Re Pearl Assurance (Unit Linked Pensions) Ltd

JurisdictionEngland & Wales
JudgeTHE HONOURABLE MR JUSTICE BRIGGS
Judgment Date14 September 2006
Neutral Citation[2006] EWHC 2291 (Ch)
CourtChancery Division
Docket NumberCase No: 4086 of 2006
Date14 September 2006
In The Matter of Pearl Assurance (Unit Linked Pensions) Limited
and
In The Matter of Pearl Assurance (Unit Funds) Limited
and
In The Matter of London Life Linked Assurances Limited
and
In The Matter of Npi Limited

[2006] EWHC 2291 (Ch)

Before:

The Honourable Mr Justice Briggs

Case No: 4086 of 2006

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Mr Robert Hildyard QC and Mr Gregory Denton-Cox (instructed by Freshfields Bruckhaus Deringer) for the Applicants.

Hearing date: 11 September 2006

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.

THE HONOURABLE MR JUSTICE BRIGGS Mr Justice Briggs

Mr Justice Briggs:

1

This is an application under Part VII of the Financial Services and Markets Act 2000 ("the Act") for an order sanctioning a scheme ("the Scheme") for the transfer of the entire long term insurance businesses carried on by three companies, all of which are subsidiaries of Pearl Group Ltd ("PGL") to another PGL subsidiary. The transferor companies are Pearl Assurance (Unit Linked Pensions) Limited ("PAULP"), Pearl Assurance (Unit Funds) Limited ("PAUF") and London Life Linked Assurances Limited ("LLLA"). The proposed transferee company is NPI Limited ("NPIL").

2

Part VII of the Act gives the court a discretionary power to sanction such a scheme if a number of jurisdictional and procedural conditions are satisfied. Apart from the obvious requirement that the Scheme fall within the class of schemes in relation to which the sanction power has been conferred, the court must also be satisfied that certificates have been obtained from the Financial Services Authority ("FSA") as to the necessary solvency margin of the transferee company, its authorisation to enable it to carry on the business which is to be transferred to it, and as to the communication of the Scheme to, and the approval or lack of objection from certain EEA Regulators in cases where (as here) one or more EEA States other than the UK is the "State of the commitment" in relation to one or more policies affected by the Scheme.

3

Section 109 of the Act requires than an application for sanction be accompanied by a report on the terms of the Scheme from a suitably qualified and independent expert, and that both his or her identity and the form of his or her report be approved by the FSA. Further, section 110 gives the FSA a right to be heard on an application for sanction. Such a right is also afforded to any person who alleges that he would be adversely affected by the carrying out of the Scheme.

4

The procedural requirements include a regime designed to ensure that the terms of the scheme are communicated in an appropriate manner and form prior to a hearing to all policy holders affected by the proposed Scheme, albeit that there is power in the court in appropriate circumstances to waive in whole or (more usually) in part certain of the detailed provisions designed to bring the proposed scheme to the attention of the policy holders. A limited waiver in relation to this proposed Scheme was directed by Mr. Registrar Simmonds at a directions hearing.

5

All the jurisdictional conditions precedent to the exercise of the court's discretion to sanction the Scheme have been shown to be satisfied by the evidence before the court. Subject to two matters to which I must return, the procedural requirements have also been proved to have been satisfied.

6

Notwithstanding that detailed perusal of a proposed Scheme both by an independent expert and by the FSA are conditions precedent to the exercise of the court's discretion to sanction it, the discretion remains nonetheless one of real importance, not to be exercised in any sense by way of rubber stamp. The principles to be applied by the court in considering whether to exercise its discretion are well settled. They were first set out by Hoffmann J. (as he then was) in the unreported decision Re: The London Life Association Limited and others on 21 st February 1989, albeit then under section 49 of the Insurance Companies Act 1982, and more recently reaffirmed by Evans-Lombe J. in Re: AXA Equity and Law Life Assurance Society plc and another [2001] 2 BCLC 447, in particular at paragraph 6 of his judgment. The relevant principles are concisely summarised in the following passage from the judgment of Mr. Justice Rimer in Re: Hill Samuel Life Assurance Limited [1998] 3 All ER 176, at 177:

"Ultimately what the court is concerned with is whether the scheme is fair as between different classes of affected persons, and in arriving at a conclusion as to whether or not it is, amongst the most important material before the court is material which the Act requires to be before it, namely the report of an independent actuary as to his opinion on the scheme."

7

Before considering the question of discretion, I return to the two outstanding procedural points to which I have already referred. The first is that, due to an administrative oversight, some 25 of the affected policy holders (out of a total constituency in excess of 200,000) only received notification of the Scheme by information packs posted as late as 1 st September 2006. Since the period between then and now is well within the prime holiday season, it is probable that at least some of those will not in practice have had their minds directed to the proposed Scheme by the time of the hearing. In my judgment that is not a reason for declining to sanction the Scheme if it is otherwise suitable to be sanctioned. The process whereby the proposed Scheme has been communicated to policy holders has, apart from that slip up, been comprehensive and thorough, and amply sufficient in my judgment as a means of canvassing the opinions of policy holders to a degree sufficient to enable the court to discharge its discretionary task. If necessary, the late service on those few policy holders may be the subject of a further limited waiver under paragraph 4(2) of the Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001 (SI 2001/3625), and I so direct.

8

The second question is whether an important aspect of the Scheme has been sufficiently brought home to the attention either of the FSA or of policy holders. Mr Robert Hildyard QC who appeared for all the applicants, invited me to treat this as a matter going to the exercise of discretion, rather than as a purely procedural matter. In my judgment he was right to do so, and I shall therefore revert to it in due course.

9

The business rationale for the Scheme is relatively straightforward, and was best expressed in the papers before me in the opening paragraphs of the letter from PGL to a Professor David Williams, one of the affected policy holders, and the only one of the small number of objectors to the Scheme who attended the hearing in person. Under the heading "Rationale for the Scheme" the letter dated 8 th September 2006 continued as follows:-

"As the four companies NPIL (NPI Limited), PAUF (Pearl Assurance (Unit Funds) Limited), PAULP (Pearl Assurance (Unit Linked Pensions) Limited) and LLLA (London Life Linked Assurances Limited) are all closed to new business, their unit linked funds would be expected to shrink over time.

In the absence of the Scheme, this would mean that the fixed cost incurred by each of the companies, expressed as a cost per policy, would increase over time at a rate faster than inflation. As a consequence, it would either become necessary to close unit funds when they became too small to manage or to increase the charges passed onto policyholders through the annual management charge.

The Scheme gives NPIL the flexibility to combine funds in the future when they become too small to manage. This means that NPIL may be able to offer the same choice of unit funds for longer than would have been the case without the transfer.

The consolidation of the businesses of the four companies into a single company is also expected to result in longer term savings in relation to efficiencies of management and administration of the business.

In the short term policyholders are unlikely to see any benefits, however in the longer term, the likelihood of future increases to policy charges should be lower for the merged business than it would have been had the businesses remained in each of the four companies."

10

As is apparent from that letter, the Scheme involves not merely a rationalization achieved by the concentration of what have up until now been four separate businesses into one company but also by the creation of the ability of NPIL, not immediately, but as and when appropriate, to achieve further cost savings and efficiencies by amalgamating one or more of its linked funds which, as a result of the Scheme will include "mirror image" funds set up to replicate those linked funds presently operated by the three transferor companies. This is reflected in paragraph 16.4 of the Scheme Document itself, which provides as follows:

"Subject always to the provisions of the Act the rules made by the FSA thereunder (including those rules which require NPIL to have due regard to the interests of its policyholders and to treat its policyholders fairly), NPIL shall be entitled at any time and from time to time, having taken such advice as it considers appropriate from the NPIL Actuarial Function Holder:

(a) to establish new Linked Funds as part of any fund for the time being maintained in its Long Term Business Fund, to close existing Linked Funds, to amalgamate any Linked Fund or any part or parts thereof with any other Linked Fund or any part or parts thereof, to change the name or designation of any Linked Fund or to divide any Linked Fund into one or more Linked Funds, or...

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