Ramlort Ltd and Michael James Meston Reid [CA (Civil), 06/07/2004]
| Jurisdiction | England & Wales |
| Judge | Judge Norris |
| Judgment Date | 18 July 2003 |
| Neutral Citation | [2003] EWHC 1999 (Ch) |
| Docket Number | Case No: 8-MISC-1999 |
| Court | Chancery Division |
| Date | 18 July 2003 |
[2003] EWHC 1999 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
His Honour Judge Norris Qc
Case No: 8-MISC-1999
In The Matter of Thoars
MR. S. DAVIES QC and MR. WATSON (instructed by Messrs. Peterkins) for the Applicant
MR. ALEXANDER (instructed by Messrs. Clintons) for the Respondent
Approved Judgment
The late Alan Thoars was born in December 1946. On 1st February 1994 he took out a cluster of nine policies, bearing the numbers "61681501–9", with Scandia Life (which I shall call "the policy"). The policy was a "whole of life" policy and secured in total the sum of £180,000 payable on death. The annual premium was about £1,130.
The endorsement on the policy schedule shows that the relevant terms of the policy were Scandia Life's terms applicable to whole life policies. The only special provision on the policy was that it was written on the life of a nonsmoker. The policy makes no reference to Alan Thoars' alcohol consumption.
In fact, Mr. Thoars had been a heavy alcohol user in his late twenties and had become an alcohol dependent person. In a psychiatric report, prepared for him in May 1996, it is recorded that in about 1981 he had gone to the Royal Cornhill Hospital for treatment of his dependency and had then followed a twelve-year period where he had entirely abstained from alcohol, but in 1992, two years before the policy was taken out, he had begun drinking again and rapidly became established in quite heavy, regular use.
Under the policy terms, referred to as the "Scandia Plan", the sum assured was fixed. So, also, were the premiums. Clause 2 of the terms provided that the premiums were payable until the death of the life assured and that there would be a thirty day period of grace allowed for the payment of premiums. On non-payment of the premium the policy would be automatically paid-up, provided that it had acquired a surrender value. If it had not acquired a surrender value it would lapse.
Although expressed as a "whole life policy for a fixed sum assured", the policy is also described as a "unit-linked policy". By clause 4 of the policy terms, units in selected funds were allocated out of the premium paid at a fixed percentage. By Clause 5, during the life of the policy the number of units allocated could be reduced to reflect the charges of the company in setting-up and maintaining the policy and the cost of maintaining the level of life cover provided by the policy. The premium payable by Alan Thoars was in fact only just sufficient to maintain the level of life cover provided.
The units allocated to the policy were relevant only in two contexts. First of all, if there was very substantial growth in the units allocated, then, in addition to the sum assured, the policy might pay an "investment addition". Secondly, by Clause 9, the policyholder had the right to surrender the policy. Clause 9 provided that the policy might be surrendered, in whole, for a surrender value determined by the actuary to the company by reference to the value of the units allocated to the policy fund.
It should be noted that this definition of "surrender value" in the policy excludes any value to be attributed to the whole life element of the contract; that is to say, to the fact that at any given time the company was on risk to pay £180,000 were the policyholder to drop dead. Clause 9 deals only with the unilateral right to surrender and does not preclude a negotiated surrender, by consent, in other circum—stances, for a different value.
Clause 10 of the policy provided for it to be converted into a paid-up policy or to lapse in the circumstances that I have indicated.
Although the benefits provided by the policy were, on their face, fixed, as was the premium, the policy terms contain provision for variation. By Clause 18 of the policy documents there was contemplated "a review". At the review, if the actuary was of the opinion that the performance of the units to which the policy was linked were insufficient to sustain the sum assured, and the other benefits payable under the policy, then those benefits could be reduced provided that they were not reduced below 75 per cent of the premiums payable.
The policy premiums payable on this policy appear to have been calculated, or miscalculated, on the basis of some very optimistic assumptions about the growth in value in the underlying fund. In the skeleton argument of Mr. Davies QC and of Mr. Watson it is pointed out that given that the sum assured exceeded £180,000, and the annual premium was only £1,100-odd, it would take something over 140 years of premium payments before the sum assured had been covered. Even if one assumed 5 per cent compound growth on the premiums paid, it would take 101 years for the total premiums to cover the sum assured.
It is with this policy that the present application is concerned.
The benefit of this policy was transferred by Alan Thoars to a company called "Ramlort Limited" by a declaration of trust dated 26th July 1996. The terms of the trust are the standard terms familiarly used when effecting gifts of policies and leave the donor of the policy substantially in control of the trust.
The declaration of trust, which is headed "Declaration of Trust —Absolute Trust", begins with the definition of the policies and of the plan number. It then contains a definition of "the donor", who is said to be Mr. Thoars. It recites that "the donor is the legal and beneficial owner of the policy and wishes to hold it for the persons named below as beneficiaries upon the standard trust provisions". The box alongside the definition of "absolute beneficiaries" contains the company's stamp of "Ramlort Limited of Swinton, Manchester". Alongside the word "donor" is the signature of Alan Thoars. His signature is witnessed by that of his wife, Kay or Kathleen Thoars.
The standard terms of the policy provide that the power of appointing new trustees is vested in the person effecting the policies, namely, Mr. Thoars. It confers on him a power to convert the policies into fully paid-up policies free from the payment of future premiums. It authorises him to surrender the policies in whole or in part. It allows him to exercise any of the elections and powers conferred by the policy, to alter the amount of the periodic premiums, and to alter the period for which those premiums are payable even though the sum assured may be thereby reduced.
By Clause 4 of the trust, it is provided that if the person effecting the policy "shall pay any subsequent premiums in respect thereof he shall not thereby acquire any lien or charge over the fund or any right to reimbursement."
Mr. Thoars was a businessman who made his money out of the contacts he formed. He was the director and substantial owner of a number of companies, amongst them companies called "Hair Affair" and "DMT". These companies distributed cosmetics and hair products to High Street retailers. One of those companies' suppliers was, until December 1994, Ramlort Limited ("Ramlort"). That company was wholly in the ownership of a Mr. Andre Frenkel ("Mr. Frenkel") and he was its sole director. The accountant retained by Mr. Frenkel to act for Ramlort in the maintenance of its books and the preparation of its accounts was a Mr. David Halberstadt, otherwise called "David Hall" ("Mr. Halberstadt").
When trading between Ramlort and Hair Affair and DMT ceased in December 1994, Hair Affair owed Ramlort some £96,443 and DMT owed Ramlort some £87,279. Mr. Thoars had no apparent personal liability for these payments due from his companies. In the course of the hearing before me, a faint suggestion was made that he may have had a personal liability because the money apparently owing by his companies to Ramlort was in fact money which he had misappropriated. I disregard this suggestion. There is no evidence of any direct personal liability of Mr. Thoars to Ramlort.
In the summer of 1996 Hair Affair and DMT were in such financial difficulty that they ceased trading and provisional liquidators were appointed (certainly of Hair Affair and, I believe, also of DMT).
On 3rd June 1996 a firm of accountants circulated the creditors of Hair Affair Limited, including Ramlort, with a letter explaining that Hair Affair was illiquid and had no assets. Its disclosed trade creditors amounted to £258,000, and therefore the debt to Ramlort formed a substantial part of the company's liabilities. The letter pointed out that there were insufficient funds to fund the appointment of a liquidator and that the purpose of the letter was to explain the position to the creditors.
The declaration of trust, executed just over two months later, gave Ramlort the benefit of a policy which (if paid) would satisfy the debts of Hair Affair and DMT in circum—stances where Ramlort otherwise had no prospect of recovery from the companies at all.
I have indicated, in my account of the inception of the policy, that Mr.Thoars had resumed drinking. In the course of 1995 and 1996 this had a severe impact on his health. At the date of the declaration of trust Mr. Thoars was suffering from chronic liver disease. According to the expert, whose evidence was obtained by Ramlort (namely, a Mr. Brian Jakes of the Department of Hepatobillary and Transplant Surgery at the Freeman Hospital in Newcastle-upon-Tyne), on 17th July 1996, less than ten days before the declaration of trust, Mr. Thoars' then physical state indicated a one year survival of 45 per cent and a two-year survival of 35 per cent. According to the expert, whose evidence was obtained...
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Ramlort Ltd and Michael James Meston Reid [CA (Civil), 06/07/2004]
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