Scher v Policyholders Protection Board (No. 2)

JurisdictionEngland & Wales
Judgment Date09 July 1992
Judgment citation (vLex)[1992] EWCA Civ J0709-1
Date09 July 1992
CourtCourt of Appeal (Civil Division)
Docket Number92/0635

[1992] EWCA Civ J0709-1







Royal Courts of Justice


The Master of The Rolls

(Lord Donaldson)

Lord Justice Russell

Lord Justice Leggatt


Scher and Others
The Policyholders Protection Board and Others


Milton R. Ackman and Others
The Policyholders Protection Board and Others

MR. ANTHONY GRABINER Q.C., MR. MICHAEL CRYSTAL Q.C. and MR. GEOFFREY VOS (instructed by Messrs. Wilde Sapte) appeared for Scher and others.

MR. GORDON POLLOCK Q.C. MR. MARK PHILLIPS and MR. LLOYD TAMLIN (instructed by Messrs. Freshfields) appeared for the Ackman and others.

MR. PETER SCOTT Q.C. and MR. RORY PHILLIPS (instructed by Messrs. Herbert Smith) appeared for the Policyholders Protection Board.

MR. SAMUEL STAMLER Q.C. and MR. ALAN GRIFFITHS (instructed by Messrs. Herbert Smith) appeared for Royal Insurance.

MR. NICHOLAS LEGH-JONES Q.C. (instructed by Messrs. Kennedys) appeared for New Hampshire Insurance.

MISS ELIZABETH GLOSTER Q.C. (instructed by The Treasury Solicitor) appeared for the Secretary of State for Trade and Industry.




This is an appeal from a judgment of Webster J. on 1st April 1992 in two consolidated originating summonses which raise questions as to the true construction and effect of the Policyholders Protection Act 1975 ("the Act") read with the Insurance Companies Act 1982 ("the 1982 Act"). The Policyholders' Protection Board ("the Board") is a statutory corporation created by the Act, having the duty to make payments to policyholders in circumstances defined in and by the Act. It defrays its expenditure by means of a levy on authorised insurers. The Royal Insurance (U.K.) Ltd. ("the Royal") and the New Hampshire Insurance Co. Ltd. ("New Hampshire") are parties to the proceedings on their own behalf and as representing all insurers upon whom the Board may impose or seek to impose a general business levy pursuant to the Act.


At the beginning of the hearing a direction was made under RSC Order 59, rule 8 enabling the Secretary of State for Trade and Industry to intervene in the appeal, notwithstanding that he had neither been, nor sought to be, a party to the proceedings in the court below. Such a direction is very rarely made in circumstances in which there does not exist "a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter" (Order 15, rule 6 (2) (b) (ii)). Indeed I know of only one previous instance, namely, Hasselblad (G.B.) Ltd. v. Orbinson [1985] Q.B. 475. However under the 1982 Act the Secretary of State is the regulator of insurance companies carrying on business in the United Kingdom and in addition he has specific duties under the Act (see sections 28 and 30). In these circumstances it seemed to us that he or his department might have a wider perspective of the practical effects of particular constructions of the Act than could be expected of the parties, other than possibly the Board, and that submissions based upon that perspective might in some eventualities assist us in our task of answering the questions which arise in this appeal.


The appeal is that of two groups of plaintiffs. The "Ackman group" consists of 303 plaintiffs who were either partners in Fried Frank, a partnership of lawyers practising in the United States, or partners in Clarkson Gordon, a partnership of accountants practising in Canada. The "Scher group" consists of three plaintiffs who are physicians. They are said to be representative of some 5,000 doctors practising in New York. The interest of the plaintiffs arises out of professional liability insurance policies subscribed by four insurance companies which at the material time were authorised United Kingdom insurers under the 1982 Act. Those companies, together known by the acronym "K.E.L.M." are Kingscroft Insurance Co. Ltd., El Paso Insurance Co. Ltd., Lime Street Insurance Co. Ltd. and Mutual Reinsurance Co. Ltd.


The K.E.L.M. companies stopped paying claims in March 1990 and in August 1990 petitioned the court for their winding up. Those petitions have been adjourned to enable the companies to prepare schemes of arrangement pursuant to section 425 of the Companies Act 1985. On 5th March 1992 partners of Cork Gully were appointed provisional liquidators of each of the K.E.L.M. companies. The urgency of this matter stems from the fact that the success of any scheme of arrangement is crucially dependent upon the Board being able to assist the companies pursuant to section 16 of the Act and that the propriety of such action is dependent upon how the questions in issue in the appeal are answered. No progress can therefore be made pending the result of this appeal.


These questions are by no means easy and in answering them we have had the assistance of seven Queen's Counsel and four juniors representing six parties, all of whose approaches differ to a greater or lesser extent. It is of great credit to them and demonstrates the advantages of a system involving the delivery of skeleton arguments followed, in this case, by two days of pre-reading by the judges, that oral argument, which is so expensive for the parties, lasted only three and a half days. Even taking the fullest account of increased expense consequent upon the need to prepare skeleton arguments, this has been a cost effective modernisation of the court's procedures. What it does not achieve in the same measure is an increase in the court's disposal rate for appeals. This is because some, and sometimes much, of the time which would otherwise be spent by the judges in court has now to be spent in their rooms reading papers in advance of the hearing and, after the hearing, discussing and digesting the combined effect of both the oral and the written arguments. The "post hearing" process in this case lasted for four days. Even so, there will be cases when there will be significant saving of time because, for example, pre-reading has produced the tentative conclusion that some alternative or subsidiary issues are unlikely to arise and need be addressed only if and when they do arise.


The Scheme of the Act


The general purpose of the Act, so far as relevant to this appeal, is stated in the long title in the following terms:

"An Act to make provision for indemnifying (in whole or in part) or otherwise assisting or protecting policyholders and others who have been or may be prejudiced in consequence of the inability of authorised insurance companies carrying on business in the United Kingdom to meet their liabilities under policies issued or securities given by them, and for imposing levies on the insurance industry for the purpose;"


Section 1, which in subsection (2) confirms this purpose, and section 2 of the Act establish the Board and enable the Secretary of State to give the Board written guidance.


Sections 3 and 4 define the general scope of the Board's functions. Section 3 limits this scope to action in relation to policyholders and others who have been or may be prejudiced by the inability of authorised insurance companies to meet their liabilities under the policies issued by them. The authorisation referred to is granted by the Secretary of State under section 3 of the 1982 Act "to carry on insurance business of any class in the United Kingdom". Section 4 of the Act further limits the scope of the Board's functions by confining it to "United Kingdom policies" as therein defined.


Sections 6 to 12 prescribe the duties of the Board in the case of authorised insurance companies which are in liquidation. By contrast sections 16 and 17 empower the Board to take steps with a view to protecting policyholders if authorised insurance companies, although not in liquidation, are in "financial difficulties" as therein defined.


Sections 18 to 21 make provision for the Board to recoup its expenditure by levies on some insurance intermediaries (sections 19 and 20) and upon authorised insurance companies (section 21). The levy on intermediaries is only in respect of "long term business" as defined in section 1 and Schedule 1 of the 1982 Act, such as life and annuity policies. There are separate levies on authorised insurance companies in respect of long term business and of "general business" as defined in section 1 and Schedule 2 of the 1982 Act. These appeals are concerned with general liability insurances the effecting and carrying out of which are within class 13 of Part I Schedule 2 and thus constitute "general business".


The duties of the Board under sections 6 to 12 differ according to whether the insurances concerned are compulsory insurance policies and securities (section 6), other general policies (section 8) or long term policies (sections 10 to 12). The Board also has a duty in relation to the rights of third parties against insurance companies in road traffic cases (section 7).


The questions


Although the questions asked by the originating summonses were related to the circumstances of the plaintiffs, they have in some measure become generalised in recognition of the fact that the proceedings have something of the character of a test action designed, inter alia, to give guidance to the Board. So generalised they may be formulated as:

1. What is a "United Kingdom policy" within the meaning of section 4 of the Act?

2. What is a "private policyholder" within the meaning of section 6 (7) of the Act read with section 96 of the 1982 Act?

3. What is meant by "the amount of any liability of a company in liquidation towards a private policyholder under the terms of...

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