Fuji Finance Inc v Aetna Life Insurance Co Ltd and another
[1996] 4 All ER 608(Judgment by: Sir Ralph Gibson)
Between: Fuji Finance Inc
And: Aetna Life Insurance Co Ltd and another
Judges:
Hobhouse LJ
Morritt LJ
Sir Ralph Gibson
Subject References:
Insurance
Contract of insurance
Nature of contract
Capital investment bond
Policy benefits on surrender or on death of life insured
Whether policy an 'insurance on the life of any person'
Whether contract a policy of life insurance
Legislative References:
- Life Assurance Act 1774
Case References:
Archbolds (Freightage) Ltd v S Spanglett Ltd (Randall, third party) - [1961] 1 All ER 417; [1961] 1 QB 374; [1961] 2 WLR 170, CA
Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil - [1984] 3 All ER 766; [1985] QB 966; [1984] 3 WLR 726
Cope v Rowlands - (1836) 2 M & W 149; 150 ER 707
Cornelius v Phillips - [1918] AC 199; [1916-17] All ER Rep 685, HL
Flood v Irish Provident Assurance Co Ltd - [1912] 2 Ch 597, Ir CA
Gould v Curtis - [1913] 3 KB 84, CA
Jones v AMP Perpetual Trustee Co NZ Ltd - [1994] 1 NZLR 690, NZ HC
Joseph v Law Integrity Insurance Co Ltd - [1912] 2 Ch 581, CA
Mahmoud and Ispahani, Re an arbitration between - [1921] All ER Rep 217, CA; [1921] 2 KB 716
Marac Life Assurance Ltd v IR Comr - [1986] 1 NZLR 694, NZ CA; affg (1985) 9 TRNZ 201, NZ HC
National Standard Life Assurance Corp, Re - [1918] 1 Ch 427
NM Superannuation Pty Ltd v Young - (1993) 113 ALR 39, Aust Fed Ct
Phoenix General Insurance Co of Greece SA v Administratia Asigurarilor de Stat - [1987] 2 All ER 152; [1988] QB 216; [1987] 2 WLR 512, CA
Prudential Insurance Co v IRC - [1904] 2 KB 658
Judgment date: 4 July 1996
Judgment by:
Sir Ralph Gibson
I agree that the appeal should be allowed on the first issue for the reasons given by Morritt LJ.
On that basis, as he has said, the second issue of illegality does not arise. Morritt LJ has noted the importance of the second issue and has expressed his view that, if the policy was neither a contract of insurance nor an insurance on the life of any person, s 16 of the Insurance Companies Act 1982 does not invalidate activities undertaken otherwise than in connection with and for the purposes of the insurance business as defined: and, accordingly, the contract upon which Fuji Finance Inc (Fuji) claims damages would not be avoided.
For my part I am not persuaded that, on the assumption stated, s 16 of the 1982 Act would leave the contract enforceable by Fuji.
The prohibition in s 16(1) is that 'the insurance company ... shall not carry on any activities ... otherwise than in connection with or for the purposes of its insurance business'; and, as Nicholls V-C observed ([1994] 4 All ER 1025 at 1035, [1995] Ch 122 at 134), on this assumption, Tyndall Assurance Ltd was prohibited from issuing Fuji's policy because the section restricts insurance companies to the business of insurance.
Since the Act does not spell out the consequences for a particular piece of prohibited business or of failure to comply with s 16, beyond stating that such a default is not a criminal offence (s 71(7)), the question for the court is whether it is clear, as a matter of necessary implication, that Parliament intended to render unenforceable the contract contained in the supposed policy. The relevant considerations for resolution of this question were stated by Devlin LJ in Archbolds (Freightage) Ltd v S Spanglett Ltd (Randall, third party) [1961] 1 All ER 417 at 425, [1961] 1 QB 374 at 390 to be 'the same as those that arise on the construction of every statute; one must have regard to the language used and to the scope and purpose of the statute': cited by Kerr LJ in Phoenix General Insurance Co of Greece SA v Administratia Asigurarilor de Stat [1987] 2 All ER 152 at 175, [1988] QB 216 at 272. Later in his judgment, Kerr LJ observed that the contrast between a contract of money lending and a contract of insurance made it clear why it is good public policy to refuse to enforce the former, but bad policy in the case of the latter because in both cases the legislation is designed to protect the customer but the protection which the customer requires is different in the two cases.
Kerr LJ continued ([1987] 2 All ER 152 at 175, [1988] QB 216 at 273):
'The statutory prohibitions are designed to protect the insured by seeking to ensure that undesirable persons are not authorised to carry on insurance business and that authorised insurers remain solvent. Good public policy and common sense therefore require that contracts of insurance, even if made by unauthorised insurers, should not be invalidated.'
He then observed that if the Insurance Companies Act 1974 permitted resort to considerations of public policy then there could only be one answer; but he concluded that the language of the express prohibition, namely the 'effecting and carrying out of contracts of insurance' rendered the contract unenforceable at the suit of the customer.
Nicholls V-C in this case accepted that the prohibition in s 16(1) of the 1982 Act is as wide and comprehensive as the prohibition in the Phoenix case. The word 'activities' is apt to embrace carrying out a non-insurance contract as well as effecting such a contract. Nevertheless, he held that Parliament is not to be taken 'to have intended to strike down all contracts entered into ... in breach of s 16', having regard to the genesis of s 16 in the European Directives (Council Directive (EEC) 73/239 on the co-ordination of laws etc relating to the taking up and pursuit of the business of direct insurance other than life assurance and Council Directive (EEC) 79/267 on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct life assurance); to the provisions of ss 35, 35A and 35B of the Companies Act 1985 as amended; to the express provision that default under s 16 is not a criminal offence; and to s 132 of the Financial Services Act 1986, which gives to the court discretion with reference to a contract made in breach of s 2 of the 1982 Act but no discretion with reference to a contract made in breach of s 16. The intended remedy for a default by an insurer under s 16 lay, in his view, in the powers of intervention of the Secretary of State under the Act (see s 37(2)(b)(i)).
Morritt LJ has concluded that it is not necessary to imply into s 16(1) any prohibition on making or carrying out contracts outside the permitted limit for reasons which he has set out, namely, in summary, the width and generality of the wording of the prohibition coupled with the absence of criminal sanctions for breach; and the array of regulatory remedies available to the Secretary of State in the event of infringement of s 16. These powers are, in his view, more than adequate to ensure compliance with s 16.
I have found this point to be difficult. In the end, I prefer the view that, upon the assumption made, the contract in this policy would be void.
The prohibition under s 2, of which the terms were considered in the Phoenix case, is, with the definition imported, as follows: 'No person shall carry on any insurance business of effecting and carrying out contacts of insurance ... unless authorised to do so.'
The prohibition under s 16(1), with the definition imported, is as follows:
'An insurance company ... shall not carry on any activities ... otherwise than in connection with or for the purposes of its business of effecting and carrying out contracts of insurance.'
I respectfully agree with the obiter conclusion of this court in the Phoenix case that the prohibition in s 2 had the effect of rendering void a contract which was outside the authorised range of business. The prohibition in s 16(1) seems to me to have been intended to have the same effect. The width of the provision does not, in my judgment, suggest otherwise. The words 'in connection with or for the purpose of' must be read as meaning 'in lawful connection with and for the lawful purposes of' the insurance business. A contract, which is not a permitted contract of insurance, and which is not in such lawful connection or for such lawful purposes, would therefore be void; but the mere fact that such a void contract or contracts had been made would not affect the validity of other activities which were in lawful connection with or for the lawful purposes of the insurance business.
Next, the availability of the regulatory remedies is not, in my judgment, of decisive significance. It is common ground that the purposes of the legislation include that of protecting the public and, in particular, the potential and the actual customers of the insurance company. It does not assist or protect an individual customer, who has entered into a contract which the insurance company is prohibited from making, for his contract to be rendered void; but later invocation of the regulatory remedies will do nothing to protect other customers, who already have valid contracts of insurance, against the possible effect upon the solvency of the insurance company of the prohibited contract, and of other similar contracts. I have no confident understanding of the degree of the risk of the making of a sufficient number of prohibited contracts which may be of sufficiently damaging effect to impair the solvency of an insurance company; but I see no reason to disregard the risk as fanciful. I think it likely that Parliament would have supposed that a casual breach of s 16 with reference to a particular contract, which would gave rise to no threat to the solvency of the company, would not cause a respectable insurance company to rely upon its own technical breach of the prohibition so as to escape liability. Further, an individual customer, whose contract might thus be rendered void, might in a significant number of cases be protected by contractual rights against his broker or other financial adviser.
If my view is right, it is obviously desirable for the discretion enacted by s 132 of the 1986 Act to be extended to enforcement of a contract made in breach of s 16(1) of the 1982 Act.