Rainbow Insurance Company Ltd v The Financial Services Commission and Others (Mauritius)
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hodge |
| Judgment Date | 20 April 2015 |
| Neutral Citation | [2015] UKPC 15 |
| Court | Privy Council |
| Docket Number | Appeal No 0065 of 2013 |
| Date | 20 April 2015 |
[2015] UKPC 15
Lord Neuberger
Lord Mance
Lord Kerr
Lord Clarke
Lord Hodge
Appeal No 0065 of 2013
Privy Council
From the Supreme Court of Mauritius
Appellant
Sir Hamid Moollan QC Iqbal Moollan Salim Moollan
(Instructed by Mr Omar I A Bahemia Solicitor)
Respondent (1)
Mr Désiré Basset SC Nandraj Patten Jean-Gaël Basset
(Instructed by Blake Morgan LLP)
Respondent (2)
Geoffrey Cox QC Edward Risso-Gill
(Instructed by Royds Solicitors)
Co-Respondent
Rishi Pursem SC
(Instructed by Fladgate LLP)
Heard on 26 and 27 November 2014
The Financial Services Commission ("the FSC") regulates the developing non-banking financial services industry of Mauritius. On 24 September 2007 the FSC suspended with immediate effect the registration of Rainbow Insurance Co Ltd ("Rainbow") as an insurer for general insurance and life insurance business and appointed an administrator over its business. That suspension followed (a) an earlier decision by the FSC on 1 March 2007 directing Rainbow not to issue new insurance policies or to renew such policies and proposing to suspend Rainbow's registration and (b) the decision by the Minister of Finance and Economic Development ("the Minister") on 21 September 2007 to support the FSC's proposal. Rainbow challenged the decision of the Minister and the FSC's decision of 24 September 2007 by judicial review application, which the Supreme Court in Mauritius refused in a judgment dated 18 October 2010. It appeals to the Board with the leave of the Supreme Court.
Rainbow has mounted a wide-ranging challenge to those decisions. The challenge may be summarised under several headings, namely (i) procedural unfairness because the decision to suspend registration was effectively made on 1 March 2007 without proper consultation, (ii) illegality and abuse of power as the FSC had no lawful basis to suspend Rainbow's registration and because of an improper delegation of powers, (iii) irrationality because Rainbow was treated in a discriminatory manner in the calculation of its expected recoveries from third parties by subrogated claims ("recoverables"), and because of the speed with which the FSC acted, and (iv) breach of Rainbow's legitimate expectation that it would be given sufficient time to adapt to the FSC's new regulatory requirements. There are also factual disputes which the Board cannot resolve but they are not central to the challenge. At the heart of Rainbow's complaint is the assertion that it was not given a proper opportunity to formulate and agree with the FSC a turn-around plan before its business was suspended.
In order to address Rainbow's complaints it is necessary to summarise the relevant legislation and, because the first and fourth challenges are concerned with the history of the FSC's regulatory involvement, set out at some length the events which led to the impugned decisions.
At the relevant time the Insurance Act 1987 ("the 1987 Act") governed the regulation of the insurance industry in Mauritius. Over time, and in response to international developments in corporate governance and financial regulation, Mauritius has implemented further reforms. The Financial Services Development Act 2001 ("FSDA") established the FSC as the regulator of non-banking financial services. The Companies Act 2001 required all companies other than small private companies to use international accounting standards. After a report by the International Monetary Fund and the World Bank following an assessment of the financial sector in 2002 and 2003, Parliament enacted the Insurance Act 2005, which replaced the 1987 Act and came into operation on 28 September 2007, which was after the principal events with which this appeal is concerned.
Part IV of the 1987 Act (sections 18–29) concerned the regulation of insurers. Section 20(1) of the 1987 Act required every insurer to maintain a margin of solvency. Section 20(3) prohibited an insurer from taking on any new risks of any kind while it did not have the minimum margin of solvency. The Third Schedule to the Act set out the required margins. Para 1(c) required an insurer carrying on general insurance business to have a margin by which the value of its admitted assets exceeded the amount of its admitted liabilities. Section 25 required every insurer carrying on general insurance business to have a reserve fund at a specified minimum level. Section 26 provided that every insurer carrying on long term insurance business should have and maintain a long term insurance fund and section 26(6) provided that the fund:
"shall not be liable or chargeable for or in respect of any contract or transaction of the insurer other than that of the long term insurance business carried on by the insurer, and shall not be applied directly or indirectly for any other purpose."
As we shall see, section 26(6) created difficulties for Rainbow because its principal asset was the office, Rainbow House, at 23 Rue Edith Cavell, Port Louis. Rainbow carried on business from there and leased part of it to others, from whom it derived income. Rainbow had mortgaged Rainbow House to fund its then loss-making activities, reducing the value that could be attributed to the margin of solvency and breaching section 26(6).
Section 27 required an insurer carrying on general insurance to invest funds in Mauritius of an amount not less than (a) its reserve fund in respect of general business and its share capital and (b) 75% of its funds in respect of its long term insurance business within Mauritius (section 27(1) and (2)). Section 27(6) required that not less than 30% (or other prescribed percentage) of those investments was to be invested in prescribed securities. Section 27(7) provided:
"The [FSC], having regard to such matters as he considers relevant, may, by notice in writing, permit an insurer to utilize any investment for any purpose specified in the notice, subject to such conditions and restrictions as he may specify."
As we shall see, section 27 also is relevant to the difficulties arising from Rainbow's dependence on its office, its principal asset, as part of its reserve fund and subsection (7) is relevant to its argument that the FSC had the power to allow Rainbow time to adapt and diversify its assets in order to meet regulatory requirements.
Part VII of the Act (sections 41–53) concerned the investigation and suspension or cancellation of registration of an insurer. Section 41 provided that, if it appeared to the FSC that an insurer had failed to comply with any of the provisions of Part IV, it might serve a notice in writing on the insurer calling on it to show cause why the FSC should not investigate the insurer's business by appointing an inspector to report to it. Section 44 required the inspector on completion of his investigation to transmit to the FSC his final report and a summary of his conclusions and to transmit the summary to the insurer. Section 44(1)(b) provided that:
"the [FSC] may … issue such directions … as it thinks necessary or proper to deal with the situation disclosed by the report, including, in particular, directions prohibiting or regulating the issue of new policies, the renewal of existing policies or the entering into of any new contract of insurance."
Subsection (2) provided that such a direction could not remain in force for more than 12 months, although subsection (3) empowered the FSC to re-issue a direction with modifications. Section 44 was the basis on which the FSC issued its direction of 1 March 2007.
Section 46 provided for the suspension or cancellation of registration. The grounds on which the FSC could suspend or cancel an insurance company's registration included the insurer's failure to satisfy an obligation under the Act (section 46(2)(b)) and its failure to carry on its business in accordance with sound insurance principles (section 46(2)(d)). Subsection (3) provided that the FSC could not suspend or cancel the registration of an insurer unless (i) it had given written notice that it proposed to do so and the reasons for that proposal, and (ii) if the insurer lodged and did not withdraw a notice of intention to refer the case to the Minister for review, the Minister decided that the registration should be suspended or cancelled. Section 48 gave the insurer 60 days to refer the case for review to the Minister, who had to decide whether or not to support the proposal. Subsection (4) required that the FSC give the insurer notice in writing of the Minister's decision. Section 53 provided for the FSC to give the insurer notice of the suspension or cancellation of its registration. Section 49 prohibited an insurer, whose registration had been wholly suspended or cancelled, from carrying on any insurance business and section 50 empowered the FSC to appoint an administrator to manage the business after the suspension or cancellation of the registration.
These provisions in Part VII are relevant to (i) the proposal to suspend Rainbow's registration in the letter of 1 March 2007, (ii) the Minister's decision dated 21 September 2007 to support the proposal and (iii) the FSC's decision of 24 September 2007 suspending Rainbow's registration and the appointment of Mr Amrit Hurree as its administrator.
Rainbow was registered to conduct general insurance business from 1976 and long term insurance business from 1978. While it was primarily a motor insurer, it conducted both forms of insurance business from then on. In 2004 after its examination of the audited accounts, statutory returns and other statements which Rainbow had provided, the FSC decided to conduct an on-site inspection. It wrote to Rainbow on 12 August 2004 to inform...
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