Case No: 96/0860/Z2
BAILII Citation Number: [1996] EWCA Crim 1800
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
CRIMINAL DIVISION

Royal Courts of Justice
Strand
London WC2A 2LL

Date:Thursday 25th July 1996

B E F O R E :

LORD JUSTICE EVANS

MR JUSTICE SCOTT BAKER

and

MR JUSTICE SEDLEY

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R E G I N A

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RUPERT GEORGE WILSON

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(Computer Aided Transcript of the Stenograph Notes of
Smith Bernal Reporting Limited
180 Fleet Street, London EC4A 2HD
Tel: 0171 831 3183
Official Shorthand Writers to the Court)
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MR N BUDGEN appeared on behalf of the Appellant
MR D SECONDE appeared on behalf of the Crown
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J U D G M E N T

LORD JUSTICE EVANS:  The appellant who is aged 54 was convicted on 17 January 1996 after trial in the Crown Court at Birmingham before His Honour Judge Crawford QC and a jury on a charge of carrying on an insurance business without authority, contrary to sections 2 and 14 of the Insurance Companies Act 1982.  He was sentenced to 100 hours of community service and was disqualified for five years from holding office as a company director, under the Company Directors Disqualification Act 1986.  He now appeals against his conviction by leave of the single judge.
	The issues raised by the appeal are questions of law. Section 14(1) makes any person who carries on business in contravention of Part 1 of the Act guilty of a criminal offence, and so we can concentrate on section 2(1), which reads:
	"2(1)	Subject to the following provisions of this section, no person shall carry on any insurance business in the United Kingdom unless authorised to do so [by the Secretary of State]."
None of the exceptions is relevant.  The questions of law are (1) in what circumstances can an individual be guilty of the offence of carrying on an insurance business in contravention of section 2(1), and (2) does a person carry on insurance business for the purposes of section 2(1) unless he enters or purports to enter into contracts of insurance?  The reason for the second question is that the appellant denies having concluded any agreement with the principal prosecution witness, Mr Mahmood Ahmed, and he contends that the attempts which he made to obtain business from Mr Ahmed and from a second complainant, Mr Stephen Dutton, do not amount to carrying on an insurance business within the Act.
	It is important to note that no charge was brought under section 91, which is expressly concerned with the conduct of individuals.  It reads:
	"Criminal liability of directors

	91(1) 	Where an offence under this Act committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, chief executive, manager, secretary or other similar officer of the body corporate or any person who was purporting to act in any such capacity, he, as well as the body corporate, shall be guilty of that offence and liable to be proceeded against and punished accordingly."
	The offence created by section 91(1) is ancillary to an offence committed by a body corporate, and when it applies the individual is guilty of "that offence"; it is essentially parasitic.  The present appeal is concerned with a different question; in what circumstances does an individual, as distinct from a body corporate, commit an offence under section 2?
	We begin with the evidence in this case.
	Masood Ahmed is the proprietor of a textile business in Rochdale.  In November 1989 he saw an advertisement in a trade journal which was something to do with debt indemnity, in other words, insurance cover against bad debts.  Soon afterwards he received a visit from two men, the appellant and another called Goodman.  They gave him a brochure and other documents which purported to be issued by a company, Debt Indemnity Service UK Ltd ("DIS UK Ltd").  Mr Ahmed gained the impression that the appellant was a director of that company, but he could not remember whether that was an assumption he made or was because the appellant introduced himself as such.  None of the documents said who the directors were.  They explained that the company offered two kinds of services:  collecting debts as agents for their customers, and the debt indemnity service.  On 10 November the same two men returned to the office.  On this occasion, Mr Ahmed signed what purports to be a debt collecting agreement (Ex MA1) and he made out three cheques in favour of "DIS." totalling £3,500.  These were for £2,500 (a cheque dated 10 November), £500 (post-dated 10 December) and £500 (post-dated 10 January 1990).  Mr Ahmed understood that that was the premium for insurance cover for a business of his size, with £½ million turnover.  Just two weeks later he received a letter dated 23 November which contained an offer of indemnity cover and thanked him for the interest he had shown.  The printed letter-heading gave the name and address of DIS (UK) Ltd but it was signed "RG Wilson Senior Sales Executive (UK) Division."  Later, a customer defaulted but Mr Ahmed never received any payment in respect of its debt.  At about the same time, the appellant tried to enlist Mr Ahmed as an agent for the company himself.
	Mr Stephen Dutton gave evidence that the appellant called on him and offered him the same debt collection and debt indemnity service, leaving the same brochure as Mr Ahmed had received.  Mr Dutton made out a cheque in respect of an agency agreement.  This was in favour of "Debt Indemnity Service (UK) Ltd" in the sum of £805 but before payment "Ltd" was erased it is not clear by whom.  The appellant gave Mr Dutton a business card describing him as "Senior executive consultant" for DIS Ltd.

	The prosecution case was that there was clear evidence of the appellant offering insurance cover and in Mr Ahmed's case of selling him insurance cover.  They contended that he was carrying on insurance business and of course he was not authorised to do so by the Secretary of State.
	Mr Eades for the defence submitted that the appellant could not commit the offence charged under sections 2 and 14 of the Act unless DIS (UK) Ltd on whose behalf he purported to act was either non-existent or a sham company, neither of which had been proved.  So, he submitted, there was a fatal flaw in the prosecution case.  If DIS (UK) Ltd was a registered company, then it as the appellant's principal, being unauthorised by the Secretary of State, committed an offence under sections 2 and 14, and the appellant as an individual could only be guilty, if at all, under section 91, which was not charged.  He also submitted that no offence could be committed under sections 2 and 14 unless it was proved that a contract of insurance was actually entered into.
	The Recorder of Birmingham rejected this submission.  He ruled that there was evidence that the appellant had solicited insurance business and that it was a question for the jury whether he had carried on the business.  It was irrelevant whether the appellant was acting as an individual on his own account or whether he was a director of a limited company or of a larger concern.  Mr Eades then disclosed to the judge that the appellant accepted that "he was engaged in the selling of insurance by way of getting indemnity to customers" on behalf of the company but denied that he had "a more prominent or central role".  The judge said that it was open to the jury to find that he was carrying on an insurance business.  "He represented himself to be a person in authority in the business.  He solicited custom, but it would be open to the defendant, I suppose, to adduce evidence before the jury that he was merely a cog.  Merely somebody who did what he was told."
	The judge in his summing-up directed the jury accordingly.  The question was whether the defendant was carrying on insurance business.  "What this means is that this defendant took an active and significant part in insurance business.  If he was just a cog, if he was just somebody who did what he was told, if he had no independent input or no significant independent input, then it would not be fair to say that he was carrying on an insurance business."  It was irrelevant whether the business was carried on by a limited company, or by a partnership, or by a simple individual.
	During their retirement the jury asked for further clarification of carrying on an insurance business, and after hearing submissions by counsel the judge repeated the direction he had given.  It was for the jury to decide whether the defendant played an active and significant part in an insurance business.  After a short further retirement, the jury returned their unanimous guilty verdict.
	It is apparent from this short history of the proceedings that the jury was directed to and did decide two issues only.  First, did the appellant offer insurance to the prosecution witnesses?  This he did not challenge.  Secondly, if he was acting or purporting to act on behalf of DIS (UK) Ltd, did he play a significant and active part in that business, as opposed to being a mere cog in its machinery?  The jury rejected his evidence that he was a commission agent who did not play a significant part and that the business was the company's, not his.
	Because of the judge's rulings, both the existence of the company and the appellant's knowledge of whether it existed, or not, were regarded as irrelevant.  They were not the subject of evidence and they were not left as issues for the jury to decide.
	In our judgment, the scope of section 2 is different from what the judge held it to be.  Our starting point is the same as his:  what did the defendant do?  If he was selling insurance business (as distinct, for example, from an office secretary or other employee who has no contact with customers) and was doing so on his own account then clearly he was acting in contravention of section 2.  But if he was doing so on behalf of a company, and was authorised to do so, so that any contracts of insurance which he made were with the company rather than himself, then different considerations would arise, and the existence of the company might not be irrelevant, as the judge held that it was.  Moreover, the individual agent could not be found guilty of aiding and abetting an offence committed by the company unless he knew that the company was unauthorised by the Secretary of State, and the judge ruled that the appellant's state of knowledge was irrelevant also.
	Mr Eades submits that a bona fide agent or commission agent for a genuine insurance company, who concludes business on behalf of the company and who does not know that the company is unauthorised under the Act, does not commit any offence under section 2 although the company does.  The business is the company's, not his.
	That however is not this case.  The present case is an intermediate situation.  There is no evidence and no finding as to whether the company for which the appellant claimed to have been acting was a genuine company, nor as to the appellant's state of knowledge of its affairs.  He was convicted of an offence under sections 2 and 14 on the basis that he did himself solicit insurance business, and although he may have purported to act on behalf of DIS (UK) Ltd, there was no evidence whether that company existed or not, although it was agreed that no such company was authorised under the Act.  The question we have to decide is whether he was rightly convicted on the basis of those facts.
	In our judgment, he was, and the correct analysis is as follows.  The jury found that the appellant was playing an active and significant part in selling insurance, and he did this in contravention of section 2, whether he was acting on his own behalf or on behalf of a genuine company, which was unauthorised under the Act.  If there was such a company and his dealings were solely on behalf of the company, then we can assume that he would not incur any personal liability towards third parties and he committed no offence under section 2 although the company would do so; as stated above, we need not decide whether that is correct or not.  But if the company was a figment of his imagination, or if he had no authority to act on its behalf, then he would incur personal liability towards third parties and in our judgment he would commit the offence under section 2.  That would be because the business that he carried on, whatever it consisted of, could only be his.
	So the question becomes one of the burden of proof.  The prosecution did not prove that there was no company registered as DIS (UK) Ltd; was the charge nevertheless made out?  It is clear, in our judgment, that what is called the evidential burden shifts to the defendant in these circumstances.  If it is proved that he was carrying on a business, either his own or someone else's, then it is for him to assert that it was not his and to produce some evidence to that effect.  We can assume that the burden of proving that an offence was committed remains on the prosecution, but this does not require the prosecution to negative a possibility which is not established by the evidence (cf Blackstone (1996) pp 1801-10).
	Here, the appellant may have claimed that he was a director of DIS (UK) Ltd in conversation with Mr Ahmed.  He produced an elaborate and detailed brochure of the services offered by a company of that name, and letters were written by him and by others under the company's letterhead.  But he, and they, conspicuously failed to sign any of the letters or other documents on behalf of the company, and he was nowhere described in writing as a director of that or any other company.  (In one letter dated 11 January 1990 (not to Mr Ahmed or Mr Dutton) under the company's letterhead the appellant signed as "Managing Director" but the text of the letter referred simply to "DIS UK Div" avoiding any reference to the limited company).  The cheques he obtained from Mr Ahmed were made to out "DIS" and not to the alleged company.  Mr Duttons's cheque was made out to DIS (UK) Ltd but "Ltd" was later erased, clearly by the appellant who received it or at his request.
	The quality of this evidence was not such, in our judgment, as to require the prosecution to prove formally that no such company as DIS (UK) Ltd existed or that it did not carry on a bone fide insurance business.  Conversely, on the whole of the evidence the jury could not fail to be sure that the business which the appellant was carrying on was his own.  This in our view was a proper basis for his conviction of an offence under section 2.
	As will be apparent, we are not persuaded that the law requires the jury to distinguish between playing an active and significant part, as distinct from being a mere "cog" in the business, when the question is whether or not the individual defendant was carrying on business on his own behalf.  That may be relevant when the issue is whether the acts of an individual should be attributed to a company for the purpose of establishing that the company committed an offence, but not in our judgment when the individual rather than the company is charged.  It may also be relevant when considering the application of section 91:  compare R v Boal (1992) 95 Cr App R 272 and Attorney-General's Reference (No 1 of 1995) [1996] 1 WLR 970.
	Nevertheless, even if the jury's finding was strictly irrelevant, it does put beyond doubt the fact that the appellant was playing an active and significant part in a business which was not authorised under the Act.  

(2)	The second issue is whether an offence can be committed under sections 2 and 14 before any insurance contract is entered into, even by the (unauthorised) insurer.  Mr Eades submits that there is no contravention of section 2 unless and until a contract is made.  He accepts that pre-contract there might be conduct which constitutes an attempt to commit the offence, but that was not the charge brought here.  He relies both on the wording of the Act and on the following authorities:
	Bedford Ins Co Ltd v Insituto de Ressiguros do Brasil [1985] QB 966:
	"...what is aimed at and what is prohibited is both the making and performance of any contract of insurance of a relevant class by way of business.  Thus a company opening business premises for the purpose of carrying on insurance business would commit an offence when in the course of that business and without authorisation from the Secretary of State it entered into the very first contract of insurance of a relevant class" (per Parker J at 982F).

	Phoenix Insurance v Halvanon Insurance [1988] QB 216

Kerr LJ agreed with this and another passage where Parker J said:

	"It is thus both the contracts themselves and the performance of them at which the statute is directed" (page 274).

	There is no definition in the Act of "carrying on business" and the descriptions of different classes of business all begin with the words "effecting and carrying out contracts" (Sch 1 and 2).  The same words are found in the interpretation section, section 95:

	"For the purposes of this Act 'insurance business' includes -

	(a)	the effecting and carrying out, ..., of contracts ...",
and section 96(1) defines "contract of insurance" as including "any contract the effecting of which constitutes the carrying on of insurance business by virtue of section 95 above; ..."
	The judge directed the jury as follows:
	"You may think that it does not really matter whether the prosecution establish one instance or two instances of selling insurance, if you are satisfied that insurance was being sold.  Indeed, it would not stop somebody carrying on an insurance business even if he was not very good at it and had not managed to sell any policies at all.  The crime is not carrying on a successful or busy insurance business, the crime is carrying on an insurance business."
	In Bedford Ins Co and Phoenix Insurance the principal question was whether a contract of insurance made by an unauthorised insurer was both illegal and void.  The Act makes it necessary to consider whether the relevant class of business was authorised or not:  see sections 1 and 2.  An insurance company may carry on more than one class of business, and it is only the unauthorised class of business which gives rise to criminal liability under the Act.  In that context, it is understandable that the contravention of section 2 should be measured in terms of the first unauthorised contract of the relevant kind.  Parker J preceded the passage quoted above with the following: 
	"This ... indicates that if, for example, a person was lawfully carrying on business of some class other than marine business pursuant to an authorisation for that class, it would be sufficient to constitute a contravention of the Act if he were then to enter into a single contract of marine insurance" (p 982E).
	Neither Parker J nor Kerr LJ had in mind, in our judgment, the issue which arises here.  Any contract of insurance must be preceded by negotiations, if only the formal steps of offer and acceptance, and the reference to "making" an unauthorised contract can scarcely have been intended to exclude these necessary preliminary steps from the process of "carrying on an insurance business", which if unauthorised is what the Act forbids.  If an insurance company opened an office where its employees and agents actively sought business of a relevant and unauthorised kind, then it would be artificial and unreal to say that no such business was carried on there until the moment when the first such contract was concluded (the contract would be illegal and void, in any event, and therefore the legal significance of concluding the agreement would merely be that the carrying on of business had begun).  It would be equally unrealistic to hold that sales activities thereafter did count as carrying on the business regardless of whether any further agreements resulted from them.
	The statutory definitions speak of "effecting and carrying out" insurance contracts of the relevant kinds (section 1(2) and Schedule 1 and 2).  We would hold simply that "effecting" includes the processes of negotiation which begins not later than the issue of what the law regards as an invitation to treat.  A person who seeks insurance business on the basis of a document such as the brochure issued in the name of DIS (UK) Ltd in the present case and who holds himself out as having authority both to make insurance contracts and to receive premiums on behalf of an insurer does "carry on [an] insurance business", in our judgment, for the purposes of section 2.  We would also hold, if necessary, that the statutory definitions are not exclusive and that "carrying on [an] insurance business" clearly does include soliciting such business, as the appellant did in the present case.

	A related question might be whether an insurer was carrying on business in this country when contracts were negotiated here but formally concluded by signature abroad.  If carrying on an insurance business consisted solely of the formal "making" of the contracts then no offence would be committed under section 2, even though all the other insurer's business, including receiving applications and premiums and handling claims, was in fact conducted in this country.  In In re United General Commercial Insurance Corporation Ltd [1927] 2 Ch 51 the contracts were made and policies were issued in London and so this question did not arise, but in his description of the insurer's business Lord Hanworth MR included not only "the act of issuing policies" but he added "Any negotiation in reference to them as to the terms or conditions or as to losses claimed for under them must be determined at the head office" (p 56).  This supports the view we have expressed above.
	If contrary to this view there is no carrying on of business unless and until a contract is made, then the appellant is entitled to say that there is no such finding by the jury in the present case:  but when Mr Ahmed gave evidence that he made an agreement with the appellant and parted with cheques for £3,500 on the strength of that agreement, we do not think that they could properly have made any other finding.

Conclusion
	For these reasons, although we have differed from the judge's interpretation of sections 2 and 14 of the Act, we conclude that the jury's verdict was correct on the basis of the facts which they found proved.  The appeal must be dismissed.