Contract

Unite the Union v Liverpool Victoria Banking Services Ltd and others: Queen’s Bench Division, Commercial Court: 20 January 2014

Contract of insurance – Interpretation of contract – Defendant insurance and financial companies providing services to members of claimant trade union under agreements

The claimant trade union (Unite) was formed in 2007 by the uniting of two existing trade unions, T&G and Amicus. The defendant companies (together, LV) carried on business selling insurance and other financial products. LV had an arrangement with T&G and Amicus, by which they provided LV with access to their members so that it could market services to them.

Clause 9.1 of the agreement with T&G, and clause 10.1 of the agreement between LV and Amicus, stated that LV would pay to the claimant ‘a share of the annual premium, loan new business and net retained initial commission earned by it in respect of the services during the period of this agreement…’. In return, LV discounted the price of the products to union members and agreed to pay a commission to the unions upon its sales of products.

A dispute arose between the parties as to how the commission should be calculated. Unite commenced proceedings, seeking, among other things, a declaration in its favour as to the interpretation of the agreements. At that time, the amount of commission earned by Unite remained to be determined or agreed with regard to T&G, although in respect of the Amicus agreement there was a guarantee that the amount of commission earned during the first five years of the agreement would not be less that £950,000. It was common ground that, to the extent that any further commission was due regarding T&G, that amount could be set off against LV’s liability pursuant to the guarantee.

It was necessary to determine, among other things: (i) on the true construction of the agreements between the parties, whether LV was required to account for commission on the sale to union members of all products of a type identified in the agreements, as contended by Unite, or only on such products as were sold to union members who contacted LV through dedicated telephone lines or websites, as contended by LV; and (ii) if the agreements were to be construed as contended for by Unite, whether Unite was nevertheless estopped by convention from so contending. Further consideration was given as to whether the true construction of the agreements could be categorised as impractical. Both parties submitted that the construction of a commission clause that required a causal connection between the services provided by LV and the earning of the annual premium was unworkable and therefore could not have been intended by the parties.

The court ruled:

On the evidence, it was not possible to accept either of the two constructions submitted by the parties. Commission was payable where there was a causal connection between the services and the earning of premium. That was the meaning of the phrase ‘in respect of the services’, which was consistent with the aim or objective of the agreements. There was no ambiguity in the construction of that phrase in the context of the agreements as a whole which would justify examining which of two possible constructions was more consistent with business common sense. The meaning which the phrase reasonably bore did not flout business common sense.

On the contrary, linking the payment of commission to premium which was earned as a result of the marketing made possible by the agreement was consistent with business common sense. With regard to practicality, it seemed that the parties, with the assistance of the marketing expertise available to them, would be able to assess the likely percentage of the sales to union members who did not use the designated channels which resulted, in part, from the marketing envisaged by the agreements (see [42], [45] of the judgment).

Unite was not entitled to the declaration that it sought (see [47] of the judgment).

Colin Wynter QC and Matthew Parker (instructed by Carter-Ruck) for Unite; Andrew Green QC and Fraser Campbell (instructed by Clifford Chance LLP) for LV.