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Cite as: [2007] CSOH 205, [2007] ScotCS CSOH_205

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OUTER HOUSE, COURT OF SESSION

[2007] CSOH 205

OPINION OF LORD GLENNIE

in the petition of

SAVE & PROSPER PENSIONS LIMITED

and

PRUDENTIAL RETIREMENT INCOME LIMITED

Petitioners;

for sanction of an insurance business transfer scheme pursuant to Part VII of, and Schedule 12 to, the Financial Services and Markets Act 2000 under which part of the long term insurance business carried on by Save & Prosper Pensions Limited is to be transferred to Prudential Retirement Income Limited

________________

Petitioners: Sellar, QC; Maclay Murray & Spens, LLP

26 October 2007

[1] This is a petition for the sanction of an insurance business transfer scheme ("the Scheme") pursuant to Part VII of, and Schedule 12 to, the Financial Services and Markets Act 2000 ("FSMA") under which part of the long term insurance business carried on by Save & Prosper Pensions Limited ("SP") is to be transferred to Prudential Retirement Income Limited ("PRIL"). In the course of considering the Petition, the question has arisen as to whether the Court has power to sanction a scheme which transfers only some of the rights and liabilities arising under a policy. I am told that this is considered to be an issue of general importance upon which there is no direct authority. In those circumstances I have been requested to give this part of my decision in writing and now do so.

[2 ] The Scheme is set out in the Appendix to the Petition. The background to it, as described in Statement 4 of the Petition, is that SP and PRIL have entered into a Reassurance Agreement pursuant to which PRIL agreed to reassure SP's obligations to make payments under a portfolio of non-profit pension annuity policies in payment which had been issued by SP (the "Relevant Policies"). In return for it assuming those reassurance obligations, SP agreed to pay to PRIL a premium which was, or will be, satisfied by the transfer to PRIL of a portfolio of securities and/or the payment of cash. SP and PRIL have also agreed pursuant to the Reassurance Agreement to use their reasonable endeavours to effect a transfer from SP to PRIL of that part of SP's insurance business which comprise the Relevant Policies. Such transfer is to be effected by an insurance business transfer scheme under Part VII of the FSMA. This is the scheme for which sanction is sought in this petition.

[3 ] An outline of the main terms of the Scheme is set out in Statement 5 of the Petition. The Scheme provides that, with effect from the Effective Date, part of the long term insurance business of SP, together with the Relevant Policies (defined in the Scheme as the "Transferred Annuities") and certain assets and liabilities associated with them, shall be transferred to PRIL subject to the terms of the Scheme. Certain of the policies which have been issued by SP to trustees of pension schemes for companies ("Group Pension Policies") provide for both immediate annuity benefits which are in payment and also for deferred benefits which are not yet in payment. The liability for the former is to be assumed by PRIL. The liability for the latter is to be retained by SP. Accordingly, the Scheme provides that, with effect from the Effective Date, only the immediate annuity benefits in payment will be transferred. The effect will be that both SP and PRIL will become insurers under such policies, but that PRIL will be liable to provide only the immediate annuity benefits in payment under such policies whereas SP will retain all the other liabilities thereunder.

[4 ] Sanction is sought for the Scheme under s. 107 of FSMA which provides that an application may be made to the Court "for an order sanctioning an insurance business transfer scheme...". The definition of an insurance business transfer scheme is provided by s.105. This provides as follows:

"105 Insurance business transfer schemes

(1) A scheme is an insurance business transfer scheme if it

(a) satisfies one of the conditions set out in subsection (2);

(b) results in the business transferred being carried on from an
establishment of the transferee in an EEA State; and

(2) The conditions are that -

(a) the whole or part of the business carried on in one or more member States by a UK authorised person who has permission to effect or carry out contracts of insurance ('the authorised person concerned') is to be transferred to another body ('the transferee');

(b) the whole or part of the business, so far as it consists of reinsurance, carried on in the United Kingdom through an establishment there by an EEA firm qualifying for authorisation under Schedule 3 which has permission to effect or carry out contracts or insurance ('the authorised person concerned') is to be transferred to another body ('the transferee');

(c) the whole or part of the business carried on in the United Kingdom by an authorised person who is neither a UK authorised person nor an EEA firm but who has permission to effect or carry out contracts of insurance ('the authorised person concerned') is to be transferred to another body ('the transferee')."

Sub-s.(3) sets out various exclusions which are not relevant for present purposes.

[5 ] On behalf of the petitioners, Mr Sellar, QC submitted that the Court had power to sanction a scheme such as that before it. He said that there appeared to be no authority on the issue but submitted that his conclusion followed from the application of certain legal propositions. He submitted first, under reference to the Opinion of Lord Nimmo Smith in Re The Standard Life Assurance Company [2007] SCLR 581, that the concept of an insurance business transfer scheme was very wide and flexible. This flexibility was confirmed, he said, by the very limited minimum content required for such a scheme, as illustrated by Re Friends' Provident Life Office [2007] 2 BCLC 203. That decision did not, correctly understood, require a scheme of this nature to effect the transfer of at least one whole policy; that issue was simply not before the Court on that occasion. He pointed out that the same commercial effect as that proposed in the present Scheme could be achieved indirectly by a scheme which provided for the transfer of a whole policy but for its immediate amendment to add the transferor as an insurer of only part of the policy. That indirect structure was used in previous schemes before the Court. Those schemes were themselves based upon a decision in Re Norwich Union Linked Life Assurance Limited [2005] BCC 586. It would be highly artificial, he submitted, if the commercial effect which could be achieved indirectly could not be achieved directly, particularly since there was no reason, other than reasons of commercial and practical convenience, to have issued a single "composite" policy as opposed to separate policies providing only for annuities in payment.

[6] In his Report to the Court, the Reporter, Mr Julian Voge, WS, refers to this aspect of the Scheme and expresses this opinion (at para. 3.5):

"In legal terms, the Scheme is slightly different from [two previous applications] in respect that the Scheme transfers only some rights and obligations under a composite policy. The concept of 'a scheme' is, however, sufficiently flexible... to permit such a transfer, in particular given that the commercial effect is the same as [the two previous applications]".

The Report lodged by the Financial Services Authority in this application does not directly address this aspect.

[7 ] There is no direct authority as to whether the Court has power to sanction a scheme which transfers some, but not all, of the rights and liabilities arising under the transferred policies. I agree with Mr Sellar, however, that the terms of ss.105 and 107 of FSMA do not prevent such a scheme being sanctioned. As he points out, the concept of an insurance business transfer scheme, as defined in s.105 and as discussed in the cases, is very wide and flexible. Nor is there any reason in principle why the Court should insist on an artificial distinction under which it would refuse to sanction a scheme such as this but would sanction a scheme which indirectly achieves the same commercial effect. I am satisfied that the Court has power to sanction the Scheme in the present case and that the order sought in the Petition is competent.

[8 ] I heard detailed submissions on other aspects of the Petition. These raise no new issues of law. I am satisfied on the material before me that it is appropriate to make the order sought in the Petition.