' favour now there will be a material saving in the expert evidence which is otherwise proposed to be adduced at trial. The exercise is therefore directed towards saving costs; and, bearing in mind that the Master made the case management order which he did and that substantial costs have since been incurred in preparation for the hearing before me, I ruled against Mr. Flint's request and allowed the preliminary issues to be argued.
Background.
Clarion provides investment management services. Its co-claimants are trustees of three pension schemes known as Orwell, Chemcat and Stewart to which Clarion provides investment advice, as it also does to another pension scheme called Campbell.
NPI is or was at all material times a mutual life office, although I should mention that earlier this month, on 5th October, I made an order under Schedule 2C to the Insurance Companies Act 1982 sanctioning its "demutualisation". The action concerns one type of policy issued by NPI called a "Penfund" policy. NPI divides its pension fund into several unitised funds, each of a different character, and the Penfund policyholder is allocated a number of units in his chosen fund, the precise number depending on the size of his contribution and the value of the units. Clause 10 of the policy allows the investor to switch his investment from units in one fund to units in another.
NPI's pleaded case is that its practice in relation to switching was and is to apply a system of "forward pricing". Under that practice the investor sends a switch request to NPI on day 1; it would normally be received on day 2; and the switch would then be effected on day 3 and calculated by reference to market prices as at midday on day 2. At or before 6 p.m. of each business day NPI would normally forward to the Financial Times for publication the bid prices it would be employing the following business day for the purpose of effecting a switch. Under this arrangement, at the time the investor gives his switch instruction to NPI, he will not know the bid price which NPI will apply. NPI's case is that in this respect all its Penfund investors are or should be in the same position. I should, however, quote clause 10(i) (a) and (vi) of the switching provisions in the policy which provide as follows:
"10. Variation of funds (Switching)
The Clarion agreement
NPI and Clarion entered into a written agreement on 2nd May 1986. It recorded that Clarion had been granted an agency for the purpose of introducing to NPI all the types of business NPI was authorised to write. It dealt primarily with the terms as to the payment to Clarion of commission on introductions. By clause 6 NPI reserved the right "to amend the commission rates, the terms and conditions of the agency and to cancel the agency at any time." Clause 7 recorded that the appointment was "subject to the observance of the attached Code of Practice", being a three page code issued by various life offices and associations. It dealt mainly with the manner in which intermediaries and introducers should approach and deal with prospective policyholders.
As clause 6 permitted, that agreement was revised from time to time. By 1988 the Financial Services Act 1986 was in force and both Clarion and NPI became authorised persons under it. Clarion is a member of the Financial Intermediaries, Managers and Brokers Regulatory Association ("FIMBRA") and NPI is a member of the Life Assurance and Unit Trust Regulatory Organisation ("LAUTRO") . In May 1998 NPI invited Clarion to enter into a new form of agreement which had been imposed on it by LAUTRO, being one which was intended to supersede the May 1986 agreement. There is no evidence that Clarion did enter into it, although it is a reasonable inference that it did. What is clear is that in the early 1990s it did enter into further revised forms of agreement with NPI which were directed at setting out the conditions on which NPI accepted business from Clarion. The version in force in about March 1990 dealt primarily with the payment and calculation of commission to Clarion and clause 5 permitted NPI to terminate or vary its terms.
In May 1993 a revised set of terms of business was entered into, also including a like right for NPI to terminate or vary it. The final relevant change occurred in April 1994 when revised terms of business were entered into, again dealing in similar fashion with the payment of commission and also of premiums. I will refer to this version as "the Clarion agreement".
From about 1991 Clarion advised Orwell, Chemcat and Campbell to invest in Penfund policies which were to be under the management of two other investment managers, Assured Asset Management plc and Falcon Group plc. These managers had "block switching" arrangements with NPI which enabled them to switch investments on behalf of some or all of their clients at the same time.
By 1994 Orwell, Chemcat and Campbell had become dissatisfied with the performance of their investments. In mid-1994 Clarion and NPI entered into negotiations with a view to Clarion taking over the management of the Penfund investments with NPI and enjoying a similar block switching arrangement. Clarion also had the benefit of agreements with its clients entitling it to be paid management and performance fees in respect of funds which were subject to any such arrangement.
The dispute
The main issue in the action is whether or not, as Clarion claims, it made a binding oral agreement on about 5th July 1994 with NPI by which it became entitled to a special block switching arrangement. Clarion's case is that this agreement was concluded between Mr. Walker of Clarion and Mr. Hendry of NPI. The essence of the alleged agreement is that NPI would accept switch instructions from Clarion which were faxed to NPI by 5 p.m. on day 1 and that the value switched would then be determined according to the bid price on day 2 which would be calculated on the basis of market prices ruling at 12 noon on day 1. Clarion also alleges that it was initially agreed that the arrangement would operate for a reasonable period, not less than twelve months, and that on 2nd August 1994 Mr. Walker and Mr. Hendry agreed that it would continue until determined by twelve months notice. Clarion claims that the arrangement was to be available to its investor clients, including its co-claimants. Its case is that the oral agreement by which it negotiated the arrangement operated to vary both the Clarion agreement and the switching provisions of clause 10 of the Penfund policy.
Whilst NPI admits that there were certain discussions with Clarion about block switching, it denies that any such contract�or any contract�was made. If it was made it pleads that it was made by NPI without authority or else was ineffective for want of consideration and/or because clause 15 of the Penfund policies required alterations to the policy to be made in writing. Despite NPI's denial of the agreement it did in fact operate a block switching arrangement with Clarion in accordance with the terms Clarion says were agreed. It did so until about 26th September 1994 when it unilaterally withdrew the facility. Because Clarion says that at least twelve months notice of termination was required it and the other claimants claim damages against NPI for breach of contract. The second to seventh claimants claim damages for the lost profits they would have earned had the arrangement continued during such period; and Clarion claims damages for the lost management and performance fees and commission it would have earned. The claim is a very substantial one since the beauty of the alleged agreement is that it enabled Clarion to introduce unlimited funds into NPI's unit linked pension business and then to enjoy the benefit of an arrangement under which it could switch between funds with the invaluable benefit of hindsight. This is because it was entitled to make the switching decision by 5 p.m. each day at unit prices fixed by reference to the state of the markets at midday, timing which enabled it to trade on "historic pricing" rather than NPI's more usual "forward pricing". Clarion's case is that under the arrangement its co-claimants could have made...
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