OUTER HOUSE, COURT OF SESSION
OPINION OF LORD CARLOWAY
in the petition of
THE SCOTTISH PROVIDENT INSTITUTION
sanction of a scheme under section 49 of and part I of Schedule 2C to, the Insurance Companies Act 1982 under which long term business of the petitioners is to be transferred to Scottish Provident Limited
Petitioners: Hodge Q.C.; Shepherd & Wedderburn, W.S.
Abbey National plc and others : Sellar Q.C., Dundas & Wilson
13 July 2001
 The petitioners are a mutual insurance company incorporated by The Scottish Provident Institution Act 1848 and currently regulated by the Scottish Provident Institution Act 1927. They are authorised in terms of the Insurance Companies Act 1982 to carry on long term insurance business. The petition seeks sanction by the Court of a scheme to transfer the petitioners' long term business to Scottish Provident Limited, a wholly owned indirect subsidiary of Abbey National plc. The reason for the scheme is said to have its origins in the nature of the business now being transacted by the petitioners. Most of their new business is obtained through "independent financial advisers" with a substantial proportion of it being of a "not with-profits" type. The board of directors considered whether the existing structure of the petitioners adequately allowed its members to benefit fully from the value of the petitioners' business. They undertook a review of the structure and looked at several options including continuing as a mutual institution, de-mutualising and then seeking a listing on the Stock Exchange, and closing to new business and de-mutualising by way of merger. Having considered certain tenders, the board concluded that de-mutualising by way of a merger with the Abbey National would deliver the best value to the petitioners' members. No doubt that was partly because of the financial settlement for members negotiated with the Abbey National and set out in the proposed transfer scheme.
 In determining who would benefit from that settlement, it is important to establish just who are the petitioners' members. In terms of the regulations set out in the schedule to the 1927 Act, membership of the petitioners is available to persons holding an "eligible policy", being a policy :
"with entitlement to participate in surplus in such manner and to such an extent that, in the opinion of the directors, the benefits under the policy have the potential to vary significantly depending on the general fortunes of the Institution."
Provided a policy is in "substantial consonance" with that general description, the directors have a discretion on whether or not to regard a policy as eligible for membership.
 The significance of membership in the current context is, of course, that only members will benefit from the compensation package offered by Abbey National plc. The complication in that regard arises as a result of a previous transfer scheme whereby the long term business of Prolific Life and Pensions Limited was transferred to the petitioners. Prolific was not a mutual fund and the company was accustomed to taking a percentage of the surplus amounts generated by the funds before that surplus was allocated as bonuses to the policies. In order to protect the interests of the Prolific policy holders, their funds were not merged with those of the petitioners' "with-profits" funds but held in a "ring fenced" fund known as the "Special With-profits" fund. Again, the petitioners took a percentage of the surplus before bonuses. It was part of the transfer scheme that the holding of a policy related to this fund did not confer membership of the petitioners since the relative fund was not linked to the general fortunes of the petitioners.
 In relation to the current scheme, the general plan is to create certain separate funds. The first of these is the Shareholders' funds. In effect, the shareholders would be Abbey National and their subsidiary company would be entitled to certain profits arising from new business and surpluses on funds. The second fund is a long term sub-fund known as the SPI fund, within a wider with- profits fund, and into which would go the assets of the petitioners' general with-profits funds. Abbey National would begin to take a percentage of the bonuses declared on the with-profits policies but would pay into the SPI fund an amount equal to the future value of that percentage. Thirdly, there is a separate sub-fund, known as the "Special" fund into which would go the assets of the "Special With-profits" fund, i.e. the Prolific amounts. This fund would, as before, be ring-fenced. Elaborate devices would be put in place to ensure that those having policies in one of the two sub-funds would be adequately protected. There is, fourthly, a "Non Profit" fund into which the assets of most other policies would fall. Into the Shareholders' funds would go what are termed the "infrastructure" assets of the petitioners (the buildings etc.). In addition £790 million of the petitioners' assets would be allocated to the Shareholders' fund but then lent by it to the SPI fund under a contingent loan agreement. Of greatest importance to the members is the £1.59 billion payable by Abbey National to them as compensation for the loss of their membership rights (including rights to share in the petitioners' assets). Each member would receive a minimum of £500 in respect of voting rights and a further variable sum depending upon the extent of their policies.
 The independent actuary reported in April 2001. Having looked in detail at the scheme, he expressed his opinion that :
"The financial strength of Scottish Provident Limited as at the date the Scheme becomes effective will be such that the security of all transferred policyholders' benefits will be adequately maintained;
The reasonable benefit expectations of all Scottish Provident policyholders will be maintained by the Scheme; and
The Compensation Amount is fair and its proposed basis of allocation equitable."
Having reconsidered the position expressly in relation to the Special With-profits Policy holders' objections, he repeated his original opinion. At Extraordinary General Meetings of the petitioners held in June 2001, in excess of 97% of the members voted in favour of the Scheme.
 Schedule 2C to the Insurance Companies Act 1982 (c. 50) provides :
"1 (1) Where it is proposed to carry out a scheme under which the whole or part of the long term business carried on by an insurance company...is to be transferred to another body...the transferor company or transferee company may apply to the court, by petition, for an order sanctioning the scheme."
The Schedule specifies a series of detailed formal requirements before the court can sanction a scheme including the obtaining of an independent actuarial report, substantial amounts of advertising and other notifications and the obtaining of sundry authorisations. It also provides that :
"2(4) On any petition under paragraph 1 above, the following shall be entitled to be heard, namely
(a) the Treasury, and
(b) any person (including an employee of the transferor company or the transferee company) who alleges that he would be adversely affected by the carrying out of the scheme."
What the Act does not do is set out any guidance as to the circumstances in which the Court ought to grant or refuse an application for sanction.
 The provisions of paragraphs 1(1) and 2(4) were originally contained in section 49 of the Act. The history of section 49 was traced to some extent by Hoffman J. in Re London Life Association Ltd., 21st February 1989, High Court (Chancery Division) unreported. Its origins are in section 14 of the Life Assurance Companies Act 1870 (33 & 34 Vict. c 61) which empowered the Court, on an application by petition, to "confirm" the arrangement "if it is satisfied that no sufficient objection to the arrangement has been established." These provisions were repeated in the Assurance Companies Act 1909 (9 Edw. VII c 49), notably in section 13 and were considered by the Court in Empire Guarantee and Insurance Corporation Limited 1911 SC 1296. It is of interest to note that in his dissenting (on other grounds) opinion in Empire Guarantee (supra), Lord Johnston pointed out (p. 305) that :
"The statute, section 13, is not empowering; it assumes the power and imposes certain conditions, or rather certain protective formalities upon its exercise."
The Lord President accepted this also (p. 1308).
 The terms of section 13 relative to the granting of sanction unless sufficient objection were established were repeated in section 11 the Insurance Companies Act 1958 (6 & 7 Eliz 2 c. 72) but were omitted when that section was reworked in section 26 of the Insurance Companies Amendment Act 1973 (c. 58). It is this latter section which has remained in force, to the extent material here, in various forms until its appearance in Schedule 2C as amended in the mid 1990s.
 In looking at how to apply the provisions when the wording directed sanction unless sufficient objection were established, the Lord President (Dunedin) in Empire Guarantee, with whom Lord Kinnear agreed, suggested (at p. 1309) that the matter be looked at "in a practical business and common-sense way" by asking :
"what is the true interest of the policy holder to be secured here ? In the first place, he is likely to be a good judge of his own interest, and no policy-holder has come to make the slightest objection. But, even if they had objected, it would be for the Court in the same way to look at the question with a business eye."
In Re London Life Association Ltd (supra) Hoffman J. referred to the "the power of the court to sanction" and to the removal of the condition that the Court must be satisfied that "no sufficient objection" has been established. Because of that removal he described the power as being "expressed as a completely unfettered discretion". He continued :
"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...In the end the question is whether the scheme as a whole is fair as between the interests of different classes of persons affected.
...In providing the court with material upon which to decide this question, the Act assigns important roles to the independent actuary and the Secretary of State. A report from the former is expressly required and the letter is given a right to be heard on the petition. The question of whether policyholders would be adversely affected by the scheme is largely actuarial and involves a comparison of their security and reasonable expectations without the scheme with what it would be if the scheme were implemented."
In following Hoffman J., Rimer J. rephrased matters in Re Hill Samuel td.  3 All ER 176 where he said (at 177) :
"Broadly speaking...what the court has to do is to take account of the fact that the boards of the proposing transferors have exercised a commercial judgment satisfying them that the proposed transfers are beneficial. The court also has to consider whether any policyholders, employees or other persons may be adversely affected, although even if it may be that one or other of such classes or persons will be adversely affected it does not follow that the scheme has to be rejected."
I am not convinced that the provisions are intended to confer upon the Court a discretionary power to sanction transfer schemes. Rather whether a particular institution has power to do something is likely to be regulated by its own constitution. What the statutory provisions appear to be aimed at is the prevention of the exercise of any such power unless and until certain formalities are completed and any objections are heard. It is no doubt true to say that the Court might sanction a scheme even although certain persons are adversely affected. However, when dealing with the transfer of policies held in a "with-profits" mutual scheme to one of a rather different nature and, effectively, the dissolution of the mutual association, the Court is likely to be slow to sanction a transfer when adverse consequences to a group of policy holders can be established. In that context, however, the matters referred to by Hoffman and Rimer JJ. are no doubt important.
 Although no answers to the petition were lodged, objections to the scheme came from Mr. Don Shore MSc. FIA FInstD, a Special With-Profits (Prolific) fund policy holder. He had previously been an actuary with the petitioners and had held a number of senior positions in the Insurance industry. Mr. Shore appeared at the hearing on the petition and spoke to a number of documents which he had sent to the Court. The fundamental point which he raised was that the Special With-Profits policy holders ought to have been recognised as members and thus able to share in the compensation package. He maintained that literature sent out by the petitioners suggested that these policy holders were already recognised as members. For example, in the 1996 bonus allocation sent to policy holders, including Special With-Profits policy holders, it was said :
"As a mutual company, we have no shareholders and all of our profits are used for the benefit of with-profits policyholders like yourself."
In fact, that was not correct since 10% of the Special With-Profits surplus was taken by the petitioners and the profits of the petitioners were not shared with the Special With-Profits fund. A number of other documents seemed to treat the Special With-Profits policy holders in an identical manner to the petitioners' own with-profits policy holders and all of this, it was said, ought to mean that they should all be treated as members. If that were so then the E.G.M.s had not been properly constituted or conducted and the scheme ought not to be allowed to proceed.
 Secondly, it was argued that the petitioners had always said that they would not discriminate against the Special With-Profits policy holders yet that was what they were doing by denying them membership. In any event, thirdly, even if these policy holders did not stand to be treated as members, the directors still had a discretion to make them members and this ought to be done so that they could have financial equivalence. This was particularly so given the statements by the directors in the documentation which appeared to treat them as the same as members. The Special With-Profits policies were at substantial consonance with the other with-profits policies and all should be treated in the same way. The general fortunes of the Institution did effect the Special With-profits funds particularly relative to expenses charged. Furthermore, the same fund managers managed both funds.
 Fourthly, Mr. Shore pointed out that the Special With-profits Policy holders were adversely affected as they were being transferred from a minority position within the Institutions holdings to a quite insignificant one with the Abbey National group. Fifthly, the reserves provided for in the scheme to meet residual claims were inadequate. These were primarily designed to meet the claims of "goneaways", those entitled to compensation but whose address was not known. Only some £16 million was being reserved but the Special With-Profits policy holders claims might themselves exceed £20 million. Sixthly, if Mr. Shore or any other Special With-Profits Policy holders were to be obliged to raise separate court proceedings rather than the matter being resolved in their favour at this stage, they would be disadvantaged since they did not have the financial muscle of the Abbey National group. Finally, it was said that the petitioners should put matters right with the Special With-Profits policy holders before being allowed to transfer the funds. Mr. Shore also took issue with the approach of the independent actuary. This, he said, was far too technical and failed to address the discriminatory aspects of the membership issue.
 Counsel for the petitioners submitted, under reference to the cases quoted above, that what the Court was looking to ensure was that there is no unfairness in the scheme. There were three sources to which the Court could look in this case in order to be satisfied that the scheme should be sanctioned. First, there was the lack of objection from the Treasury. Secondly, there was the report of the independent actuary. Thirdly, there was the decision of the board. If Mr. Shore wished to press his basic grievance that he ought to be classified as a member then he could litigate that point in another process if he wished. It did not have a material bearing on the current application. However, it should be noted that in the Explanatory Document sent to Special With-Profits policy holders in 1995, it was made clear that they were not to receive any membership rights. Mr. Shore at least would have been well aware of this. The totality of the documentation had to be looked at on this and Mr. Shore was not entitled to "cherry pick" isolated, even if admittedly erroneous, statements. Even if his claim succeeded, any sums found due would, under the scheme, be payable by the transferees irrespective of what might have been reserved for the "goneaways". The independent actuary had advised that the Special With-Profits policy holders were well protected by the scheme given the ring-fenced nature of their fund and there was no justification for going behind his conclusion.
 Counsel also mentioned that Abbey National had sought to alter the accounting date and that this might have implications to the SPI policy holders but a letter of undertaking from Abbey National had been obtained in that regard and it was thought that this was adequate for the members' purposes and no further meeting need be called as the result would be no different (Re Allied Domecq plc  BCLC 134, Blackburne J at 146).
 I am satisfied that the formal requirements of the Act have been complied with. That being so, I have, given the nature of the opposition, been anxious to determine whether there is any adverse impact upon the Special With-Profits policy holders by virtue of the implementation of the scheme. I am satisfied that there is not. When the Prolific funds were transferred to the petitioners, they were allocated to a specific ring-fenced fund and managed in the same way as they had been previously, with a 10% charge on the surplus before allocation of bonuses. In the current scheme, the position is going to be substantially the same. It should be noted in this regard that the Prolific funds were never governed by a full mutual arrangement and their future administration seems to be planned much as before. There are adequate protective measures in the new scheme, by way of supervisory bodies and actuarial assessments etc., to ensure that the Special With-Profits policy holders are not adversely affected by the scheme. In considering whether these policy holders would be disadvantaged, I have had regard, of course, to the views of the independent actuary and see no reason to go behind his reasoned opinion.
 The main complaint of the Special With-Profits policy holders is that they are not being treated as members. I do not consider that I can resolve that issue in this process. If one or more of these policy holders wish to claim that they are or should be members then they are at liberty to raise the appropriate Court action, or pursue the matter before the Insurance Ombudsman, and, if they win, secure the appropriate amounts due to them. They can do this without reference to the current application. Indeed, any claim for compensation almost assumes that the scheme is sanctioned and compensation can be paid.
 In these circumstances, having regard to the views of the board that there will be financial benefits in the course being adopted and those of independent actuary as regards the lack of adverse impact on any policyholder, I am satisfied that there is no substantial reason why the Scheme should not be sanctioned and I will therefore grant the orders sought in the prayer of the petition.