Equitable Life Assurance Society v Canada Life Ltd.

The court considered an application under Part VII of the Financial Services and Markets Act 2000 for sanction of a scheme to transfer almost all of Equitable Life's non-profit annuity business to Canada Life. The statutory conditions in sections 105 and 111 (including the need for required certificates and appropriate authorisation) were satisfied. The court gave close weight to the independent expert's report and clarificatory note and to the Financial Services Authority's consent and concluded that, in all the circumstances, it was appropriate to sanction the Scheme.

The judge identified the central legal principles: the court has a discretionary but not merely formal power under section 111 to sanction a transfer and must assess whether the Scheme is fair as between different classes of affected persons, paying particular regard to the independent expert's actuarial judgment and the FSA's regulatory view. Objections from non-transferring with-profits policyholders and with-profits annuitants were considered, including concerns about reduced capital base, the position of with-profits annuities, the treatment of mis-selling claims, and the security of benefits after transfer; none of these objections persuaded the court that the Scheme was unfair. The court therefore made an order sanctioning the Scheme and granted ancillary relief sought under section 112.

This was an application by Equitable Life under Part VII of the Financial Services and Markets Act 2000 for the court's sanction of a scheme to transfer most of its non-profit annuity business (the transferring NPAs) to Canada Life. Equitable is a long-established mutual closed society with substantial with-profits and non-profit funds; the proposed transfer concerned 129,456 policyholders and involved transfer of approximately
.6Bn of assets in consideration for Canada Life assuming the transferee liabilities.

Nature of the application: sanction of an insurance business transfer Scheme under sections 105 and 111 of the Act and ancillary orders under section 112.

Issues framed:

• whether the statutory and procedural requirements of Part VII had been complied with;
• whether the transferee had required authorisation;
• whether, in all the circumstances, it was appropriate to sanction the Scheme (the court's overriding discretionary assessment of fairness between classes of affected persons); and
• consideration of specific objections raised by non-transferring with-profits policyholders and with-profits annuitants, by transferring NPAs and by other objectors (including concerns about capital, security of benefits, treatment of mis-selling claims, operational arrangements and adequacy of consultation).

Court's reasoning: the judge found that the Scheme fell within section 105(2)(a) and that the Part VII substantive and procedural steps had been complied with. The independent expert (the approved actuarial expert) concluded the transactions removed specified risks from remaining with-profits policyholders, that the price paid was reasonable, that benefit expectations and security would not be materially diminished, and that Canada Life would remain adequately capitalised. A clarificatory note addressed the special position of with-profits annuitants, concluding the transfer would relieve risks to them. The FSA had provided the required certificates and appeared at the hearing supporting the Scheme. The court applied established authorities (including the London Life and Axa decisions and later authority emphasising the court's discretionary but non-automatic role) that the court must decide whether the Scheme as a whole is fair between different classes, giving close attention to the independent expert and the regulator. The judge considered and rejected the various objections as insufficient to displace the informed view of the independent expert and the FSA, noting that past mismanagement of Equitable was not determinative of the present fairness assessment. The court therefore sanctioned the Scheme and granted ancillary relief under section 112.

The judgment records that the court exercised a real discretion and was not a mere rubber stamp, but concluded the statutory requirements and fairness test were satisfied.

The court granted sanction of the Scheme. Rationale: the statutory conditions in sections 105 and 111 of the Financial Services and Markets Act 2000 were satisfied; the independent expert's report and clarificatory note and the FSA's certificates and representations supported the conclusion that the Scheme was fair as between affected classes of policyholders and would not materially diminish benefit security for transferring or remaining policyholders. The court therefore exercised its discretion under section 111 to sanction the Scheme and made ancillary orders under section 112.