Friends Provident Life Office & Anor, Re

Under Part I of Insurance Companies Act 1982 Schedule 2C, a transfer of long-term insurance business is wider than an assignment of existing contractual rights and an assumption of liabilities. It includes the functions required to carry out existing insurance contracts and normally the business of effecting future contracts of the same class. A transfer of an insurer’s liabilities is legally distinct from surrender of the insured’s rights. Any discharge caused by the rights and liabilities becoming vested in the same person occurs by operation of law through merger, not by the transfer itself.

Friends Provident Life Office sought court sanction for a scheme transferring the whole of the long-term reinsurance business of its subsidiary, Friends Provident Linked Life Assurance Limited. The scheme was intended to transfer the subsidiary’s assets, liabilities, operational arrangements and insurance business, allowing the reinsurance rights and liabilities ultimately to merge without the tax consequences of surrendering the reinsurance policy.

Mr Justice Neuberger accepted that the reinsurance business was long-term business, but held that the proposed scheme was not a transfer of that business within Part I of Schedule 2C to the Insurance Companies Act 1982. He nevertheless indicated that he would have sanctioned the scheme if jurisdiction existed. The central issue on appeal was whether the scheme was a statutory transfer of long-term business.

Chadwick LJ delivered the principal judgment. Rattee J and Simon Brown LJ agreed. The appeal was allowed.

1. Statutory scope. The expression insurance business includes the business of effecting and carrying out contracts of insurance. Long-term business is insurance business within the classes specified in Schedule 1 to the Insurance Companies Act 1982. A transfer under paragraph 1 of Part I of Schedule 2C is not confined to assigning benefits and assuming liabilities under existing policies.
2. Meaning of transfer of business. A transfer of long-term business may include the functions which the insurer performs in carrying out existing contracts and, usually, the business of effecting future contracts of the same class. It may therefore involve the transfer of the benefit and burden of ancillary service, administration, investment and reinsurance arrangements.
3. Application. FPLLA had functions to perform in carrying out the reinsurance contract. The proposed scheme would transfer those functions and the associated contractual arrangements, not merely FPLLA’s liabilities under the reinsurance policy. It was therefore a transfer of long-term business within Part I of Schedule 2C and the court had jurisdiction to sanction it.
4. Merger and surrender. Merger occurs, if at all, by operation of law when contractual rights and liabilities become vested in the same person in the same right. Surrender occurs when the person entitled to enforce obligations releases the other contracting party. The two concepts are distinct. The transfer itself did not discharge the reinsurance policy; any discharge would result from merger after the transfer. The judge had therefore erred in treating the scheme as a disguised cancellation or surrender.
5. It was unnecessary for the Court of Appeal to decide independently whether sanction should be refused as a matter of discretion, because the judge had already stated that he would have sanctioned the scheme if jurisdiction existed.

• Court of Appeal (Civil Division): Allowed the appeal and held that the court had jurisdiction to sanction the scheme under Part I of Schedule 2C to the Insurance Companies Act 1982.
• High Court of Justice: Mr Justice Neuberger, in a judgment handed down on 4 December 1998, held that the scheme was not a transfer of long-term business, but stated that he would have sanctioned it if jurisdiction existed.