SimplySure Ltd v Personal Touch Financial Services Ltd

The Court of Appeal considered whether completion of the first parts of a fact-find by persons not authorised under the Financial Services and Markets Act 2000 amounted to carrying on a regulated activity under Article 25 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. The court held that those activities were regulated under Article 25 (and Article 25(2)) and therefore breached the general prohibition unless performed by an authorised person or an exempt appointed representative.

The court further held that clause 7 of the Appointed Representative Agreement was a true condition of the contract: breach of it was repudiatory irrespective of proof of actual loss, entitling the principal (PTFS) to terminate. As a result, PTFS lawfully terminated the agreement and was not liable for damages for wrongful termination.

Finally, the court rejected the conclusion below that PTFS remained liable to pay renewal commissions after termination. The court found no sufficiently clear express or implied contractual term that renewal commissions accrued as a vested right payable after termination for repudiation.

Background and parties: PTFS (an authorised firm) appointed SimplySure as its appointed representative under a written Compliance and Appointed Representative Agreement. SimplySure used representatives who were not authorised under the agreement to conduct parts of a standard fact-find used when seeking private medical insurance (PMI) business. PTFS terminated the appointment following a risk assessment and compliance concerns; SimplySure became directly authorised shortly afterwards.

Procedural posture: This is an appeal from an order of His Honour Judge Bird in the Mercantile Court, Manchester. The judge below found that SimplySure was entitled to judgment for breach of the agreement and that PTFS was liable to pay renewal commissions which had been sold by SimplySure to Usay Business Ltd. PTFS appealed and SimplySure and Usay cross-appealed.

Nature of the claim and relief sought: The litigation concerned contractual liabilities arising from alleged breaches of the Appointed Representative Agreement, and the entitlement to renewal commissions after termination. The Appellant sought to overturn the judge's findings of liability and of continuing commission obligations; the Respondents cross-appealed aspects of the judge's decision.

Issues framed: (i) Whether completion of the first parts of the fact-find by unauthorised persons contravened the general prohibition under the Act (Article 25); (ii) if so, whether that breach was of a condition of the Agreement or of an intermediate term; (iii) whether clause 32 justified termination; (iv) whether PTFS was precluded from relying on breach by virtue of its own fact-find rubric; and (v) whether PTFS was liable for renewal commissions after termination.

Court's reasoning:

• The court held completion of the first parts of the fact-find by unauthorised persons did constitute regulated activity within Article 25(1) and (2) because the activity put those persons in a position to bring about a contract of insurance and the questions required specialist knowledge. The court approved the relevant FSA / FCA Perimeter Guidance as a correct explanation of Article 25.
• On construction of the Agreement, the court held clause 7 (the obligation to abide by regulator rules and PTFS procedures) was a true condition. The ordinary rules and the commercial context supported treating that clause as a condition; breach was therefore repudiatory regardless of proof of loss.
• The court accepted that PTFS's reliance on clause 32 (termination for acts precluding an appointed representative from a position of trust) raised an issue about whether PTFS's opinion was perverse, but it was unnecessary to resolve that point because PTFS was entitled to terminate for breach of clause 7.
• The court rejected the Respondents' case that PTFS remained liable for renewal commissions following termination. It found no clear express or implied term that renewal commissions would vest and survive termination for repudiation; the ordinary rule that executory obligations end on termination applied.

Subsidiary points: The court regarded an unpleaded argument that PTFS had authorised the conduct by the rubric in its fact-find as not properly before the judge and would not admit it on appeal; nevertheless, the court rejected the factual point on its merits.

Appeal allowed; cross-appeal dismissed. The Court of Appeal held (i) that completion of the first parts of the fact-find by unauthorised persons was a regulated activity under Article 25 and therefore breached the general prohibition and clause 7 of the Agreement; (ii) that clause 7 was a true condition of the Agreement so that PTFS was entitled to terminate for breach; (iii) that PTFS was not liable for damages for wrongful termination; and (iv) that there was no clear express or implied contractual right to renewal commissions that survived termination for repudiation, so PTFS was not liable to pay renewal commissions after termination.

Appeal from the decision of His Honour Judge Bird in the Mercantile Court, Manchester (High Court of Justice, Queen's Bench Division, Manchester District Registry, Mercantile Court). Neutral citation for this Court of Appeal judgment: [2016] EWCA Civ 461 (Case No: A3/2015/1185).