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Minutes
The Minutes of the meeting held on 3rd September were approved.
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Chairman's
Review
This was distributed before the meetings; main points are included here.
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Despite concern from some committee members the meeting with ELAS board
on the compromise proposals just before their launch by PB and CS was
useful in that we developed EMAG's relationships with the non-execs present.
With Stuart Bayliss and Liz Kwantes present the Board got plenty of direct,
early feedback - particularly on late entrants and non-GARs.
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I have maintained frequent contact with Liz Kwantes who has spearheaded
the initiative on the Parliamentary Ombudsman with the very real support
of Sir Gordon Downey. Liz and I will now meet FSA Insurance MD John Tiner.
ELMHG have also organised two policyholder meetings with non-execs (Threadgold
and Jean Woods).
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Liz and I briefed the Scot Nat MP Michael Weir who hopes to gain an adjournment
debate on ELAS.
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I arranged an informal meeting for myself and Liz Kwantes with Lord Penrose.
He convinced us that the non-statutory inquiry would be faster and offer
better prospects. We had the impression that he would not delay the Baird
report (FSA's won report on its execution of its responsibilities in respect
of Equitable Life and its policyholders. LI> A delegation from all action
groups met Minister Ruth Kelly at the Treasury (Alex Henney, Paul Braithwaite,
Nicholas Oglethorpe attended for EMAG). It was of little consequence.
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Liz and I provided written briefing for Sir Ken Jackson's motion at the
Labour Party conference.
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I have written again the Treasury Select Committee chair John McFall.
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I have written several times to the ELAS Appointed Actuary (whose role
is to protect the policyholders) Peter Nowell. I will write again on the
inadequacy of the financial data available to policyholders.
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I have been approached by Christopher Chope MP, new Shadow Economic Secretary
to the Treasury for a briefing.
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I have been in daily contact with journalists and EMAG continues to receive
much mention in the press. I am looking to the committee to provide input
on our positioning - we are seen as informed, influential and critical
of the Board.
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Alex Henney has provided excellent submissions to the FSA and the Treasury's
Sandler review on the retail savings industry. Review and input by the
committee has seemed helpful. We have particularly important things to
say about conduct/governance of mutuals which were highlighted, whilst
the Sandler submission also dealt with wider issues, such as the performance
of the with-profits sector in general.
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International Policyholders Margarate
Felgate (first committee meeting attended) reported. She had met with Guernsey
Financial Services Commission and their lawyers Norton Rose in London on
4th October. Unfortunately note many of the questions put by the International
policyholders were answered at that meeting as Norton Rose were not getting
timely answers from Equitable. MF has decided to meet with David Low QC
of Wilberforce Chambers together with the Internationals lawyer Class Law.
The meeting is scheduled for Tuesday 9th October.
International policyholders toatl 35,000 with contracts based in Guernsey,
Republic of Ireland, Germany and Dubai. All contracts are governed by the
laws of the country in which they were issued. The contracts state that
they are not governed by LAUTRO rules, neither are they protected by the
UK Policyholders Protection Act so in the event of insolvency, Internationals
would lose their total investment. ELAS have at last conceded that the FSA
is the regulator for these contracts. (Note added after meeting: see legal
statement on this point.
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Position
of Annuitants Rodney Allen outlined the position of the with-profits
annuitants. Those who took the option of a major profit-dependent component
are particularly hard hit. Some flexibility on their terms could be very
helpful. EMAG has suggested that the Board should consider annuitants (and
internationals) as a separate class. Rodney undertook to investigate the
legal position. CS noted that Section 425 of the Companies Act under which
the compromise is proposed allows for a `totally clean sheet of paper'.
So the settlement proposal is not constrained except by the need to gain
the members votes.
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Discussion
on the classes to be defined for the Compromise
Question:
Are all internationals one class?
A: Much depends on the local laws in which the polices were sold. If there
are significent differences from UK law the local laws take precedence.
i.e. Guernsey law governs Guernsey policyholders.
All
funds for Guernsey polices were paid to ELAS in Guernsey. The office turned
out to be a brass plate on Towry Law's offices in Guernsey. The actual administration
took place at ELAS office in Milton Keynes with contracts and other documents
issued on the letterhead and contract heading of Guernsey. Policyholders
were never told that the actual ELAS office in Guernsey did not exist.
Until March/April of this year ELAS had offices in Rebublic of Ireand, Germany
and Dubai. All International offices are now closed.
ELAS
offered to sell Halifax the International business but Halifax declined
to buy it. Hence we can conclude that since it was saleable it was a separate
fund of monies i.e. "Identified Assets" from the UK WP fund.
Qu:
Are the Internationals a separate class?
JL:
Ring-fencing is a sufficient condition. But is wishing to be ring-fenced
enough? Documentation I have seen this evening appears to support a separation
for the unit-linked funds but not for the with-profits fund.
AHJ:
If not ring-fenced they have suffered particularly since they were led to
believe that they were in a separate fund. They should form a separate class.
MF:
The 1993 Annual Report contains a statement about the International fund
which is germane.
PB:
Can Society go to Court without advertising and allowing representations
to be made to the Court?
JL:
Proper for PB to write to Society asking for advice on procedure for enabling
members who believe they should be treated as a separate class to establish
that: advice which they must have taken. Send by recorded delivery and reserve
right to draw lack of answer to Court's attention. Could let members know.
Action: PB
AHJ:
What is Guernsey regulator's interest?
MF:
The Bailliwick of Guerney's reputation for a secure and well regulated financial
services industry. Now that the actual responsible regulator has been established
as the FSA, GFSC recognise that ultimately it is a matter for the FSA.
JL:
They have interest but no standing except to establish how the Guernsey
law applies to the Guernsey policies and how, or if, if differs from UK
law.
MF:
We have a written commitment from GFSC to assist the Guernsey policy holders
as far as they are able. Also we have established an International fighting
fund for legal advice/action.
JL:
We should ask for the instructions given to Gabriel Moss QC and David Richards
QC when asked to advise on the identification of classes in the Scheme.
Again reserve right to draw any lack of reply to the attention of the Court.
Action: PB
NO:
Class actions may be more easily available under the new Woolf procedures.
Judges may ask to classify major groups.
JL:
Misrepresentation actions may be difficult to aggregate into class actions
since the detailed circumstances involved e.g. verbal/written assurances,
different alternative courses of action etc.
AHJ:
The majority of members would benefit from the declaration by the Society
that it had failed to declare the true state of affairs; true nature of
the investment. This is the same unfairness experienced all the non-GARs.
It is madness that the Society should continue to oppose the interest of
the majority of the membership.
AHJ:
Timeliness is not the first criterion. The 250M is a relatively small sum
in relation to the funds held (Only 1.3% of the funds held, much less than
the value of assets being adjusted in the settlement). The quality of the
settlement is more important than securing the Halifax bonus. (Note that
whatever the Halifax gives today, they can recover in increased fees tomorrow.)
RHA:
Annuitants could also claim that they were a separate class. But the Society
has refused this.
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AHJ: Interpretation of Warren II.
Warren
II reinforces the directions hinted at in Warren I. Infringements of the
LAUTRO regulations support a strong case for mis-selling. Warren II adds
other reasons aside from the Lautro regulations which also appear to provide
a strong basis for claims from post July 1988 policyholders, FSA appear
to have recognised this on the web site and state that a representative
nonGAR action would be next action if compromise fails. Warren II is stronger,
naturally, on the legal technicalities, than financial and numerical matters.
(Technical correction, the FSA said "If a scheme were not approved, we would
be likely to require Equitable Life to carry out a review to establish whether
or not there had been mis-selling and, if necessary, to rectify the problem".
While a representative action would (in the light of history) appear to
be the natural way to approach the requirement there are other ways in which
ELAS could respond.)
I am
still puzzled by the Society's reluctance to help the majority of its members
in any way. I cannot discern any overall philosophy.
JL:
They might argue that GARs have a very crisp, clear right as decided by
the HoL, a contractual right. The non-GARs have a less clear case, and we
don't have a class action of the kind that is available in the USA.
AHJ:
All non-GARs were led to believe that their returns would come from their
investments minus the Society's reasonable expenses.
DB:
In considering mis-selling to non-GARs the non-GARs might be grouped into
5 or 6 groups according to the stage at which their policy was sold. Product
Particulars, advertisements, etc.
JL:
The Board can argue that the GAR policyholders can sue easily, and that
the nonGAR policyholders have a hurdle to overcome to bring actions. So
they give the lion's share to the lions. If we oppose this we may lose the
settlement and founder in a sea of litigation.
AHJ:
Woolf's judgement said that there were separate causes for the GAR and the
bonus ( in discussing double benefit).
JL:
The Lord's were not informed that the reasonable expectations of many policyholders
of would not be met if the case was admitted. We do not know the reason
for this.
AHJ:
This was a major organisational failure. The Society wrote its policies,
changed the benefits and so on without taking legal advice and without
really subjecting the issues to the scrutiny of the non executive directors.
There was, it seems, no process of internal review, and no independent scrutiny
of decisions.
JL:
As far as I know they still do not have a full-time qualified lawyer on
their staff.
PB:
Warren has done well for policyholders with two very signficant reports.
He may feel that the Society has not treated him with proper respect.
JL:
The nonGARs have had a rough deal. But note that I agreed with the Society
that if NW concluded that the HoL decision could not be revisited I would
pipe down. Someone else must take this forward if they feel that it is viable.
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July 16th Reductions
AHJ:
The across-the-board 16% reduction has been applied in a manner that must
be illegal. It took away more than the entire bonus from some recently entered
policyholders. The non-guaranteed component of the terminal bonus, which
appears on annual statements, is merely a prediction, and has no contractual
meaning. It cannot be included with the guaranteed component in the computation
of future bonuses. This would be completely at odds with the decision of
the House of Lords who notes that the presence of the guarantees was not
linked to the entitlement to participate in the profits of the Society.
The effect of the 16th July reductions has fallen most heavily on the more
recent policies. The settlement is proposed to be on the the basis of these
reduced policies which are completely at odds with the previous Court decisions.
JL:
We would have to go for a declaration - but EMAG could not do this as it
would fall very differently on different members. Also we would be much
better off if we were sitting on a fighting fund of 0.5M.
PB:
What are we trying to achieve? If the compromise is not achieved we will
enter into a period of a great deal of litigation.
AHJ:
The non-GARs have all suffered from the same injustice. The FSA has already
proposed a representative action by a non-GAR. If the compromise fails there
will be an FSA review.
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A
Formal Consultation Response from EMAG
PB:
No indication that the Society will take any notice.
CS:
We made points to the Board at the meeting in favour of annuitants and internationals.
Annuitants and internationals have most to lose by the compromise not going
through. We are dealt with as creditors and our policy values are being
decided. Do you as the most vulnerable groups really want the compromise
to fail?
MF:
We are fighting for recognition for the internationals because we were not
told we were in the same fund as the UK policyholders. Whether or not we
would vote down the compromise depends on how quickly Equitable respond
to our contention that the local laws of the countries in which our polices
were sold may differ from UK law and therefore allow for us to be treated
differently under the compromise scheme, or for the "identified assets"
to be ringfenced as circularised to the International policyholders by Alan
Nash.
We should
ask for a full statement of affairs and one to a more recent date than 30th
June 2001.
JLa:
EMAG could say that in the absence of such a statement, it is unlikely that
EMAG could consider making a recommendation in favour of the settlement.
TL:
We should use the response to nominate matters which we consider material
to the policyholders decision on the settlement since the Society must include
such a statement with the Scheme proposal. It is the stability of the settlement
that counts.
AHJ/DB:
The consultation questionnaire and information pack does not constitute
a genuine consultation process. It contains leading questions and does not
address the critical issues surrounding the settlement. It includes spurious
statistical arguments which do not apply to the situation of the individual
policyholder. (There was no dissent from those present in the meeting to
this assessment). We should draw attention to the inadequacy of this consultation
process.
JLa:
If you think that the settlement is unstable then you may wish to take your
money out.
NO:
Don't put contradictory opinions on the web site. People want to be told
what to do.
TL:
We could put together an agreed set of issues; we have different views on
their relative importance.
MF:
The international PHs were circularised about being ring-fenced by Nash.
PB:
Why is Halifax money not guaranteed? This is a major part of the compensation
of the non-GARs.
TL:
What will bonus policy be after settlement?
CS:
I will draft the response and circulate it for comment.
PB:
I don't think we should be recommending the membership on which way to vote.
PB/AHJ:
We can tell the membership that there are alternatives to the present proposals
e.g. Unitisation, rectification of 16th July.
RHA:
Annuitants could also claim that they were a separate class. But the Society
has refused this.
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Recommendation
on the Compromise
There was a discussion on whether EMAG should make a recommendation on voting
on the compromise; CS favoured a positive recommendation.
CS proposed that the EMAG membership should be consulted on whether there
should a recommendation, but this was rejected as it seemed too complex.
It was noted that we have always sought to obtain complete, timely information
for members and to air the issues but ultimately leave the members to make
their own decisions on their vote.
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Annuitants
Subgroup
We have
a proposal for an annuitants subgroup. Rodney is the committee member who
is also an annuitant. There are specific issues at stake. ELAS have said
that annuitants may get flexibility in their contracts, although of course,
at unchanged overall policy value.
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AOB
