Equitable Members Action Group, R (on the application of) v Her Majesty's Treasury

A public body may reject findings of maladministration by the Parliamentary Commissioner for Administration, but only for cogent reasons. The court focuses on whether the rejection was rational in the statutory context, rather than re-making the Commissioner’s factual investigation. The Commissioner’s concepts of maladministration and injustice may extend beyond breach of a specific statutory duty or regulation, including lost opportunities caused by unreliable administrative information. Recommendations for compensation are not binding. Decisions whether to establish or limit a compensation scheme are ordinarily reviewable only for irrationality, with judicial caution where public resources are concerned. Terms such as “disproportionate impact” are not unintelligible merely because they require evaluative judgment.

Equitable Members Action Group, representing current and former policyholders of Equitable Life, challenged the Government’s response to the Parliamentary Commissioner for Administration’s report, Equitable Life: A Decade of Regulatory Failure. The Government accepted some findings of maladministration and injustice, rejected others, and declined to establish the recommended compensation scheme. It instead proposed possible ex gratia payments following an investigation by Sir John Chadwick.

The claim challenged the rejection of findings concerning regulatory scrutiny of valuation rates, bonuses, the differential terminal bonus policy, resilience reserves, reinsurance and public statements about solvency. It also challenged the rejection of a compensation scheme and aspects of the Chadwick Terms of Reference.

1. Findings of maladministration and injustice. The principles in R (Bradley) v Work and Pensions Secretary [2008] EWCA Civ 36; [2009] QB 114 applied directly to the Government’s rejection of the Commissioner’s findings. Although the findings were not binding, rejection required cogent reasons. A mere preference for the Government’s own rational view was insufficient. The focus was on the rationality of the decision to reject, having regard to the statutory purpose and the Commissioner’s detailed investigation.
2. The complexity of the investigation, the expert advice obtained by the Commissioner and the public bodies’ opportunities to make representations strengthened the need for cogent reasons. The Government’s response to findings 2 and 4 was inadequate because it treated the issue too narrowly as one of technical regulatory compliance and relied insufficiently on actuarial material concerning policyholders’ reasonable expectations. Its rejection of the related findings of injustice was therefore unlawful.
3. The response to finding 3 was lawful. Eliminating hindsight, the Government was entitled to conclude that earlier consideration of the differential terminal bonus policy would probably not have led to earlier litigation or a different outcome when guaranteed annuity rates were generally below market rates.
4. The response to finding 5 was unlawful. The Commissioner’s concern was not merely a formal obligation to interpret ratings produced by independent agencies. It was that the regulators knew that published returns were producing a misleading impression of Equitable’s financial strength. The Government’s concentration on strict legal obligation did not provide a cogent reason for rejecting the broader finding of maladministration.
5. The Government had accepted the relevant findings concerning reinsurance and public statements about solvency. Its observations did not prevent Sir John Chadwick from considering the merits of possible alternative courses of action or the wider scope of the accepted findings.
6. Remedies. The recommendation of a compensation scheme was not binding. Its rejection, and the Chadwick Terms of Reference, were reviewable only on conventional irrationality grounds. The court had to proceed cautiously because the issues concerned allocation of public funds. It was not irrational to consider relative impact, apportionment between regulatory failure and other causes, or the absence of a general compensation scheme. “Disproportionate impact” was imprecise but intelligible.
7. The challenges therefore succeeded in relation to findings 2, 4 and 5 to the stated extent and failed otherwise. The court invited submissions on consequential orders.