EQUITABLE LIFE MEMBERS

EX DIRECTORS CASE SUMMARIES 

Alan Nash

Alan Nash (ex Managing Director)

With thanks to Neil Britten

also see Chris Headdon (ex Managing Director)

Particulars of claim against Alan Nash

This document is over 50 pages long so I will try to summarise the key arguments and evidence for what he did wrong.

First the Chronology of events. (Remember this is ELAS' own evidence so they can hardly dispute it in their own defence).

22/12/93: Directors approve policy of differential bonus for GAR policies. (Not based on any legal advice - Ranson's opinion is that there are no contractual difficulties - no one challenges this)

8/9/98: Denton Hall advise in writing that the society might face claims at common law / misrepresentation for marketing literature or breaches of FS act 1986

9/9/98: Headdon advised the board that the cost of honouring the GAR options was £1.5 billion - board ask Denton Hall (DH) to seek counsel's opinion

17/8/98: Counsel advised that directors were entitled to award differential bonus according to Art 65 but that the case was "more difficult" due to the way bonuses had been represented (PRE)

25/11/98: DH advised that a court might hold that discretion under Art 65 was
" Exercised wrongly or improperly or for the wrong reasons"

16/12/98: The board resolved to initiate a test case.

26/1/99: DH advised that it might not be possible to ring fence GAR costs to GARS

3/2/99: DH sent instructions to counsel noting that "Directors were aware of the unpredictability of litigation"

18/2/99: Headdon produced a note to the Board to consider a contingency plan in the event that the Society loses the case (i.e. they fully understood the consequences)

24/2/99: Board accepts Headdon's recommendation re valuation and bonus declaration. Nash advises the board that "taking account of … the very major repercussions of not making a bonus declaration" they should go ahead. (Presumably he meant the impact on new business??)

12/3/99: DH advised in writing that the court might rule that ring fencing was improper.

12/7/99: DH advised in a letter that if ELAS lost they might not be able to keep the costs within the GAR class of policyholders (before the High Court decision)

21/1/2000: DH reported counsel's advice that an appeal to the HOL (following the Appeals court ruling) should be pursued but noted there was no guarantee of success. The minutes record that directors were aware of the risks. They nonetheless decided to maintain final bonus rates.

16/2/2000: Directors considered and accepted Headdon's recommendation for valuation and bonus

Now what did Nash do wrong? (ELAS views):

1) He was at all times (during the period under consideration as a director) "an experienced director and actuary". As others have noted actuaries have statutory responsibilities.

2) It was his duty as a director to be aware of the state of the business and therefore knew or should have known that:

- ELAS had more GAR policies than other lifecos

- The GAR policies were more flexible then others

- ELAS had no estate

- It was more heavily invested in equities

- It had no access to funds beyond those of policyholders assets

- Solvency cover was weak from 1996 onwards

- ELAS ranked at or near the top from 1996-8 for new business premium income

and as a result that ELAS was a HIGH RISK investment

3) That as an actuary he knew or should have known of an Institute and Faculty of Actuaries report in 1997 that found that ELAS approach to GARs was unsound due to "no explicit provision made for an explicit guarantee". (Essentially the same point made by Prof. Blake)

He therefore breached his duties in that he:

- Failed to apply Art 65 correctly (as HOL found)

- Failed to exercise skill, care and diligence (did not seek or request legal advice on the Dec 93 decision; failed to take advice between 1994 and 1998 on the bonus policy; ignored warnings of the potential impact of the GAR case; failed to take precautions against the risk of losing the GAR case) and

- Failed to make new policyholders aware of the true risks associated with investing in ELAS (from 1998 onwards)

These are very brief summaries, but (though I am not a lawyer) they are the essence of ELAS complaint (not mine) against Nash.

We can conclude several things from this evidence:

1) The breaches of duty of Nash date back to 1993/4; long before any Treasury letter - so he cannot be exonerated by it, even if it was sufficient to exonerate him which, on these claims it is not.

2) As an actuary he (like Headdon) failed in his statutory duties.

3) Denton Hall consistently warned the board that their case was liable to be lost and that the LEGAL consequences (as opposed to the regulatory "guidance") would be as, in fact, they turned out to be. This IMHO is why Herbert Smith have found no case against them.

4) The decisions and actions of the board from 1998-2000 took place with full knowledge of the potential consequences.

5) The outcome at HOL was not an unanticipated or perverse event.

6) Despite this it was mis-represented as such.

7) The briefings given to the sales force throughout the GAR case were intentionally designed to mis-lead.

8) ELAS admits that it is liable for mis-representation of the GAR risks to all Late Joiners.

Presumably this latter point is the reason why a provision for £120m has been included in the accounts?