However, there were insufficient grounds to overturn the
Government’s discretionary compensation scheme for policyholders,
the court said.
The court was hearing an application for judicial review of the
Government’s response to a report on the role of the regulators in
the near-collapse of the UK’s oldest mutual life assurance company.
The action was brought by the Equitable Members' Action Group
(EMAG), which represents about 21,000 current and former Equitable
Life policyholders.
After a series of disastrous management decisions, Equitable
Life closed its with-profits fund to new business in December 2000.
Over the following months, it slashed the value of policy funds,
drastically reducing annuity payments for policyholders.
In her report of 16th July 2008, Parliamentary Ombudsman Ann
Abraham identified ten instances of maladministration in the way
Equitable Life was supervised by the authorities and concluded that
in six of those cases the maladministration had resulted in
injustice.
She recommended that the public bodies concerned apologise for
these regulatory failures and that the Government set up an
independent compensation scheme to assess individual policyholder's
claims.
In its response published on 15th January 2009, the Government
accepted some findings of maladministration and injustice and
explained the basis on which it did so, but it rejected
others.
It also rejected the idea of an independent compensation fund.
Instead it proposed an alternative scheme that would make
discretionary payments to individuals who had suffered a
"disproportionate impact" attributable to those instances of
maladministration it accepted took place. It appointed Sir John
Chadwick, a former Lord Justice of the Court of Appeal, to advise
on the scheme.
EMAG argued that the Government had failed to put forward cogent
reasons for dismissing the Ombudsman’s findings and that it acted
unlawfully in rejecting the recommendation for a comprehensive
compensation scheme. It also claimed that the terms of reference
given to Sir John Chadwick were unlawful or
unintelligible.
On 15th October, the court held that the Government could only
reject the Ombudsman’s findings for cogent reasons, i.e. for
reasons other than merely a preference for its own view. The
Government had failed to do this in a number of instances, in
particular in relation to regulatory returns filed by Equitable
Life during the 1990s.
The Ombudsman concluded that the regulator had failed to ask and
resolve questions which arose from those returns and that this had
made the information unreliable. The Government's response
concentrated on the narrow question of compliance. But the court
agreed with EMAG that the Government had ignored the wider context
in which the Ombudsman’s findings were made and that its response
lacked cogency.
The judge did not agree with all of EMAG’s arguments, however.
For instance, EMAG claimed that the FSA should have published
concerns raised internally in October 2001 about Equitable Life’s
solvency. But the court agreed that there were obvious dangers in a
regulator airing private doubts or concerns until it had sufficient
information to satisfy itself those concerns were well founded.
The court also concluded that the only ground for challenging
the Government’s discretionary compensation scheme or the terms of
reference given to Sir John Chadwick was irrationality.
EMAG’s criticisms failed to satisfy this test.
EMAG has nevertheless hailed the ruling as a significant
victory, claiming that hundreds of thousands more policyholders
would now be eligible for some form of compensation.
EMAG’s general secretary Paul Braithwaite said: “If EMAG’s
members had not paid for this legal action there’s little doubt
that, despite the Parliamentary Ombudsman’s recommendations for
substantial compensation, the Government would have got away with
limiting payments to a small number of Equitable’s victims for
losses post 1999."
"The effect of [the] ruling is to roll back eligibility to the
date originally proposed by the PO – July 1991,” he said.
Responding to the decision, Parliamentary Ombudsman Ann Abraham
said she hoped that every effort would now be made to ensure a just
and speedy outcome for Equitable Life policyholders.
“As I have reported to Parliament, the Government’s response to
my report was deeply disappointing, providing insufficient support
for the rejection of many of my findings of maladministration on
the part of the regulators and my conclusions that injustice
resulted from those failings," said Abraham.
“How this judgment affects the Government's proposals for an ex
gratia scheme is a matter for others to consider. However, while
this judgment is welcome I am very aware that the injustice
suffered by many people affected by the Equitable Life affair
remains unremedied so many years after the relevant events," she
said.
The court refused the Government leave to appeal and has given
it 28 days to decide how it will respond to the judgment.
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