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You are here: BAILII >> Databases >> The Judicial Committee of the Privy Council Decisions >> Rainbow Insurance Company Ltd v The Financial Services Commission & Ors (Mauritius) [2015] UKPC 15 (20 April 2015 URL: https://www.bailii.org/uk/cases/UKPC/2015/15.html Cite as: [2015] UKPC 15 |
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Easter Term
[2015] UKPC 15
Privy Council Appeal No 0065 of 2013
Rainbow Insurance Company Limited (Appellant) v The Financial Services Commission and others (Respondents) (Mauritius)
From the Supreme Court of Mauritius
before
Lord Neuberger
Lord Mance
Lord Kerr
Lord Clarke
Lord Hodge
JUDGMENT GIVEN ON
Heard on 26 and 27 November 2014
Appellant Sir Hamid Moollan QC Iqbal Moollan Salim Moollan (Instructed by Mr Omar I A Bahemia Solicitor) |
Respondent (1) Mr Désiré Basset SC Nandraj Patten Jean-Gaël Basset (Instructed by Blake Morgan LLP) |
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Respondent (2) Geoffrey Cox QC Edward Risso-Gill (Instructed by Royds Solicitors) |
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Co-Respondent Rishi Pursem SC (Instructed by Fladgate LLP) |
LORD HODGE:
The legislation
"shall not be liable or chargeable for or in respect of any contract or transaction of the insurer other than that of the long term insurance business carried on by the insurer, and shall not be applied directly or indirectly for any other purpose."
As we shall see, section 26(6) created difficulties for Rainbow because its principal asset was the office, Rainbow House, at 23 Rue Edith Cavell, Port Louis. Rainbow carried on business from there and leased part of it to others, from whom it derived income. Rainbow had mortgaged Rainbow House to fund its then loss-making activities, reducing the value that could be attributed to the margin of solvency and breaching section 26(6).
"The [FSC], having regard to such matters as he considers relevant, may, by notice in writing, permit an insurer to utilize any investment for any purpose specified in the notice, subject to such conditions and restrictions as he may specify."
As we shall see, section 27 also is relevant to the difficulties arising from Rainbow's dependence on its office, its principal asset, as part of its reserve fund and subsection (7) is relevant to its argument that the FSC had the power to allow Rainbow time to adapt and diversify its assets in order to meet regulatory requirements.
"the [FSC] may … issue such directions … as it thinks necessary or proper to deal with the situation disclosed by the report, including, in particular, directions prohibiting or regulating the issue of new policies, the renewal of existing policies or the entering into of any new contract of insurance."
Subsection (2) provided that such a direction could not remain in force for more than 12 months, although subsection (3) empowered the FSC to re-issue a direction with modifications. Section 44 was the basis on which the FSC issued its direction of 1 March 2007.
The factual background to the enforcement action
"The Commission can rest assured that, should the need arise, cash will be injected in consultation with and to the satisfaction of the Commission within a time frame in line with the new Insurance Act and elaborated with the Commission."
Similarly, he stated that if there were a shortfall of the investments in the prescribed securities required by section 27, Rainbow would propose a plan to make up the shortfall "within a time frame to be defined in consultation with and to the satisfaction of the Commission". He expressed confidence that all outstanding issues would be resolved by the end of February 2006.
The second investigation and enforcement action
"First and foremost, the balance sheet as at FY05 shows a significant mismatch with short term liabilities being represented by long term illiquid assets including fixed assets and claims recoverable. This unusual situation for the Company has contributed to the level of indebtedness of the Company with short term financing being used to meet the liabilities. This is clearly not sustainable."
He also suggested that Rainbow had adopted aggressive accounting policies which in some instances had involved non-adherence to international accounting standards and that disagreement over such policies had contributed to the resignation of KPMG as the company's auditors in 2005. There had been insufficient provisions for claims and Rainbow had recognised recoverables contrary to IAS (international accounting standard) 37. His sampling of the latter suggested that most claims had been recognised without a legal advisor's report to support them. IAS 37 required that Rainbow did not recognise them and that the Rs 31.1m attributed to them in its accounts should be reversed.
"I am therefore concerned about [Rainbow's] ability to meet its short term financial commitments including claims due to insured parties and policyholders. A significant capital injection is required in addition to a comprehensive restructure of the Company.
However the heavy reliance on the motor business and high cost base could significantly impair any turnaround plans unless profitable line of business can be identified and pursued in the next few months. This would have to be supported by a major cost cutting exercise. The cost of the restructure (including any compensation package to employees) would have to be factored in and financed. I would also like to re-iterate the crucial role that will be played by the board of directors and management in this process.
It is therefore important that the appropriate skills are hired to give a reasonable chance of success to any turnaround plan. Over and above adherence to the code of corporate governance, the setting up of a risk management committee with the necessary skills to put in place a risk management strategy and follow up on the implementation of the strategy might be expected."
Discussion
"an individual or group who in reason have substantial grounds to expect that the substance of the relevant policy will continue to ensure for their particular benefit: not necessarily for ever, but at least for a reasonable period, to provide a cushion against the change. In such a case the change cannot lawfully be made, certainly not made abruptly, unless the authority notify and consult." (Laws LJ in Niazi at para 49)
Laws LJ in formulating this expectation was considering unusual circumstances where, absent a representation that the policy would continue, an abrupt change of policy was held to be so unfair as to amount to an abuse of power. A classic example is R v Inland Revenue Commissioners, Ex p Unilever plc [1996] STC 681. In that case the Inland Revenue Commissioners on thirty occasions over twenty years had exercised their lawful discretion to entertain late claims for loss relief against corporation tax and then suddenly, without notice or consultation and for no good reason, refused such claims as out of time. The Board does not need to address questions of taxonomy by deciding whether this is a separate head of legitimate expectation or whether it is a particular example of what Lord Fraser described as an established practice which the claimant could reasonably expect to continue. It is enough to observe that there are cases in which fairness requires that a change in policy cannot be made abruptly because it would defeat the legitimate expectations of an individual or group. In such cases, as Sedley LJ stated in Niazi at para 70, it is not the alteration of the policy but the way in which it is done which is capable of frustrating a legitimate substantive right expectation.
Conclusion