The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

Documents: 16/11/2009 - The Chadwick Process and the Tribunal proposed by the Parliamentary Ombudsman

The Chadwick Process and the Tribunal proposed by the Parliamentary Ombudsman.

The Government claims that the Chadwick Process will be much quicker than the Tribunal proposed by the Parliamentary Ombudsman because the latter would look at individual cases whilst Chadwick will not. This is just not the case and is dangerously misleading Government spin.

In his written statement to the House of Commons on 20th October Liam Byrne, Chief Secretary to the Treasury, stated:

"Our goal is to introduce a scheme that is administratively quicker and simpler to deliver than that envisaged by the Ombudsman."

The Government amended motion on the Commons debate on 21st October restated that, saying that it:

"... recognises the Government’s determination to introduce an ex gratia payment scheme that is administratively quicker and simpler to deliver than that envisaged by the Ombudsman."

In the debate Mr Byrne claimed that Sir John Chadwick had said that the Ombudsman’s proposals were 'at best unsatisfactory and more likely impossible'. This was misleading. Sir John did not say that. What he did say was that the approach laid down for him in the Government’s command paper was impossible.

He then went on to conflate two different issues by saying:

"... that the approach that was proposed by the ombudsman and that has been rehearsed again by the hon. Member for Twickenham and is recommended in his early-day motion entails a case-by-case review by a tribunal or another body of the evidence of loss from individual policyholders."

The first issue is that in rewarding either compensation or ex-gratia payments one has to look at the situation of each individual (the policies they held, the premiums paid, start date, etc).. To pretend that the Chadwick process is not going to have to do this is utterly misleading. How on earth is any payment scheme to be constructed without looking at the details for each policyholder? Why has Sir John requested the necessary data from Equitable Life and why have actuaries Towers Perrin been invited to assist if individual cases are not to be assessed? This is a substantial task but it is a necessary one.

The second issue is that the Government are claiming that the Ombudsman’s scheme.

"... puts the burden on the individual policyholder to show how regulatory failure created a loss. Then the policyholder would need to show what kind of relative loss they had suffered, which would require them to say something about a counterfactual."

There is nothing in the PO’s recommendations to suggest this (see her Second Recommendation. at page 395 of her main report).

One of her principles at para 149 was that the process 'should be simple, not imposing undue burdens, whether evidential or procedural, on those making claims to the scheme'. She acknowledged that there were difficult issues but at para 146 she mentions EMAG’s proposals as being an example of how such difficulties were not insuperable. EMAG in its Response to the Parliamentary Ombudsman (see Part four of the PO’s report at page 205) specifically recommended:

"...that it would be unreasonable to expect policyholders to prove their individual case e.g. whether they were influenced by the returns and whether, if they had known Equitable’s life true financial position, they would have removed their investment or invested elsewhere."

EMAG was recommending an approach where computers could calculate compensation mechanically. By publishing EMAG’s response and mentioning it as an example of how the tribunal might have proceeded the PO evidently regarded EMAG’s response as reasonable.

For Liam Byrne to try and pretend that the PO was suggesting something different is just more misleading spin of the kind that we have come to expect from the Treasury. It serves only to emphasise the need for an independent, transparent and simple process as recommended by the PO.

Unfortunately this spin has now been fed out to other members of the Labour Party who have replied to constituents in similar vein. Caroline Flint MP is one such who might have been better employed trying to understand the concerns of her constituents rather than 'flipping' her second home.

The Ombudsman’s recommendations:

Part one: main report page 395

First recommendation

136 My first recommendation is that, in recognition of the justifiable sense of outrage that those who have complained to me feel about themaladministration in the form of the serial regulatory failure identified in this report, the public bodies should apologise to those people for that failure.

137 As I explain in Principles for Remedy, apologising is not an invitation to litigate or a sign of organisational weakness. It can benefit the public body as well as the complainant, by showing its willingness to acknowledge when things have gone wrong, accept responsibility, learn from maladministration, and put things right.

Second recommendation

138 My second – and central – recommendation is that the Government should establish and fund a compensation scheme with a view to assessing the individual cases of those who have been affected by the events covered in this report and providing appropriate compensation.

139 The aim of such a scheme should be to put those people who have suffered a relative loss back into the position that they would have been in had maladministration not occurred.

140 Addressing relative loss in this way would remedy any financial loss that has occurred and also the loss of opportunities to invest elsewhere than the Society. It is thus the most appropriate remedy for the injustice that I have found resulted from maladministration.

141 The scope of such a scheme should, in line with my Principles for Remedy, cover all those who have suffered similar injustice to those who have complained to me. That should include not just residents of the United Kingdom but all those who have sustained the injustice that I have found resulted from maladministration.

142 I consider that it would be reasonable to expect such a scheme to be established within six months of any decision by Government and Parliament to do so.

143 I recognise that there are likely to be practical difficulties in establishing and operating such a scheme. There may be an inherent conflict between the speed and simplicity of delivery on the one hand, and fairness both to those affected and to taxpayers generally on the other.

144 I began this investigation by addressing, in my July 2004 report to Parliament, arguments that complexity of the subject matter or practical operational difficulties were a relevant factor to be taken into account in any decision to conduct an investigation. I said that those were not compelling arguments in that context. I similarly do not accept now that such difficulties mean that an appropriate remedy should not be delivered.

145 I also recognise that how such compensation should be calculated will need to be carefully considered, not just in terms of how best to design any scheme but also in the context of the principles of regularity, propriety, and accountability for the use of public money that are set out in Managing Public Money16.

146 While different approaches might be taken to the calculation of compensation in such circumstances, the existence of those approaches – such as that proposed by EMAG on behalf of complainants or that adopted by the Financial Ombudsman Service in considering mis-selling complaints – indicates that any difficulties that may be encountered are not insuperable.

147 All those considerations are relevant to how any compensation scheme should be organised and delivered. While recognising that the creation of such a scheme would not be straightforward by any means, such difficulties as are likely to arise are not, in my view, sufficient to negate the prime consideration to which I consider regard should be had – namely that, where wrong has been suffered, a remedy for that wrong should be provided.

148 I recognise that the decision as to how best to establish and administer any compensation scheme is a matter for Government and Parliament. However, I would offer, as a contribution to that debate, my view of the principles which should govern any such compensation scheme.

149 It seems to me that such a scheme: _ should be independent and constituted along the lines of a tribunal or adjudication panel, with three members – one broadly representing the interests of citizens and one representing those of the relevant public bodies, with an independent chair;

_ should operate in a transparent manner, with the basis being made public of the decisions as to how compensation is to be calculated, as to what procedure will govern the consideration of individual cases, and as to the criteria which will be taken into account when considering those cases. Those decisions should only be made after appropriate consultation is undertaken, including with those directly affected;

_ should be simple, not imposing undue burdens, whether evidential or procedural, on those making claims to the scheme.

150 The above principles would, I hope, be accepted widely as being an appropriate and effective mechanism of decision and delivery of the remedy that I have recommended should be provided.

151 I hope, also, that it would be accepted that this mechanism has to have, as its guiding principle, the need to deliver as speedy a remedy as is possible in the circumstances, consistent with recognising the complex issues that would need to be addressed and resolved. In my view, the scheme should take no longer than two years from the date of its establishment to complete its work.