Whetstone (Trading As Whelby House Dental Practice) v Medical Protection Society Limited (Sued As Dental Protection Limited)

A member of a discretionary mutual indemnity scheme has a contractual right to have a request for indemnity properly considered, rather than an automatic right to indemnity. Making a request is an essential first step. The court will intervene in the exercise of a contractual discretion only in exceptional circumstances, such as dishonesty, bad faith, arbitrariness, caprice, perversity or irrationality. A single objectively sufficient ground may sustain the decision. A contractual structure designed to avoid employment does not prevent vicarious liability where the relationship is sufficiently akin to employment, having regard to control, integration, the organisation’s business and whether the individual is operating an independent business.

Mr Whetstone, a dentist and owner of Whelby House Dental Practice, sought damages and indemnity from MPS after another dentist, Mr Sudworth, had negligently treated patients at the practice. MPS operated a discretionary mutual indemnity scheme. Mr Whetstone claimed that MPS had negligently advised him and had failed to indemnify him for remedial treatment costs. In related patient proceedings, he sought indemnity against claims for which he admitted or was alleged to be liable. The court therefore considered the nature of the contractual right to indemnity, the proper limits on MPS’s discretion, and whether Mr Sudworth’s relationship with Mr Whetstone was sufficiently akin to employment to attract vicarious liability.

1. Action HQ12X00737 dismissed. The advice given by MPS concerning the Denplan patients was correct and was not negligent or in breach of contract.

2. The contractual documents gave MPS a discretion whether to grant indemnity. Following Medical Defence Union Ltd v Department of Trade [1980] Ch 82, the member’s right was to have a request properly considered. A request was an essential first step. Since Mr Whetstone had not requested indemnity for his own remedial costs before commencing the action, his claim for indemnity failed.

3. The proper approach to a contractual discretion was that identified in Ludgate Insurance Co Ltd v Citibank NA [1998] Lloyd’s Rep IR 221, Cantor Fitzgerald International v Horkulak [2004] EWCA Civ 1287 and Socimer International Bank Ltd v Standard Bank Ltd [2008] EWCA Civ 116. The decision remained that of the contractual decision-maker. Intervention was limited to cases involving failure genuinely to exercise the discretion, dishonesty, bad faith, arbitrariness, caprice, perversity or irrationality. It was unnecessary for every consideration in the decision-making process to be unimpeachable if at least one ground objectively justified the result.

4. The scope of Dentists Act 1984 s 26A was limited to insurance for liabilities incurred in carrying out dental work personally. It did not require cover for vicarious liability for another dentist’s work, and did not convert MPS’s discretionary power into an obligation.

5. Third Party claim dismissed. MPS was entitled to refuse indemnity for the patient claims. Its published approach to subscriptions and vicarious liability was a material consideration. Mr Whetstone had also prejudiced the claims by sending letters which encouraged patients to sue, contrary to Article 40(6) of the Articles.

6. Mr Whetstone was nevertheless vicariously liable to the patients. Applying the approach in E v English Province of Our Lady of Charity [2013] QB 722, Various Claimants v Catholic Child Welfare Society [2013] 2 AC 1 and Cox v Ministry of Justice [2014] EWCA Civ 132, the relationship was akin to employment. Mr Whetstone exercised substantial control, Mr Sudworth was integrated into the Practice, and he was not operating an independent business in any meaningful sense.

First-instance decision. The judgment determined liability issues in action HQ12X00737 and in the Third Party claim in action HQ13X03579.