Lam v National Federation of Small Businesses

On an application for permission to appeal, permission may be granted where the proposed appeal raises a genuinely arguable issue, even though the applicant faces an uphill struggle on the merits. In a group legal-expenses insurance scheme, the contractual analysis may require examination of the master policy, the member’s cover and possible agency arrangements. The private-law difficulties identified in Swain v The Law Society [1982] AC 598 were sufficiently analogous to make the issue arguable. The statutory solution in that case did not apply to a scheme governed only by private law. Permission was granted without determining the Federation’s ultimate contractual liability.

The applicant joined the Federation after receiving promotional material referring to legal and accountancy support, including costs arising from an in-depth Inland Revenue investigation. The insurer administering the scheme rejected most of his claim. He sued the Federation rather than pursuing arbitration.

The Recorder dismissed the claim, holding that the arrangements comprised insurance contracts between the insurers, the Federation and the members, subject to the policy terms. The applicant sought permission to appeal, contending that the Federation had made an independent contractual promise. The central issue was whether that contention was arguable.

Lord Justice Laws allowed the application for permission to appeal. The substantive contractual issue was not determined.

1. The earlier decision of His Honour Judge Overend, which overturned the district judge’s strike-out, established only that the claim was arguable. It did not decide that the claim would succeed.
2. The Recorder had treated the arrangement as comprising a contract between the insurers and the Federation, under which insurance was arranged for members, and separate contracts between the insurers and individual members. The issue on appeal was whether that analysis excluded any independent promise by the Federation.
3. Swain v The Law Society [1982] AC 598 was central to the question. Slade J’s private-law analysis at [1980] 1 WLR 1335 treated agency as problematic where the persons represented were not ascertainable when the master policy was made. The Court of Appeal agreed with that analysis in [1982] 1 WLR 17.
4. The House of Lords had explained that the private-law analysis would apply to a private scheme, but that the statutory scheme in that case gave solicitors a direct remedy against insurers. The present arrangements were governed only by private law, so no equivalent statutory solution was available.
5. The Federation therefore appeared to face a similar agency difficulty, particularly because new members could join during the policy year without a new policy being issued. It was also arguable that the Federation acted as agent for the insurers in offering cover to those members. Although that was a surprising possibility, it was consistent with the structure of group insurance schemes.

The matter was not unarguable. Permission was granted and the appeal was directed to be listed before two Lord Justices, one of whom could be a High Court judge.

1. Court of Appeal (Civil Division): On 28 January 2002, the application for permission to appeal was allowed. The substantive appeal was ordered to be listed before two Lord Justices, one of whom could be a High Court judge.
2. Torquay and Newton Abbott County Court: Mr Recorder Moxon-Browne dismissed the applicant’s claim on 25 September 2001.
3. County Court: His Honour Judge Overend had earlier overturned a district judge’s decision striking out the claim as disclosing no cause of action. That decision concerned arguability only.