In a decision involving a broker who introduced business to a medical scheme, the court drew an important distinction between a mandate to enter into contracts on behalf of the medical scheme as the principal and a mandate or authority to introduce business to the medical scheme. Where a principal appoints someone to perform juristic acts (e.g. enter into contracts) on behalf of the medical scheme, the mandate may be revoked at any time subject to the terms of the contract or the applicable law. Where it is an agency agreement with no such authority, the appointment may generally be terminated at will (again subject to the law and the contract).
The broker was not an empowered agent and had no authority to bind the medical scheme. The agreement authorised or permitted the broker to submit applications for membership of the scheme for the benefit of the broker’s clients and to provide ongoing broker services for their clients’ under the regulations in terms of the Medical Schemes Act, 1998. The broker was paid indirectly through the medical scheme from the contributions made by the members who were clients of the broker. The contract with the broker only entitled the medical scheme to cancel under certain circumstances which were not met. Otherwise the agreement would continue as long as the broker had accreditation from the Council for Medical Schemes.
The court rightly held that the medical scheme had no authority to terminate the agreement. The broker could continue to receive compensation for business introduced to the medical scheme and could continue to introduce such business unless the broker lost its accreditation or breached the agreement.
This decision is important in relation to insurance brokers as well. An insurance broker that introduces business from its clients to an insurer in terms of an agreement by which the insurer agrees to accept that business (subject to its underwriting discretion) is not a mandate for the broker to enter into insurance agreements for the insurer and cannot be revoked except in terms of the agreement between the insurer and the broker or the applicable law. This illustrates an important distinction between the intermediary service of ‘performing acts as result of which someone enters into a policy‘ (which is not a mandate to bind the insurer) and the binder arrangements where the intermediary can actually enter into policies on behalf of the insurer. The distinction is important for many reasons.
There is a difference between broking medical scheme business and broking insurance business. Medical schemes have to accept members in most circumstances whereas insurers have a discretion.