Jersey Unreported Judgments

Companies - sanction hearing - application for sanction of a Scheme.

[2019]JRC214A

Royal Court

(Samedi)

28 October 2019

IN THE MATTER OF CANADA LIFE LIMITED

AND IN THE MATTER OF SCOTTISH FRIENDLY ASSURANCE SOCIETY LIMITED

AND IN THE MATTER OF THE INSURANCE BUSINESS (JERSEY) LAW 1996

Advocate A. Kistler for the Representors.

judgment

the Commissioner:

1.        The Court is sitting this morning to consider an application by Canada Life Limited and Scottish Friendly Assurance Society Limited for the sanction by the Court to a scheme, which has been referred to as the "Jersey Scheme", to transfer certain long term insurance business carried on or from within Jersey from Canada Life to Scottish Friendly under Article 27 and Schedule 2 of the Insurance Business (Jersey) Law 1996. 

2.        The transfer forms part of a wider transfer of long term insurance business between the same parties in the UK which has been referred to as the "UK Scheme".  The UK Scheme and the Jersey Scheme are referred to collectively as "the Scheme".  Altogether some 134,000 policies are to be transferred pursuant to the Scheme of which some 35 will be transferred pursuant to the Jersey Scheme. 

3.        Both Canada Life and Scottish Friendly have permission from the regulators in the United Kingdom and Jersey respectively to carry out the long term business which is being transferred.  The background to the transfer is that Canada Life has identified the transferring business as non-core to its business and indeed we were informed that no new policies of this nature have been written for many years.  Canada Life therefore wishes to concentrate on the integration of a separate book of business which it has recently acquired and on further development of its core-business.  Conversely, Scottish Friendly sees the acquisition of the transferring business as part of its development and growth strategy.

4.        When considering applications of this nature under the Insurance Law, the Court focuses on two main issues:

(i)        It must be satisfied that the procedural requirements set out in paragraph 4(a) to (d) of Schedule 2 of the Law, subject to any modification by the Court of the requirements under paragraph 4(b), have been complied with.  

(ii)       It must consider the merits of the scheme and in particular consider whether the scheme or the implementation of the scheme would adversely affect policyholders and whether it is fair as between different classes of persons affected.  An example of this approach is the Jersey case of Re Prudential Annuities Limited [2014] JRC 178A which applied the well-known dicta of Mr Justice Hoffmann in the English case. In Re London Life Assurance Limited (unreported 21^st February, 1989) where he said:-

"Although the statutory discretion is unfettered, it must be exercised according to principles which give due recognition to the commercial judgment entrusted by the company's constitution to its board. The court in my judgment is concerned in the first place with whether a policyholder, employee or other person would be adversely affected by the scheme in the sense that it appears likely to leave him worse off than if there had been no scheme. It does not however follow that any scheme which leaves someone adversely affected must be rejected. For example, as we shall see, one scheme which might have been adopted in this case would have adversely affected many of London Life's employees because they would have become redundant. But such a scheme might nevertheless have been confirmed by the court. In the end the question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected".

5.        Taking first the procedural requirements, as is common in this sort of application, the Court made an order on 2^nd July, 2019 modifying the requirements of paragraph 4 (b) and giving directions as to the steps to be taken to bring the content and nature of the Jersey Scheme to the attention of Jersey policyholders. 

6.        We have received affidavit evidence from which we are satisfied that the requirements of paragraphs 4(a), (c) and (d) of Schedule 2, together with the requirements laid down by the Court in its order of 2^nd July, have been complied with. 

7.        Turning then to the second matter, namely the merits of the Jersey Scheme, we note in particular the following matters:

(i)        First and most significantly the Independent Actuary has included in his report that implementation of the Scheme would not have a material adverse effect on:

(a)       the security of benefits of the policyholders of Canada Life and Scottish Friendly;

(b)       the reasonable expectation of the policyholders of Canada Life and Scottish Friendly with respect to their benefits; or

(c)       the standards of administration and governance applicable to the Canada Life and Scottish Friendly policies. 

He confirms at paragraph 1.6 of his report that his conclusions apply equally to the Jersey Scheme.  The Independent Actuary has prepared a supplementary report in which he considers various minor changes to the Scheme and also considers the decision of the English High Court in the case of Re Prudential Assurance Company Limited and Rothesay Life Plc [2019] EWHC 2245 (Chancery) where sanction to a scheme was refused.  He says that his opinion remains as stated in his main report.  In particular, with reference to some of the points which had troubled the judge in the Prudential Assurance and Rothesay case, he notes that that case was concerned with annuity contracts, unlike the present case.  And more particularly he notes that, at any rate in the UK, the history, reputation and brand strength of Canada Life and Scottish Friendly are comparable, although of course overall Canada Life is a much larger company.

(ii)       The English High Court approved the UK Scheme on 22^nd October.  The High Court was informed of objections by some 31 objectors but nevertheless concluded that it should give its sanction to the Scheme.  

(iii)      The Jersey Financial Services Commission has confirmed helpfully through its representative in Court as well as previously in writing, that it has no objection or observation about the Jersey Scheme.

(iv)      The Comptroller of Taxes has confirmed that there are no Jersey tax consequences for transferring Jersey policyholders as a result of the implementation of the Jersey Scheme.

8.        We have been referred to one objection in relation to the Jersey Scheme and that objector was present in Court today.  She makes the point that she took out her policy with Canada Life and that it has now been transferred without her agreement to another company.  We can well understand this point of view.  Like many other policyholders she will have chosen Canada Life after considering the right entity with which to take out a policy but now finds that, as a result of the Scheme, she will be in a contractual relationship with a completely different company. 

9.        However, the legislation both in the United Kingdom and in Jersey pursuant to the Insurance Law specifically envisage transfers without the consent of policyholders and the thinking behind it is perhaps helpfully set out in the judgment of Mr Justice Warren in the Scottish Equitable case [2017] EWHC 1439 (Ch), which is quoted at paragraph 116 of the judgment in the English Prudential Assurance Company and Rothesay case.  Warren J, said this at paragraph 56:

"Any scheme of this nature is instigated by the commercial parties concerned, not by the policyholders. Parliament has seen fit to introduce legislation providing for business transfers, one statutory result of which is that the contractual obligations of the transferor are extinguished, with corresponding obligations being imposed on the transferee. Sometimes different policyholders are treated in different ways, in which case a balance has to be struck between their interests, and in all cases the policyholders must be treated properly. The four layers of protection which I have mentioned are there to ensure that policyholders are treated properly. But policyholders are not given a veto over what the commercial parties wish to do. Instead the appropriate balance has to be struck between the interests of the policyholders on the one hand and the commercial parties on the other hand, just as it has to be struck between different groups of policyholders amongst themselves." 

10.      We have been provided with all the material in this case which we have carefully considered.  Having reviewed the Scheme and the Jersey Scheme, we conclude that no policyholder will be materially adversely affected and, applying the approach which we have described earlier as summarised by Hoffmann J. we consider the Scheme and the Jersey Scheme to be fair in an overall sense and, accordingly we give our sanction to the Jersey Scheme.  We accordingly, make an order in the terms of the draft produced to us. 

Authorities

Insurance Business (Jersey) Law 1996

Re Prudential Annuities Limited [2014] JRC 178A

Re London Life Assurance Limited (unreported 21st February, 1989)

Re Prudential Assurance Company Limited and Rothesay Life Plc [2019] EWHC 2245 (Ch)

Scottish Equitable [2017] EWHC 1439 (Ch)