England and Wales High Court (Chancery Division) Decisions

Axa Equity & Law Life Assurance Society Plc v. Axa Sun Life Plc [2001] EWHC Ch 29 (11th January, 2001)

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David Richards QC/Martin Moore (instructed by Herbert Smith for the Petitioners)
Terence Mowschenson QC/Paul Newman (instructed by Miss Jacqueline Hewitt for the Objecting Policyholders)
Robert Hildyard QC/Leon Kuschke (instructed by The Treasury Solicitor for the Financial Services Authority.)
Messrs Tomlinson, Gascoyne-Cecil and Hitman (Objectors in person)

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1. This is an application by Petition by AXA Sun Life plc ("ASL") under section 49 and paragraph 1 of schedule 2C of the Insurance Companies Act 1982 ("the 1982 Act") for sanction by the Court of a scheme of re-organisation of the insurance business of two insurance companies in the AXA Group, AXA Equity & Law Life Assurance Society plc ("AELLAS") and ASL (together "AXA"). The Petition is opposed by Mr MacWhirter who appeared by Counsel and by the Consumers Association as Solicitors and by three policyholders who appeared in person and two policyholders who wrote to the court but did not appear. In their opposition to the Petition the Consumers Association are supported by some 1,800 policyholders of whom some 1,400 are "eligible policyholders" pursuant to the scheme.
2. On the 21^st December 2000 after hearing the Petition over four days I made an order sanctioning the Main Scheme propounded by the Petitioner. Because of time constraints and because I wished to choose my words with care I then summarised my reasons for doing so in three sentences but indicated that I would deliver detailed reasons for arriving at that conclusion later. This judgment sets out those detailed reasons.
3. On the 1^st November I gave judgment in an application in the Petition by Mr MacWhirter for a pre-emptive costs order and for directions as to the future hearing of the Petition. Pages 1-25 of the transcript of that judgment ("my first judgment") sets out the background facts to the Petition which I will not here repeat. The scheme involves approximately 750,000 eligible and 835,000 ineligible policies which are together held by approximately 1,350,000 policyholders. Approximately 450,000 policyholders in respect of 542,172 eligible policies have elected to receive the cash payments or, if appropriate, additional bonuses ("the Incentive Payments") and so waive their rights to receive distributions from the Inherited Estate. Some 5,540 further policyholders wish to be allowed to elect out of time and an amendment to the scheme is sought by ASL to permit this to happen.
4. At page seven of my first judgment I describe the function of the Court in applications under schedule 2C of the 1982 Act by reference to the judgment of Hoffmann J in the un-reported case of re: London Life Association Ltd in which judgment was given on the 21^st February 1989 and which was decided before the introduction into the 1982 Act, by amendment, of the present schedule 2C. There is no material difference for the purposes of this judgment between schedule 2C and the legislation which preceded that amendment.
5. I will not repeat here the substantial quotation from the judgment of Hoffmann J in my first judgment but would add to it by drawing attention to the description by Hoffmann J at page five of the transcript, of the historical development of what are now sections 49 and 50 of the 1982 Act and in particular, the origins of the requirement on the Petitioner to produce a report by an Independent Actuary to assist the Court in its examination of schemes, and, secondly, the provision for those entitled to appear on the hearing of the Petition, to assist the Court, to include the Secretary of State for Trade and Industry and "any person… who alleges he would be adversely affected by the carrying out of the scheme." By subsequent legislation the role of the Secretary of State has now devolved on the Financial Services Authority ("the FSA").
6. It seems to me that the following principles emerge from the judgment of Hoffmann J which should govern the approach of the Court to applications of this type. I gratefully adopt those principles. They are: -

(1) The 1982 Act confers an absolute discretion on the Court whether or not to sanction a scheme but this is a discretion which must be exercised by giving due recognition to the commercial judgment entrusted by the Company's constitution to its directors.

(2) The Court is concerned whether a policyholder, employee or other interested person or any group of them will be adversely affected by the scheme.

(3) This is primarily a matter of actuarial judgment involving a comparison of the security and reasonable expectations of policyholders without the scheme with what would be the result if the scheme were implemented. For the purpose of this comparison the 1982 Act assigns an important role to the Independent Actuary to whose report the Court will give close attention.

(4) The FSA by reason of its regulatory powers can also be expected to have the necessary material and expertise to express an informed opinion on whether policyholders are likely to be adversely affected. Again the Court will pay close attention to any views expressed by the FSA.

(5) That individual policyholders or groups of policyholders may be adversely affected does not mean that the scheme has to be rejected by the Court. The fundamental question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected.

(6) It is not the function of the Court to produce what, in its view, is the best possible scheme. As between different schemes, all of which the Court may deem fair, it is the Company's directors' choice which to pursue.

(7) Under the same principle the details of the scheme are not a matter for the Court provided that the scheme as a whole is found to be fair. Thus the Court will not amend the scheme because it thinks that individual provisions could be improved upon.

(8) It seems to me to follow from the above and in particular paragraphs (2) (3) and (5) that the Court, in arriving at its conclusion, should first determine what the contractual rights and reasonable expectations of policyholders were before the scheme was promulgated and then compare those with the likely result on the rights and expectations of policyholders if the scheme is put into effect.

7. The primary question for decision is whether the scheme is unfair because AXA's offer to policyholders of the Incentive Payments does not represent a reasonable price to compensate them for their interest in receiving distributions out of the Inherited Estate in the future. This question divides into two questions, first, are AXA policyholders, before the promulgation of the scheme, to be treated as having had a reasonable expectation that they would, at some time during the currency of their policies, receive distributions in cash or by way of bonus from the Inherited Estate, and, secondly, if so, do the Incentive Payments represent a fair value for such interest in that Inherited Estate. The second question also subdivides into two questions, first, do the Incentive Payments represent a fair value having regard to the prospects that policyholders had, before the promulgation of the scheme, that they would receive any such distribution from the Inherited Estate it being accepted that whether or not such distribution was made was within the discretion of the directors of AXA for the time being, and, secondly, and alternatively, do they represent a fair value having regard to the benefits acquired by AXA as a result of the scheme and, in particular, as a result of having the proportion of the Inherited Estate attributable to electing policyholders attributed to it as a result of the scheme.
8. In the skeleton argument submitted on behalf of Mr MacWhirter his complaints are summarised as follows: -

"1.4 The FSA have failed to protect policyholders' rights... in that they have not undertaken any such negotiations (on behalf of policyholders with AXA to arrive at a scheme containing the best possible terms for policyholders) and instead have not objected to the proposal as they believe it falls within an (unspecified) reasonable range, rather than ensuring that the policyholders have extracted the best price possible from AXA.

1.5 AXA's proposal is flawed and ought not be sanctioned by the Court because:

1.5.1 Both AXA and the Independent Actuary have, in respectively formulating and assessing the proposal failed to have proper regard to the reasonable expectations of the policyholders in the Inherited Estate;

1.5.2 The true economic value of the proposals to AXA's shareholders is significantly higher than that represented by AXA to the policyholders.

3.3 Mr Roberts (the Director of the Insurance & Friendly Societies Division of the FSA) points out that the factors which need to be taken into account in determining whether the offer is fair include:

3.3.1 The prospect of future distributions of the Inherited Estate on a 90:10 basis; and

3.3.2 The value to the shareholders of the proposed attribution.

3.4 It is submitted that AXA's proposal fails to reflect either factor properly and is unfairly weighted in favour of AXA's shareholders:

3.4.1 As to 3.3.1 above, the proposals manifestly failed to recognise:

(1) The policyholders' reasonable expectation that the Inherited Estate, or part of it, will be distributed in due course or that they will realise value attaching to it: through a change in the business or for some other reason;

(2) The fact that the Inherited Estate will not need to be retained in the future - and ought to be distributed - because

(a) With-profits business is likely to decline; and

(b) The risks its retention is designed to meet will not materialise.

3.4.2 As to 3.3.2 above, AXA in the circular to Eligible Policyholders represented that the value to shareholders of the Scheme would be £100 to £200 million. In fact, that figure is a gross underestimate: the value to shareholders is of the order of £650 million. …

7.1 The principal grounds of objection to the Main Scheme are that:

7.1.1 It fails to have regard properly to the policyholders reasonable expectations ("PRE");

7.1.2 AXA has underestimated the value of the proposal to its shareholders."

9. A number of the objectors to the Petition whom Mr MacWhirter through the Consumers Association represents are policyholders who have elected to accept an Incentive Payment. It was submitted that those who accepted did so relying on the Court's power to refuse its sanction in the event that it concludes that the scheme is unfair. It is submitted that such may well be true of many of the 450,000 policyholders who also have elected to accept but who have not actively objected to the Petition. I proceed on the basis that this is correct and that, as a result, no particular weight is to be attached to the difference in numbers between the numbers of those electing to accept and who have not objected to the Petition and those who have actively objected.
10. Policyholders' reasonable expectations - PRE - is not a defined expression. It emerges from the provisions of sections 37 and 45 of the 1982 Act. Section 37, which sets out the circumstances in which the regulator, now, the FSA, can intervene in the conduct of an insurance company's business as set out in sections 38 and 41 to 45, provides at sub-sections (2) (a): -

"(2) The powers conferred by section 38 and 41 to 45 below shall be exercisable on any of the following grounds -

(a) That (the FSA consider) the exercise of the power to be desirable for protecting policy holders or potential policy holders of the company against the risk that the company may be unable to meet its liabilities or, in the case of long-term business, to fulfil the reasonable expectations of policy holders or potential policy holders:"

11. Section 45 (1) (a) also refers to "the reasonable expectations of policy holders" in describing the circumstances in which the FSA may compel an insurance company to take specified steps.
12. It is accepted, in the case of AXA, that the starting point for assessing the PRE of a long-term with profits policyholder is his "asset share". This is constituted by a calculation of the value of the investments to be found in the insurance company's long-term fund acquired from the accumulated premiums paid by the policyholder together with the accumulated profits resulting from those investments. See per Sir Richard Scott VC in the Equitable Life Assurance Society v Alan David Hyman, at first instance, 1999 Pensions Law Reports page 297 at p 303 Para 41. To this must be added an appropriate share in the profits made by the insurance company from its other operations financed from its Long Term Fund, in particular, its "non-profit" business. From these amounts there should be deducted an appropriate share of the tax incurred by the insurance company as a result of its operations and a contribution to the insurance company's expenses and its trading capital. It is upon the increase in this asset share, taking into account PRE, that annual and terminal bonuses are calculated to be added to the sums secured by the policy.
13. Inherited Estate broadly represents the accumulated surplus in the long-term fund of an insurance company as a result of its past operations over the sum of the asset shares of current policyholders. Inherited Estate can derive from a number of different sources such as under declaration of surplus in the past for prudential reasons, un-returned contributions of capital by shareholders in proprietary companies, surrenders, lapses and tax repayments. It is accepted that in the case of AELLAS the Inherited Estate stood at £67 million at the end of 1969 and that the amount now representing that Inherited Estate, calculated as £1,680 million as at 31^st December 1999, is rather less than the amount of the accumulation of investment returns on that £67 million since that date.
14. It is also accepted that Inherited Estate represents a significant resource for an insurance company. The value of that resource to AELLAS is described at paragraph 2.1 of the policyholders' circular. It has provided greater investment flexibility. It has provided a fund from which bonuses can be smoothed so that they do not reflect, too sharply, significant fluctuations in investment conditions. It has added to the security of policy benefits generally and has been available to finance the writing of new business. However it has not been used to systematically enhance bonuses and other benefits.
15. It is accepted that PRE results from a number of different sources and that it will vary in extent from company to company. It is the collective reasonable expectations of the policyholders of a company as a class see per Scott VC in Equitable Life v Hyman ibid at page 313 paragraph 95. Those sources include the company's promotional material, the provisions of its articles, the past practice of the company, in particular, its bonus policy, and the current practice of the insurance industry generally.
16. Inherited Estate forms part of the long-term fund of an insurance company. The 1982 Act places restrictions on how that fund can be disposed of by the directors. To start with it places on those directors a duty to manage the fund using "sound and prudent" management - see section 5 (1A), section 45 and schedule 2 A. Section 28 provides for the separation of the assets and liabilities of a company attributable to its long-term business thus forming the Long Term Fund. Section 29 places restrictions on the ability of the company to transfer funds out of its Long Term Fund. Section 30 prescribes how amounts in the Long Term Fund can be allocated to policyholders. In a Ministerial Statement dated 24^th February 1995 intended to set out the position of the Department of Trade and Industry on Inherited Estates the following passage appears:

"A Life Office may make distributions from surplus in the long term fund as shown by the statutory annual actuarial valuation. It is common practice to make distributions to policyholders and shareholders in the proportion 90 - 10. In assessing policyholders reasonable expectations, the Department would expect this ratio to be used as the basis of attribution between policyholders and shareholders, unless there was clear evidence, based on a company's circumstances, statements or practice, that a different proportion was appropriate in respect of the surplus arising from some particular part of the business."

17. Article 75 of AELLAS provides: -

"The profits (if any) of the ordinary long-term insurance funds shall be ascertained by such methods as the Directors shall think fit and shall be declared by them either by anticipation or otherwise and subject to the two next following Articles such profits or the balance thereof shall be apportioned between the Shareholders and the participating policyholders in such manner that the sum apportioned to the shareholders shall equal one-ninth of the sum apportioned to the participating policyholders".

18. However Article 76 gives to the directors an absolute discretion as to how the Long Term Funds should be disposed of including "to allow such sums as they think fit to be carried forward."
19. It is not in issue that an AXA policyholder would have PRE in the Inherited Estate to the extent that it has been available to back his policy and for the uses which I have described above. Such policyholder would also have a reasonable expectation that any distribution from the Long Term Fund would be on the basis of 90 – 10 in favour of policyholders. In my judgment, however, an AELLAS policyholder would not have, prior to the promulgation of the scheme by AXA, a reasonable expectation that the whole or any part of the Inherited Estate would be distributed to him as a bonus or otherwise during the currency of his policy. In particular it would not be a reasonable expectation for him to hold that the directors of AXA would promote a scheme of reorganisation which involved a distribution of the Inherited Estate.
20. This conclusion is consistent with the views of the Independent Actuary. At para 5.5 of his first report as part of the passage dealing with PRE he says:-

"PRE in respect of any extraordinary distribution of the Inherited Estate is limited in that, in my opinion there is normally no reasonable expectation that such an event will occur. There must however be a reasonable expectation that such an event would command a proper scrutiny…"

21. It also appears to be consistent with the views of Mr Brindley, a Consulting Actuary who filed a witness statement on behalf of the objectors. In that witness statement he sets out without dissent a passage from the report of a working party of the Institute of Actuaries dated 25^th April 1990 one of the conclusions of which was as follows: -

"In the normal course of events any orphan surplus (Inherited Estate) in an office does not form part of the reasonable expectations of (with profit) policyholders since they could not have "reasonably expected" its distribution when they effected their policies."

22. In my judgment payments such as the Incentive Payments by insurance companies to their policyholders are properly described as "windfalls". In the present case the Incentive Payments were offered to persuade policyholders to compromise their right to a 90 - 10 distribution from the Long Term Fund thereby enabling AXA to attribute that part of the fund representing the Inherited Estate to shareholders funds. The Incentive Payments formed no part of policyholders' reasonable expectations at the time they took out their policies or at any time prior to the promulgation of the scheme by AXA.
23. Nonetheless the Incentive Payments are part of the scheme before the Court and it is necessary to investigate whether the offer of the Incentive Payments in exchange for a waiver by the policyholders of the restrictions on distribution from the Long Term Fund other than in accordance with the 90 - 10 rule renders the Main Scheme unfair. As I have said, policyholders had a reasonable expectation that any distributions from that fund during the currency of their policies would be in accordance with that rule.
24. The Main Proposals involve an elective allocation of the assets of AELLAS comprised in the Inherited Estate of that company. If a policyholder elects he will on payment of a sum by ASL out of shareholders funds, averaging £400 per policy, no longer have any prospect of any future distribution of future surplus and the proportion of the Inherited Estate attributable to that policy will be allocated to a new fund of ASL in which distributions from the Inherited Estate do not go through a 90 – 10 gateway.
25. Under the scheme the Inherited Estate, whichever fund it is allocated to, will still be utilised for the purposes for which it was previously used. The attribution of the Inherited Estate to the new fund of ASL will enable AXA to account for the elected portion of the Inherited Estate but it cannot access the funds unless it satisfies very stringent actuarial tests and the other restrictions on distributions from the Long Term Fund which I describe below.
26. The Scheme provides that at five-yearly intervals ASL will conduct an investigation into both funds into which the Inherited Estate has been allocated. If, so far as the un-elected portion of the Inherited Estate is concerned, it can be demonstrated that any part of it is no longer required to perform the functions described above then a Special Bonus will be declared of which 90% must be allocated to with profits policyholders. Similarly the same calculation will be done for the elected portion of the Inherited Estate. No Special Bonus or distribution which would be allocated as to 100 % to shareholders, can occur unless after the distribution ASL's Free Asset Ratio remains above 10% and is projected to do so for a further 38 years and, further, ASL's Free Asset Ratio remains in the highest three of its peer group of companies.
27. Under the scheme a bonus to the value of £225 million would be declared in respect of all policies, whether or not elected, and provided for out of the Inherited Estate of AELLAS.
28. The Independent Actuary has concluded that the reasonable benefit expectations of policyholders are maintained by the scheme and, in fact, enhanced if the Main Proposals proceed. He has also concluded that the security of all policies is not materially affected. Finally he concludes that the election process qualifying policyholders for the incentive payments was fair and equitable. With relation to this latter conclusion the Independent Actuary says at paragraph 10.11 of his initial report: -

"Electing policyholders are being paid for electing for their policies to be allocated to the New With Profits Fund with the result that they will not be eligible to benefit from future possible distributions of Special Bonus. I would regard the payments as fair and reasonable with regard to the value of such possible future participation. The payments bear a reasonable relationship to the economic value derived by AXA as a consequence of policyholders electing."

29. In their skeleton argument submitted in the proceedings the FSA's position is summarised in this way:-

"The FSA advised by the Government Actuary's Department ("GAD") after lengthy negotiation with AXA is satisfied that the Main Scheme is substantially consistent with the FSA's objectives, namely that:

(a) Any scheme should be consistent with the principles set out in the Ministerial Statement of February 1995 and in particular with the so-called 90 - 10 principle;

(b) Policyholders' security and reasonable expectations were properly protected;

(c) Policyholders who did not wish to accept the company's offer should be able to remain in the same position as now, retaining their interests in any future distributions from the Inherited Estate ("contingent IE rights"); and

(d) The terms of the offer to policyholders should be such that, set against the likely value to policyholders and to the company itself, the offer fell within a reasonable range to put to policyholders.

(2) The FSA concluded in such circumstances that there is no regulatory reason why an offer should not be made to with profits policyholders to make them an incentive payment in exchange for giving up their contingent IE rights, provided that adequate safeguards are in place. The FSA is satisfied that, from a regulatory point of view, those safeguards are in place.

(3) The FSA, advised by GAD, considers that the incentive payment offered by AXA falls within a reasonable range having regard both to what policyholders are invited to give up and what AXA shareholders stand to gain and accordingly the payment offered is not unfair;

(4) The FSA is satisfied that the provisions of the Main Scheme contain adequate safeguards for policyholders' security and reasonable expectations."

30. The principal evidence adduced to support Mr MacWhirter's objections is contained in the witness statement of Mr Jenkins who was the primary deponent for the objectors at the November application. Mr Jenkins is a consulting actuary attached to KPMG. His objections can be grouped under three main heads, choice, PRE, and value.
31. Mr Jenkins' complaints as to the choice being given to policyholders sub-divide into a complaint that the documentation of the scheme was so complicated as to make it impossible for an average policyholder to understand and thus to deny him the opportunity to make an informed choice, and, the suggestion that the choice offered was biased in favour of acceptance. Neither of these contentions was pressed in the course of the hearing. Indeed they could not be. In the light, in particular, of the FSA's explanatory circular, quoted at length in my first judgment, it is impossible to say that policyholders did not receive a clear explanation of the scheme in terms easily understandable by an ordinary individual. It seems to me that the choice available to policyholders was a plain one. They could accept the Incentive Payment and take a cash sum now in place of a problematical future special bonus or continue their status quo. The fact that the Petitioner was recommending acceptance does not, it seems to me, make the choice "biased". In the course of the hearing I asked each of the individual objectors who appeared in person and who had not elected acceptance whether any aspect of the scheme would place them in a worse position than before. They were not able to give me any convincing reason why the implementation of the scheme would adversely affect the interests of non-electing policyholders.
32. I have already dealt with Mr Jenkins' contention that prior to the promulgation of the scheme policyholders had a reasonable expectation that they would receive a distribution from the Inherited Estate during the currency of their policies. I wish at this point to deal with the suggestion made in Mr Jenkins' witness statement and pursued in argument that policyholders might have a reasonable expectation that for some reason the long-term fund might be closed to new business in which case they might expect the fund, over time, to be distributed to them during which time they would receive distributions from the Inherited Estate.
33. I accept the submissions on this point made by ASL and the FSA. We are not dealing with the situation of a mutual association where policyholders could themselves decide upon and put into effect a closure of the fund. In the circumstances of a proprietary company insurer, the decision whether or not to close the fund is one for the directors. Save in circumstances where the company had got into difficulties it is highly unlikely that directors would decide to close the fund thereby precluding taking on new business. In the present case it is not in issue that AXA's financial position makes it one of the strongest insurers in the market. There is no question of the AXA directors deciding to close the fund. In my judgment the possibility that the AXA directors might have done so cannot be taken as justification for the contention that policyholders had a reasonable expectation, prior to the promulgation of this scheme, that they would receive distributions from the Inherited Estate.
34. I turn to Mr Jenkins' objections under the heading of value. These amounted to a critique of AXA's estimate of the value to itself of attribution of the Inherited Estate to shareholders funds.
35. It is common ground that in calculating the value to AXA of attributing the Inherited Estate to shareholder's funds, the accepted value of that estate as at the 31^st December 1999 of £1,680 million must be reduced to £1,287 million as a result of deductions of £225 million in respect of the "reorganisation bonus" and a further £25 million the consequent allocation of the shareholder's entitlement to 10% of the distribution. The starting figure should further be reduced by £143 million representing the shareholders' 10 % interest in the balance remaining after the deduction of that £250 million.
36. It is AXA's position that there should be further deductions of £400 million in respect of current and future taxation which AXA would have to bear and which would have been chargeable on the fund and £437 million in respect of "lock- in and risk". Thus, after payment of £300 million from shareholders funds, to provide the Incentive Payments the net value of the attribution of the Inherited Estate to shareholders funds is, according to AXA's estimate, £150 million.
37. The deduction for taxation of £400 million sub divides into two deductions of £200 million. Of the first £200 million £50 million is said by AXA to be a deduction for tax on current operations and the balance of £150 million for taxation which will accrue in the future.
38. Mr Jenkins suggests in his witness statement that the deduction for corporation tax on current business is contentious and inappropriate. This challenge was not pursued in oral submissions for the objectors. Mr Jenkins' challenge to the charge of £150 million in respect of future tax was pursued as inappropriate. It is AXA's case that it will not distinguish between existing and new business in the manner in which liability to tax is met. In the past all such taxation has been met from the Inherited Estate and there appears be no reason to make a change. Charging corporation tax in that way by continuing past practice does not mean that the Main Proposals are creating value for the shareholders because such charge would have occurred regardless of whether the proposals were put into effect. Both the Independent Actuary and the FSA concur with AXA's view.
39. The second tranche of £200 million deduction for tax results from distributions in the future of the Inherited Estate. This deduction is challenged by Mr Jenkins on the basis that the discount implies rates of tax higher than those currently in force. He contends that the allowance should be reduced by £50 million. AXA accepts that the calculation was on the basis alleged but contends that it is highly likely that in the future the Inland Revenue will seek to close what they regard as a loophole in the taxation of insurance funds and that accordingly tax rates will rise. AXA's position is supported by the Independent Actuary and the FSA say that they do not regard AXA's tax assumptions as unreasonable.
40. The "Lock-in and risk" deduction is based on the fact that AXA proposes to use the Inherited Estate attributed to it to fund further with profits business which it expects to rise in the future at a rate of 2% over RPI. It is accepted that a provision of £122 million should be made against future liabilities arising from guaranteed annuity rate provisions in current policies. In addition AXA says that there may be future liabilities in respect of insurance mis-selling in the past by agents of AXA. Capital may be required to back future with profits business particularly if the rate of return on investments suffers a decline. In those circumstances competitive pressure will increase, smoothing bonuses may work against the company, guaranteed sums assured and bonuses may be more difficult to meet and assumed lapse rates and surrender rates of policies may not turn out to be correct. Generally, funding for future growing with profits business may require the transfer back from shareholders funds to the Long Term Fund without the prospect of that subsequently being released back again.
41. Mr Jenkins challenges AXA's contention that it will be able to expand its future with profits business at the rate suggested. He takes a gloomier view of the prospects of future with profits business and in this he is supported by other deponents for the objectors. He also challenges the risk factors advanced by AXA including the necessity of attributing any negative value to the fact that capital may be locked into future with profits business.
42. The Independent Actuary supports AXA's position. However the FSA do not accept that allowance should be made in respect of competitive pressures in the future requiring policy payments greater than can be afforded or the risk that the FSA in future may require compensation payments for mis-selling may have been incorrectly assessed. Further the FSA do not accept that there should be as substantial a further allowance for tax under this head as that contended for by AXA nor that there should be a provision for loss of liquidity owing to the lock-in of capital over a lengthy period. In the result the FSA conclude that the net benefit to AXA resulting from the attribution of the Inherited Estate would be between £300 million and £400 million after paying the Incentive Payments of £300 million. The FSA do not disagree with AXA's estimate of future growth of with profits business.
43. Despite these disagreements resulting from the FSA's assessment of the value to AXA of the attribution of the Inherited Estate compared with those of the Independent Actuary and AXA itself, the FSA considers that the level of Incentive Payments "falls within a reasonable range having regard both to what policyholders are invited to give up and what AXA as shareholders stand to gain and accordingly the payment offered is not unfair."
44. Save for the unchallenged evidence of AXA that its past practice in meeting tax obligations from its long-term fund accords with the practice of the overwhelming majority of other insurance companies in the same field, the differences of view between the objectors, AXA, the Independent Actuary, and the FSA appear to depend on which forecast of future events or which actuarial calculation of potential risk of certain events occurring, is to be preferred. This Court has no actuarial skills and is in no better position (in fact in a much worse position) to forecast future relevant events and market movements than are those parties. Accordingly my approach, as indicated by authority is to accept the views of the Independent Actuary and the FSA as advised by the Government Actuaries Department in preference to those of AXA and the objectors where they are in conflict except if there were a compelling reason, based on proven fact, or demonstrable mistake in calculation or forecast, which points to a contrary view. Where the views of the FSA or the Independent Actuary conflict I propose to prefer those of the FSA. No such compelling reason, proven facts or demonstrable mistake has emerged.
45. It follows that I cannot accept Mr Jenkins' objections under the heading of value.
46. Of the three policyholders who appeared in person, Messrs Tomlinson Gascoyne-Cecil and Hitman, it emerged that Mr Hitman was not an eligible policyholder at the qualifying date and his concern was to obtain an amendment of the scheme to broaden the definition of such eligible policyholder. As I have already said that is not the Court's function. Messrs Tomlinson and Gascoyne-Cecil and the two objectors who wrote in but did not appear Messrs Loughran and Hyde raised points which, on analysis, did not extend beyond those raised on Mr MacWhirter's behalf. Amongst other matters raised by Mr Gascoyne-Cecil, he pointed out that the scheme demonstrated that there was a surplus of Inherited Estate of £550 million (the reorganisation bonus with shareholder 10% and the Incentive Payments) which was not required for the continuing business of AXA. He suggested that that sum should be distributed, as bonus or otherwise to policyholders without the remainder of the scheme proceeding. Though this idea might be immediately attractive to current policyholders it overlooks the fact that these distributions are proposed by the AXA directors to facilitate a reorganisation of the group for commercial purposes which the FSA accept are bona fide and which include that set out in paragraph 3.4 of the policyholders' circular.
47. Mr Jenkins has a further complaint under the heading "ongoing shareholder reporting" set out in section 9 of the report appended to his second witness statement. This complaint was not supported in oral submissions. Section 9 of the report is mainly directed to demonstrating how AXA's accounting for the Inherited Estate is more consistent with Mr Jenkins's assessment of its value to shareholders, when attributed, than the assessment of AXA. The burden of any separate complaint under this head appears to be set out in paragraph 9.2. which reads: -

9.2 If, subsequent to completion of the Transfer, AXA were to use more generous bases for quantifying this economic value (of the Inherited Estate after attribution to shareholders) then the terms and fairness of the proposals will be retrospectively invalidated. During my meeting with him, the independent actuary agreed with me that the subsequent use of more generous bases would cause concern in this area."

48. As the FSA point out in their written submissions, if subsequent reporting to shareholders by AXA shows that the basis of the case presented by AXA in support of the Petition was false, that would be a cause for concern and possible intervention by the FSA. No allegation has made been to me that the case presented by AXA on the value to it of the attribution to shareholders of the Inherited Estate is more than " conservative".
49. The conclusion of the FSA is set out at paragraphs 43 and 44 of the skeleton argument submitted on its behalf as follows: -

"In essence, the FSA's objective was that any offer put to policyholders should represent as nearly as possible the deal that might reasonably have been struck between an informed and willing group of policyholders and AXA, recognising what benefits each side was gaining and what each side was providing. It is of the nature of such a deal that it cannot be determined with precision particularly when no established market or precedent exists.

44 However, in considering the offer as ultimately proposed the FSA took into account that: -

(1) For Policyholders contingent rights of uncertain value were to be given up in return for the certainty of a "cash" sum;

(2) For AXA the price to be paid represented an immediate payment while the benefit gained was subject to considerable uncertainties; and

(3) As a further part of the offer, the company reduced the level of new business that would be able to be written so as to make some of the Inherited Estate available for distribution in the (90–10) ratio providing a better benefit to electing and non-electing policy holders."

50. I can discern no error in this approach to assessing the value to policyholders of AXA's offer.
51. In my judgment the Court should sanction the Petitioners' Main Scheme.