Halifax Life Ltd v Equitable Life Assurance Society

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeMR JUSTICE CRESSWELL
Judgment Date13 Mar 2007
Neutral Citation[2007] EWHC 503 (Comm)
Docket NumberCase No: 2006 FOLIO 1239

[2007] EWHC 503 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN's BENCH DIVISION

COMMERCIAL COURT

Before

Mr Justice Cresswell

Case No: 2006 FOLIO 1239

Between
Halifax Life Limited
Claimant
and
The Equitable Life Assurance Society
Defendant

Christopher Symons QC, Clive Freedman and Mark Humphries Solicitor-Advocate (instructed by Linklaters) for the Claimant

Christopher Butcher QC and Alexander Macdonald (instructed by Lovells) for the Defendant

Hearing dates:

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE CRESSWELL

Mr. Justice Cresswell:

The claim

1

By its CPR Part 8 claim form the claimant seeks:

(1) a declaration that the expert determination by Mr N H Taylor (“the Umpire”) made by way of a written decision dated 21 September 2006 is not final and binding on the parties, on the grounds that:

i) the decision is not a decision reached in accordance with the agreement between the parties dated 1 March 2001 (“the Agreement” or “the Reassurance Agreement”), as a result of the Umpire having materially departed from the agreed terms of reference by failing to provide any adequate reasons for his decision; and/or

ii) the decision contains a manifest error as explained in the witness statement of Mark Humphries;

(2) directions as to how the dispute between the parties should be resolved.

2

The defendant says that there is no basis for granting the declaration sought.

Statement of Facts

The parties have helpfully agreed the following statement of facts to which I have made additions drawn from documents and other minor additions.

3

Following the decision of the House of Lords in Equitable Life Assurance Society v Hyman [2002] 1 AC 408; [2000] UKHL 39 in July 2000, The Equitable Life Assurance Society (“ELAS”), the defendant, announced that it was putting itself up for sale. The sale process failed, and in late 2000 ELAS closed to new business. Following discussions between ELAS and Halifax Life Limited (“Halifax Life”), the claimant, an agreement dated 1 March 2001 was reached whereby Halifax Life agreed to reassure ELAS' unit-linked and non-profit business, excluding immediate annuity business.

4

The size of the reassured business was approximately £4 billion of unit reserves and approximately £0.3 billion of non-unit reserves. This case is only concerned with the £0.3 billion of non-unit reserves. The main products involved were personal pensions, group pensions, individual pensions, retirement annuities, life single premium bonds, non-profit deferred annuities and temporary (term) assurances.

5

Pursuant to clause 3 of the Agreement Halifax Life agreed to reassure the liabilities of ELAS in respect of all “Covered Payments” as defined therein [2/1/1/2–038]. Pursuant to clause 4.2 of the Agreement [2/1/1/2–038] ELAS agreed to pay Halifax Life, as part of the consideration for the Agreement, an “Initial Premium” (as defined in the Agreement). The procedure for determining the Initial Premium payable by ELAS to Halifax Life is set out in clause 4 of and Schedule 2 to the Agreement.

6

Clauses 4.2.2 and 4.3 of the Agreement read as follows:

“4. Initial Premium

4.2 Immediately following the Effective Date:

4.2.2 [ELAS] shall transfer to Halifax Life securities (which shall include units in external units trusts and any shares held by [ELAS] in any open-ended investment company) and cash matched in type, currency and term selected by the appointed actuary of [ELAS] on the advice of the appointed actuary of Halifax Life with a value calculated in accordance with Part VIII of the Insurance Companies Regulations 1994 (taking account of Regulation 57 of such Regulations as it applies to Halifax Life at the Effective Date) equal to the mathematical reserves (including any sterling reserves) (such reserves to be determined using bases as at the Effective Date no weaker (relative to the underlying conditions) than those used by the appointed actuary of [ELAS] at 31 December 2000 and 31 December 1999) as at the Effective Date in respect of liabilities for Covered Payments for Covered Policies other than the Unit Liabilities;

4.3 The securities and cash to be transferred pursuant to Clause 4.2.2 shall be determined upon the estimate of the appointed actuary of [ELAS] (on the advice of the appointed actuary of Halifax Life) of the type, currency and term of such securities and cash which will best satisfy the requirements of that Clause 4.2.2. Immediately following the Effective Date, the appointed actuary of [ELAS] shall determine precisely the assets which should have been allocated pursuant to Clause 4.2.2. Such determination shall be binding on both parties if agreed by the appointed actuary of [ELAS] and the appointed actuary of Halifax Life or, in default of agreement, on the determination of the Umpire in accordance with the procedure set out in Schedule 2. There shall be an adjustment (if necessary) to the securities and cash transferred pursuant to Clause 4.2.2 so that the securities and cash transferred by [ELAS] are such securities and cash as would have been transferred by [ELAS] had the determination pursuant to this Clause been done at the time of the transfer made under Clause 4.2.2. Any adjustment required shall be effected as soon as possible (and in any event within 21 days of the date of agreement by the appointed actuary of [ELAS] and the appointed actuary of Halifax Life or, if relevant, the date of determination by the Umpire) by a transfer of securities and cash (as agreed or determined) by [ELAS] to Halifax Life or by Halifax Life to [ELAS] (as the case may be).”

7

Clause 4 of the Agreement envisages a three stage process for calculating the Initial Premium, as follows:

(a) the appointed actuary of ELAS was required to estimate (on the advice of the appointed actuary of Halifax Life) the type, currency and term of such securities and cash which would best satisfy the requirements of clause 4.2.2;

(b) the securities and cash so estimated would be transferred to Halifax Life; and

(c) immediately following 1 March 2001 (the date of the Agreement), the appointed actuary of ELAS was to determine precisely the assets which should have been allocated pursuant to clause 4.2.2.

Any necessary balancing payment would then be made.

8

The determination in stage (c) above was to be binding on both parties if agreed by the appointed actuary of ELAS and the appointed actuary of Halifax Life. In default of agreement, a binding determination was to be made by the Umpire in accordance with the procedure set out in Schedule 2 to the Agreement.

9

Stages (a) and (b) above were followed. An interim estimate of the Initial Premium was made in the sum of £327.065 million in February 2001. In fact, the amount actually transferred to Halifax Life on 1 March 2001 was £331.844 million.

10

In due course there followed discussions between the parties with a view to reaching agreement on the amount which should be determined in stage (c). Deloitte & Touche LLP (“Deloitte”) prepared a report dated 16 May 2003 in which they reviewed whether the Initial Premium payment was adequate and met the requirements of the Agreement. Deloitte determined that ELAS had overpaid the Initial Premium by £4 million. Halifax Life were supplied with a copy of that report. Halifax Life asked KPMG LLP (“KPMG”) to assist them. Although a number of meetings were held between the actuaries assisting the parties, this did not result in the determination required in stage (c) being made. Halifax Life asked ELAS to provide certain information and documents, pursuant to clause 10.1 of the Agreement, by letter dated 1 June 2004 (the “Information Request”). ELAS declined to provide this information in its letter dated 14 June 2004. ELAS stated that the request did not fall within the ambit of clause 10.1 of the Agreement, would delay the expert determination process, and was unnecessary.

11

The amount of the adjustment to be made to the payment of £331.844 million became the subject of the dispute which was referred to the Umpire in 2004, pursuant to clause 4.3 of the Agreement. The Umpire's terms of reference for the expert determination (the “Terms of Reference”) were agreed by the parties shortly thereafter, in or around October 2004. It was agreed that the Umpire would act as expert, not as arbitrator (paragraph 5). It was also agreed that the decision would be binding on the parties save for manifest error, and that the Umpire would include with the decision reasons for the decision (paragraph 10).

The Terms of Reference provided as follows:—

“It is agreed that:

1. By consent of the Parties, the Umpire has been appointed to resolve by way of Expert Determination the issues set out in clause 2 below.

2. The issues to be determined by the Umpire are:

(a) What amount, (if any) is payable by either Party to the other Party in respect of the initial premium payable as at the Effective Date under clause 4.2.2 of the Reassurance Agreement, by way of adjusting payment, as set out in clause 4.3 of the Reassurance Agreement; and

(b) whether interest would be payable in respect of any such adjusting payment and if so and if an adjusting payment is required, what amount of interest is payable.

(the “Issues”).

3. The Parties and the Umpire agree that the Issues will be resolved in accordance with the provisions of the Reassurance Agreement and these Terms of Reference (save for any express written agreement between the Parties to the contrary). In accordance with paragraph 2.1 to Schedule 2 to the Reassurance Agreement, the Parties shall each (a) use all reasonable endeavours to co-operate with the Umpire in resolving the dispute which has arisen by...

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2 firm's commentaries
  • Setting Aside An Expert Determination
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    • Mondaq UK
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    ...state the reasons for his decision, a court can direct an expert to do so (Halifax Life Ltd v The Equitable Life Assurance Society [2007] EWHC 503 (Comm)) Fraud or collusion: If the expert has reached his determination due to fraud or collusion with one of the parties, then the determinatio......
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