Who: Unite the Union and Liverpool Victoria Banking Services Limited
Where: The Commercial Court
When: 20 January 2014
Law as stated at: 5 March 2014
What happened:
The Commercial Court scrutinised sales commission provisions in affinity marketing agreements between Unite the Union (“Unite”) and Liverpool Victoria Banking Services Limited (“LV”) and held that commission was payable to Unite where there was a causal connection between marketing of insurance products and the earning of premium by LV.
The Facts
LV, which sells insurance and other financial products, put in place affinity agreements in 2005 and 2006 with Amicus and the Transport and General Workers Union (which merged in April 2007 to form Unite). Under the affinity schemes, the unions provided LV with access to their members to enable LV to market its services. In return, LV discounted the price of products to union members and agreed to pay a commission to the unions upon sale of its products.
The commission provisions in the agreements between LV and the unions, stated as follows:
“In consideration for the obligations and undertakings of [the union] in this Agreement LV will pay to [the union] a share of the Annual Premium, Loan New Business, and Net Retained Initial Commission earned by [LV] in respect of the Services during the period of this Agreement…”
“Services” were defined as advising union members on insurance and financial related products and services, and “marketing such products and services to [union] Members from time to time as set out at Schedule 1″. Schedule 1 identified the products to be marketed and sold (e.g. motor and home insurance), and stated the percentage of sums to be paid as commission.
After conclusion of the agreements, from around 2007, LV shifted the balance of its focus from affinity schemes as its core business to more of a focus on sales direct to the general public. Among the members of the public who purchased LV’s insurance products were Unite members who did so without using the telephone line or website identified in LV’s marketing materials sent to the members under the affinity agreements.
By June 2011, 72,548 Unite members held a motor insurance policy underwritten by LV which had been purchased through channels other than the above affinity scheme, and of those, 57,553 had been purchased through channels open to the general public, with the balance having been purchased through other affiliate schemes. In contrast, only 29,829 policies had been issued to Unite members under the above affinity scheme.
The Dispute
A dispute arose between Unite and LV as to how the commission should be calculated.
Unite contended that LV was required to account for commission on the sale to union members of all products of a type identified in the agreements, regardless of the sales channel. LV contended that commission was only payable on products sold to union members who contacted LV through dedicated telephone lines or websites.
The Judgment
The judge did not accept either party’s interpretation. Looking at the commission provisions, and the definition of “Services”, he held that commission was due in respect of a premium only where the sale of the products was pursuant to the marketing to union members envisaged by the agreement, i.e. where the marketing was made possible by reason of access to the union members through the agreement.
However, that sale did not have to be made through designated channels because:
- The phrase “in respect of Services” in the commission provisions in the agreement did not specifically refer to premium earned when a union member contacted LV through designated channels.
- It was possible to envisage a premium being earned when a union member who is persuaded by the marketing sent to him under the affinity scheme nevertheless contacts LV using a telephone line available to the general public – e.g. if he has mislaid the marketing information
- The marketing of LV to union memb.ers was not restricted to providing the designated telephone number or website in direct mailing to union members – e.g. there were adverts in union magazines, inserts in communications (e.g. welcome backs to new members), and marketing at conferences. The judge also specifically referred to dual branding, using both LV and Unite logos, which built trust in LV’s products and may therefore have caused a union member to decide to buy insurance from LV, even though he had never read or noted the designated telephone number or website address.
The judge also disagreed with the parties’ arguments that the interpretation that commission was payable when there was a causal connection between the marketing and the earning of the premium was impractical and could not have been intended by the parties at the time of contracting.
The judge felt that the parties could use marketing expertise to assess the likely percentage of sales to union members who did not use the designated channels but which resulted from the marketing envisaged by the affinity agreements.
Why this matters:
The judgment highlights the importance of clear drafting of sales commission provisions in marketing and affinity agreements to ensure the agreement reflects the parties’ intentions as to when commission is payable. If commission is payable only in relation to certain products or sales channels, or in relation to certain customers, this needs to be made absolutely clear. Discussing these issues at the negotiation stage also flushes out potential future disputes about sales commission.
