Rainbow Insurance Company Limited v The Financial Services Commission and others

Judicial review of a financial regulator’s decision concerns legality, not an appeal on disputed professional judgments, which attract a margin of discretion. A statutory scheme may provide the relevant opportunity to make representations, and fairness does not impose a general duty to consult before interim regulatory directions. Legitimate expectation may arise from an express promise or established practice, and an abrupt policy change may require notice or consultation. It cannot, however, require a public authority to relax statutory requirements unlawfully, particularly where policyholder or other third-party interests are engaged. Where an insurer breached solvency, investment and ring-fencing requirements, the regulator was entitled, and in relevant respects obliged, to restrict new business and suspend registration under the Insurance Act 1987.

The Financial Services Commission regulated Mauritius’s non-banking financial services sector. It directed Rainbow not to issue or renew insurance policies on 1 March 2007, proposed suspension of Rainbow’s registration, and subsequently suspended its general and long-term insurance registrations on 24 September 2007. The Minister of Finance and Economic Development had supported the proposed suspension, and an administrator was appointed.

Rainbow challenged the Minister’s and the FSC’s decisions by judicial review. The Supreme Court of Mauritius refused the application in a judgment dated 18 October 2010. Rainbow appealed by leave. The appeal raised issues of procedural fairness, statutory power and delegation, irrationality and discrimination, and legitimate expectation concerning recoverables, prescribed investments, security over the life fund, reserve-fund calculations and the proposed turnaround plan.

1. Appeal dismissed. Judicial review examines legality rather than acting as an appeal on facts. The court may investigate disputed facts where necessary for effective review of legality, but professional and regulatory judgments, including assessments of recoverables and solvency, attract a margin of discretion. The Board therefore declined to resolve contested technical issues.
2. The statutory scheme distinguished interim directions from final suspension. Under the Insurance Act 1987, the FSC could investigate after a notice to show cause under section 41 and issue temporary directions under section 44(1)(b). A proposed suspension required notice and gave the insurer an opportunity to seek ministerial review under sections 46(3) and 48. The scheme did not require consultation before the interim directions, and fairness imposed no such duty where the solvency findings engaged the statutory prohibition on taking new risks under section 20(3).
3. The FSC had not unlawfully delegated its decision-making power. The appointed accountant was a fact finder, while the FSC considered his report and made the regulatory decisions. The FSC was entitled to act on the identified solvency shortfall and to exclude recoverables where inadequate records, lack of legal support and insufficient provision for liabilities meant that the accounting requirements were not met. The treatment was not discriminatory.
4. Legitimate expectation may arise from an express promise or established practice. In unusual circumstances, fairness may require notice and consultation before an abrupt policy change. The principle cannot create an expectation that a public authority will grant an ultra vires relaxation or act contrary to statutory obligations. That conclusion was supported by R v Secretary of State for Education and Employment, Ex p Begbie [2000] 1 WLR 1115 and the related authorities. Policyholder and other third-party interests reinforced the principle of legality.
5. The FSC had repeatedly warned Rainbow about the relevant breaches and allowed substantial time for compliance. It was obliged to enforce the requirements concerning solvency, prescribed investments and the unencumbered life fund. The discretion under section 27(7) could not lawfully be used contrary to those statutory aims. The FSC was not under a legal duty to respond constructively to proposals conditional on lifting the prohibition, and its conduct during the period before suspension was neither procedurally unfair nor a frustration of legitimate expectation.

1. Privy Council: The Board dismissed Rainbow’s appeal by judgment dated 20 April 2015.
2. Supreme Court of Mauritius: The judicial review application challenging the Minister’s and FSC’s decisions was refused by judgment dated 18 October 2010.