Case No: 3995/2002
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London WC2A 2LL

Date: 10 December 2002
[2002] EWHC 2698 (Ch)

Before:

THE HONOURABLE MR JUSTICE PARK

In the matter of The Financial Markets and Services Act 2000

Between:

(1) WASA International (U.K.) Insurance Company Limited
(2) AGF Insurance Limited
Claimants
- and -

WASA International Insurance Company Limited (a Swedish
company)
Defendant

Martin Moore QC (instructed by Clyde & Co) for the claimants

Hearing date: 23 October 2002

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Park

Mr Justice Park

Abbreviations

The 2000 Act	The Financial Services and Markets Act 2000
The 2001 Regulations	The Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001
WASA (UK)	WASA International (UK) Insurance Company Limited
WASA (Sweden)	WASA International Insurance Company Limited (a Swedish company)
AGF	AGF Insurance Limited

Judgment

1.	On 23 October 2002, sitting in the Applications Court, I made an order under section 111 of the 2000 Act sanctioning a scheme for the transfer of the whole or parts of the insurance businesses carried on by WASA (UK) and AGF to WASA (Sweden). The application was not opposed, but the jurisdiction under the 2000 Act is recent, and it was suggested to me by counsel who presented the application (Mr Martin Moore QC) that it could be helpful if I later gave a short judgment. I do so now.

2.	Sections 110 to 115 of the 2000 Act introduced new provisions to facilitate the transfers of insurance or banking businesses. They provide for schemes which meet the requirements of the Act to take effect if they are sanctioned by the court. WASA (UK) and AGF are English companies which have insurance businesses. Two schemes, one for the transfer of WASA (UK)’s insurance business to WASA (Sweden) and the other for the transfer of part of AGF’s insurance business to WASA (Sweden), were put before me for sanction.

3.	WASA (UK) is a subsidiary of a Swedish group of companies which has substantial insurance interests. WASA (UK)’s insurance business is now in run off. That is to say WASA (UK) is not writing any new insurance contracts, but it has continuing liabilities, vested or contingent, under policies which it has written in the past. WASA (Sweden) is member of the same Swedish group. It is an active insurance company. The WASA (UK) scheme provides for three ‘books’ of insurance business written in the past by WASA (UK), some of the liabilities under which are still actually or potentially outstanding, to be transferred from WASA (UK) to WASA (Sweden). The following sub-paragraphs, taken from or based on the scheme document which I approved, show the central features of the scheme. In the scheme document itself WASA (Sweden) was referred to as WIIC, but in quotations from the document I have substituted the abbreviation which I am using in this judgment.

i)	‘WASA (UK) shall transfer to WASA (Sweden) all of WASA (UK) ‘s respective rights and obligations attaching to the following policies of insurance and reinsurance (‘the Policies) with the intent that WASA (Sweden) shall be substituted as party to the Policies in place of WASA (UK) from inception.’

There then follows a description of the three books of policies which are being transferred.

ii)	‘WASA (Sweden) shall acquire and undertake all rights and obligations of WASA (UK) under the Policies such that WASA (Sweden) shall be deemed to have been substituted as a party to the Policies in place of WASA (UK) ab initio.’

iii)	A paragraph of the scheme provides for WASA (UK) to transfer to WASA (Sweden) a portfolio of money market instruments, bonds, and unit trust investments. These are intended to provide WASA (Sweden) with funds sufficient to cover it for the liabilities to policyholders which it has assumed.

iv)	Another paragraph deals with the benefit of outward reinsurance contracts which WASA (UK) held: ‘WASA (UK) shall transfer to WASA (Sweden) all the rights, benefits and advantages conferred on or vested in WASA (UK), as well as all the liabilities imposed on WASA (UK), by or under all of the reinsurances which protect the Policies to the intent that WASA (Sweden) shall be substituted as party to such policies in place of WASA (UK) from inception, provided that the reinsurers shall have no greater liability to WASA (Sweden) under the reinsurances protecting the Policies than they would have had to WASA (UK) in the absence of the Scheme. All references in such reinsurances to WASA (UK) shall be read and construed as references to WASA (Sweden).’ The most important of the reinsurance contracts was guaranteed, and the scheme also transfers to WASA (Sweden) the benefit of the guarantee.

v)	There are other provisions dealing with such matters as transfers of books and records, and any legal proceedings currently in progress.

4.	AGF is not a member of the Swedish group of which both WASA (UK) and WASA (Sweden) are members. However, the book of run off business which it has, by its scheme, transferred to WASA (Sweden) is one share of a line of business the other share of which was held by WASA (UK) but was being transferred from WASA (UK) to WASA (Sweden). There are obvious attractions in that line of business being taken over in its entirety by WASA (Sweden). There is a separate scheme document for the transfer from AGF to WASA (Sweden). It is essentially the same as the scheme document for the WASA (UK) transfer, but since the liability under the particular line of business is fully reinsured and the benefit of the reinsurance contract is transferred to WASA (Sweden), there is no transfer by AGF to WASA (Sweden) of a portfolio of investments.

5.	The two schemes have been fully discussed with the Financial Services Authority, and I was told that one or two elements or procedural steps were included at the request of the Authority. I can assume that the Authority is content with the schemes, because it was aware of the application before me on 23 October, it was entitled to be heard on the application (the 2000 Act s 110(a)), but it did not think it necessary to be represented at the hearing.

6.	In the following paragraphs I deal with a number of matters which arise under the relevant sections of the 2000 Act, taking the sections in order.

7.	Section 104 provides that no insurance business transfer scheme or banking business transfer scheme is to have effect unless an order has been made under section 111. In this case I did make an order under section 111.

8.	Section 105 describes an insurance business transfer scheme. There is no doubt that both the WASA (UK) scheme and the AGF scheme are insurance business transfer schemes.

9.	Section 106 is about banking business transfer schemes, and is not directly relevant in this case.

10.	Section 107 provides for applications to sanction schemes to be made to the court. It identifies who may make an application and which court the application should be made in. An application may be made by the authorised insurance company whose business is, in whole or in part, being transferred. In this case there was a joint application by WASA (UK) and AGF. Where, as in this case, the transferor is an English company and the transferee is not, the application should (or at least may) be brought in the English High Court: section 107(3). Therefore the application was properly before me.

11.	Section 108 created the power under which the 2001 Regulations were made. I need not examine the regulations in detail. They covered a number of procedural matters designed to ensure that any persons who might be affected by a proposed scheme would have notice of it, would have the opportunity to make representations about it and, if necessary, would also have the opportunity to appear before the court to oppose the sanctioning of the scheme. In this case all the requirements as to notifications, advertisements, etc, were dealt with in earlier hearings before Registrar Rawson, and the requirements of the regulations were complied with, except to the extent that the registrar had (as he was authorised to do) dispensed with one of more of them.

12.	Section 109 provides that an application to the court for a scheme to be sanctioned must be accompanied by a report made by a person nominated by the Financial Services Authority. I had before me two reports, one on each scheme, by Mr F Duncan, a Fellow of the Institute of Actuaries. I read the reports, and I saw nothing in them which might have inclined me not to sanction the schemes. Mr Duncan concluded that the schemes were highly unlikely to have adverse effects on the policyholders of WASA (UK) and AGF: the policyholders would as well protected when they became insured by WASA (Sweden) as they had been when were insured by WASA (UK) and AGF. He also concluded that the schemes were not disadvantageous to the existing policyholders of WASA (Sweden): the company which was insuring them (WASA (Sweden)) was taking on new liabilities, but the assets transferred to it, including the benefit of reinsurance contracts, were, in Mr Duncan’s expert opinion, sufficient.

13.	There is one matter which I should specifically mention in relation to Mr Duncan’s reports. Copies of the reports were sent to parties who might have been affected by the proposed transfers to WASA (Sweden). Only one responded in a way which was at all critical. This was another insurance company which was in provisional liquidation. The provisional liquidators wrote raising questions about Mr Duncan’s views, and also about his independence, since he had undertaken professional work for WASA (UK) and AGF in the past. On the last point, Mr Duncan was nominated by the Financial Services Authority, not by WASA (UK) of AGF, and I do not see any substance in the provisional liquidators’ point. Their substantive points were replied to at length in correspondence. Mr Moore showed me the relevant letters and made submissions about them, which appeared to me convincingly to show that Mr Duncan’s conclusions were not cast into doubt by the provisional liquidators’ letters. The provisional liquidators could have attended at the hearing and opposed the applications They did not do so In any case WASA (UK)’s records show that the insurance company concerned is a net debtor of WASA (15K), not a net creditor. In the circumstances it is not clear what purpose the provisional liquidators’ letters were serving. No net creditor of WASA (UK) or AGF has proffered any criticisms of Mr Duncan’s reports, or indeed of any other aspects of the schemes. In the circumstances the observations of the provisional liquidators about the reports do not cause me to decline to sanction the schemes.

14.	Section 110 of the 2000 Act states who may appear on an application for a scheme to be approved. As well as the coirpan1es themselves (who appeared before me by Mr Moore) the Financial Services Authority may appear. I have already said that it saw no need to appear in this instance. In addition any person who alleges that he may be adversely affected by the scheme may appear. I have mentioned that the provisional liquidators of the other insurance company did not appear. Nor did anyone else.

15.	Section 111 sets out the conditions which must be satisfied before the judge can sanction a scheme. Certain certificates must have been obtained. In this case they were obtained. I was also provided with evidence that WASA (Sweden) was authorised to carry on insurance business by the regulatory body in Sweden. In addition the section prescribes the more general condition that ‘the court must consider that, in all the circumstances of the case, it is appropriate to sanction the scheme’. In this case I was so satisfied, and I made an order sanctioning the scheme accordingly.

16.	Section 112 sets out what an order may do. Sub-section (3) enacts that, where an order provides for the transfer of property or liabilities (as it almost invariably will), the property and liabilities are transferred and vest in the transferee as a result of the order. A point which is always significant is that the order can and usually does transfer liabilities, something which cannot normally be done simply by contract. Thus in this case the order has the effect of causing WASA (UK) and AGF to cease to be liable under to the existing policyholders and to make WASA (Sweden) liable instead.

17.	There is another point which is significant in this case. The schemes are expressed to transfer to WASA (Sweden) the benefit of reinsurance contracts previously concluded between WASA (UK) or AGF on the one hand and outside reinsurers on the other. In the case of the most important single reinsurance contract the reinsurer had been approached and had consented anyway. But WASA (UK) had numerous other reinsurance contracts, and it was thought to be impractical to secure the consents of all of the reinsurers. It is considered to be uncertain whether a rèinsured can assign the benefit of a reinsurance contract at common law without the consent of the reinsurer: the benefit of most kinds of contracts is assignable, but there are exceptions. A well known one is contracts for the services of employees: this was the background to the celebrated decision in Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014. Since reinsurance is a species of contract in which it is at least arguable that the identity of the reinsured is important to the reinsurer there was serious doubt over whether, on a transfer of an insurance business, the benefit of a range of reinsurance contracts could, in the absence of the consent of all the reinsurers, be transferred except with statutory backing.

18.	Before the 2000 Act it appeared that the section in the Companies Act 1985 which provided for schemes of business transfer to be approved by the court did not provide the statutory backing to overcome this difficulty. Section 459 of that Act empowered the court to make an order providing for: ‘the transfer to the transferee of the whole or any part of the undertaking and of the property or liabilities of any transferor company.’ It might have been thought that the reference to ‘property’ would overcome the problem, but the House of Lords held otherwise in Nokes v Doncaster Amalgamated Collieries Ltd (supra), decided upon the same wording in a predecessor statute. So far as property consisting of contractual rights was concerned, the only such property covered by the section was contractual rights of a nature to be transferable at common law. Thus the benefit of contracts for the services of employees was not transferred by a statutory scheme. It would follow from the decision in Nokes that, if the benefit of reinsurance contracts was not assignable at common law, then rights under such contracts of a transferor of a reinsurance business could not be transferred by a statutory scheme under the law as it stood before the 2000 Act.

19.	Now, however, the 2000 Act provides in section 112(2)(b):

“An order under subsection (1)(a) may-

(a) transfer property or liabilities whether or not the authorised person concerned otherwise has the capacity to effect the transfer in question.”

In my judgment the words which I have italicised do overcome the problem. Even if WASA (UK) could not at common law have transferred its rights under its numerous reinsurance contracts without the consent of the reinsurers, the statute has the effect that the scheme, once sanctioned by my order, has transferred those rights. Mr Moore has very properly drawn my attention to a possible argument that that is not so. The argument is that the vital words in section 112(2)(b) only cover a case where the transferor company’s corporate powers were so restricted that it inherently lacked the capacity — the vires — to transfer the property concerned. I do not think that that argument is correct. If it was it would emasculate the statutory paragraph. I believe that the words were intended to overcome the problem presented by the Nokes decision, which had meant that several schemes for transfers of insurance businesses or banking businesses had had to be effected by Private Acts of Parliament. I also believe that the words did overcome the problem presented by the Nokes decision.

20.	Mr Moore has told me of an unreported decision of Laddie J which dealt with the same point in the context of a transfer of a banking business. In re Cater Allen Ltd (30 April 2002) Laddie J said:

“S.l12(2) should be construed widely and gives the court power to sanction, where it considers in all the circumstances that it is justified, the transfer of property or liabilities even in cases where those properties or liabilities might otherwise be non-transferable, for example by reason of express contractual provision. In my view section 112(2) does therefore provide a distinct and clear difference as between the provisions under the [2000 Act] and the equivalent provisions under the Companies Act which were considered in Nokes.”

I respectfully agree, and even if I felt some doubt on the point (which I do not) I would follow Laddie J’s decision.

21.	There are no other specific points which I need to make about section 112. Sections 113 to 115 are in the same Part of the 2000 Act, but they are not relevant in this case, and I do not need to say anything about them.

22.	For the reasons which I have outlined in this opinion, I was satisfied that it was appropriate to make the order sanctioning the transfer, and I therefore made the order.