Personal Touch Financial Services Limited v SimplySure Limited and Usay Business Limited [2016] EWCA Civ 461

The Court of Appeal has confirmed that the wording and scope of Article 25 Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 ("RAO") is deliberately wide and even allowing an unauthorised person to interview and complete part of a standard form questionnaire to obtain fact-finding information from potential clients can be a regulated "arrangement" and a breach of s19 Financial Services and Markets Act 2000 ("FSMA").

On 17 May 2016 the Court of Appeal handed down its decision in Personal Touch Financial Services Limited v SimplySure Limited and Usay Business Limited [2016] EWCA Civ 461. The appellant, Personal Touch Services Limited ("Personal Touch"), a financial services company, appealed against the decision at first instance that it was in breach of an appointed representative agreement dated 1 December 2006 between it and the first respondent, SimplySure Limited ("SimplySure") (the "Agreement"). SimplySure cross-appealed, contending that the finding of the Judge at first instance that it had acted in breach of s19 FSMA was wrong.

The facts
Personal Touch was at all relevant times directly authorised by the Financial Services Authority (now the Financial Conduct Authority). Under the Agreement, SimplySure was appointed to act as appointed representative "for the purpose of soliciting applications for the products detailed on the authorisation schedule...". SimplySure, which sold private medical insurance, was not at the time authorised by the regulator and used unauthorised advisers to complete two sections of the standard form questionnaire to obtain fact-finding information from potential clients relating to personal details and existing medical insurance. Between those two sections and the remainder of the questionnaire was the heading "Private Medical Insurance (to be completed by PMI authorized advisers only)" (the "Heading"). If completion of the first two sections amounted to a regulated activity, this would be in breach of the Agreement, clause 7 of which stated that "It is a condition of the Agreement that the Appointed Representative [i.e. SimplySure] be aware of and abides by the rules of the regulator...". The Agreement further stipulated at clause 3 that "Advisers of the Appointed Representative are not authorised until notified by the Company [i.e. Personal Touch] in writing". On discovering that SimplySure had used advisers that had not been authorised in writing by Personal Touch (which therefore meant that the appointed representatives exemption under s39 FSMA did not apply), Personal Touch terminated the Agreement with immediate effect.

The decision
The Court of Appeal had to consider whether the advisers' completion of the first two sections of the questionnaire contravened the general prohibition under s19 FSMA, which provides that no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is an authorised or exempt person.
The Court of Appeal also considered Article 25 RAO (Arranging deals in investments), which states:

1.  Making arrangements for another person (whether as principal or agent) to buy, sell, subscribe for or underwrite a particular investment which is - 

a. a security,
b. a contractually based investment [although note that since 14 January 2005 this was replaced with "relevant investment"], or
c. an investment of the kind specified by article 86, or article 89 so far as relevant to that article,

    - is a specified kind of activity.

2.  Making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments falling within clause (1)(a), (b) or (c) (whether as principal or agent) is also a specified kind of activity.

In doing so, the Court of Appeal referred to the FCA's Perimeter Guidance manual ("PERG"). While PERG does not bind the Court, the FCA will presume a person has complied with the aspects of the requirement to which the guidance relates, if that guidance is adhered to. PERG 5.6.2, which deals with Article 25(1) RAO, states that "a person would bring about a contract of insurance if his involvement in the chain of events leading to the contract of insurance were important enough that, without it, there would be no policy". The Court of Appeal held that arranging for an unauthorised person to visit or to interview the potential client was an arrangement falling within Article 25(1) RAO, as the purpose of the completion of the questionnaire, which included the first two sections above the Heading, was for the client to buy private medical insurance. Handing down the Judgment, Sir Stanley Burnton said he was "encouraged in his conclusion" by his finding that "SimplySure put the unauthorised person in a position in which he could advise the client". In addition, the part of the questionnaire above the Heading that asked about existing PMI cover required a degree of specialist knowledge. He further stated that the wording and scope of Article 25 is "deliberately wide", and his conclusion was consistent with PERG 5.6.2. SimplySure therefore breached the general prohibition under s19 FSMA because it did not "abide by the rules of the regulator".

While the Heading appeared only after the first two sections, the Court of Appeal found that it did not follow that the first two sections of the questionnaire could be completed by someone who had no authorisation at all. Given that Personal Touch also deals in other kinds of insurance, the first two sections could be completed by an adviser whose authority related, for example, to the sale of life insurance.

Personal Touch had been entitled to terminate the Agreement, as it was also held that clause 7 of the Agreement was a true condition on its proper construction, and therefore any breach of that clause was repudiatory. This was a reversal of the first instance decision, and the Court of Appeal reached such a conclusion because (i) clause 7 was the only place in the Agreement where the word "condition" appeared, and (ii) its use was emphasised by the introductory words "It is a condition of the agreement". While the Court of Appeal noted that the use of the word "condition" is not conclusive, it had to be given due weight when the agreement is construed.

The Court of Appeal allowed the appeal such that Personal Touch was not liable for breach of contract, and it followed that SimplySure was not entitled to damages for premature termination of the Agreement. Given the broad scope of the wording in Article 25 RAO this decision was hardly unexpected, however it is useful in demonstrating the Court's endorsement of the FCA's views, as the Court of Appeal approved the relevant sections of PERG "as a correct explanation of the effect of Article 25(1) and (2)".