An Equitable Assessment of Rights and Wrongs
by Dr Michael Nassim
11. Loss and Damage suffered by Individual Clients and Members
Loss and Damage suffered by Individual Clients and Members
out the evidence, we may now addresses the losses and damage that members will
have sustained if they left before the Compromise proposals, or declined the
Compromise proposals and resigned from the Society.
Those who left earlier on may have suffered less, depending upon when and
how they quit. The various categories that may be applicable may also vary
according to individual circumstances, but comprise:
An immediate loss of 16% of their principal, ostensibly to cover the
aforementioned deficit, as exemplified by the Compromise offer.
A further Market Value Adjuster, which varied between 10 & 20% at
An additional but nebulous penalty for unscheduled withdrawal if return
of principal had to be requested other than on a policy anniversary (if
withdrawal was made before the 5th anniversary of the policy).
Loss of mutuality and low expense ratio benefit, which combination was
not available elsewhere (i.e. equivalent to approximately 3.5% of the principal
in most instances)
Loss of benefits due to, and the ultimately fatal risk incurred by,
earlier disappearance of the Society’s estate.
Re-investment expenses (typically 5% for a managed product, plus
intermediary commission if not waived).
Unnecessary worry, time, effort and incidental expenditure.
Legal costs (minimum typically taken to be Solicitors or Counsels advice,
Small Claims or County Court Judgement application).
Loss of interest from vanished principal and benefits, plus that from
monies spent on re-investment and legal expenses.
Damages whether civil or criminal, aggravated or not.
Harm resulting from the failure of the Treasury and regulator to monitor,
advise, protect or otherwise act before, on the eve of, and after the
sometimes be necessary for policyholders to lump items 1-4 together in order to
see what their order of magnitude is, because it is impossible to estimate 3
directly. Consensus on item 10 is still awaited, but the Society is
seeking full reparation and legal costs on its own behalf, even before the issue
of damage has been considered.
How much beyond this should ex-members claim? We have previously seen
that, although the Society is accountable for what has been done in its name, it
does not necessarily also acquire the stigma of guilt.
If so, ex-members should hesitate before claiming exemplary, retributive
or punitive damages because it would be unhelpful, and inappropriately hurtful
to continuing and innocent members. On
the other hand the ex-members are much in the minority, and in many cases they
have valued the wish for justice above hopes of personal certainty, whereas the
converse may apply to those who voted for the Compromise.
In weighing all this we have also to reconsider that since the
misdemeanours go back to 1989 at the latest, many more people may have
legitimate grievances than previously thought.
accepted the Compromise or were forced into it by disenfranchisement have
different categories of loss, namely:
Forfeiture of legal rights against the Society and its old and new
Loss of With Profits status of their fund, as a result of:
Loss of the Society’s estate.
Excessive and inequitable mutual insurance, partly caused by unequal
guarantees or the hidden penalties thereof; not yet fully resolved.
Potential liability for litigation from ex-members (the likely extent of
which may have been underplayed).
Harm arising from governmental and regulatory deficiencies as in point 11
therefore, the same duties of information apply to the Compromise as to any
other financial product. Accepters
may therefore have a case for avoidable losses and damages should it emerge that
they were in effect duped into the Compromise.
Hence any conditional amnesty may not apply to the new management of the
Society, and most particularly should it have promoted the Compromise by using
reason or premise that it knew or suspected might be untrue. In this regard four
factors are of additional concern, namely:
An optimistically low Compromise estimate of the size of the deficit.
Holding that mis-selling was not of a generic character, such that future
litigation would be piecemeal and trivial.
Using and upholding the previous Board’s discredited business and
insurance paradigm, conventions and practices without substantial modification,
to the actual or potential detriment of members past and present.
Item 3 is of
particular relevance because of the continuing usefulness of First Order
Sophistry Item 7, which now allows With-Profits Policies to be cut to the bone
because the guaranteed element is so small.
The guaranteed element will reduce yet further under Second Order
Sophistry Item 6, which has given rise to the related GIR issue. There is also
the question of disenfranchisement of With-Profits annuitants and the consequent
burdens laid upon their Trustees, who are now answerable for them.
In the case of FSAVC annuitants the Society is both fund executor and
Trustee, but Law Debenture Pension Trust Corporation was deputised to vote on
the Compromise Scheme arrangement on their behalf to avoid a conflict of
interests. The Legal Services
Department of the Equitable has confirmed to the writer that Law Debenture
received the same data, i.e. the Scheme Circular, as individual members, and
returned its ballot form in the assent without reasoned response or comment.
If this does not inspire other classes of annuitants with confidence,
they may wish to contact the Legal Services Department and their own Trustees
for explanations of their conduct.
interesting anomaly arose because of the government’s FSAVC review, which was
not completed until autumn 2002, i.e. well after the Compromise.
If the Society had cut annuities immediately after the Compromise became
effective, FSAVC asset shares would subsequently have been restored by the FSAVC
review. Hence the Society had to wait until November 2002 in order to be sure of
cutting all the upwardly revised FSAVC fund values and annuities permanently
back to suitable size along with all the others. In effect, therefore, the Society made upward revisions to
FSAVCs after the Compromise which it had no intention of honouring. (Sir Howard
Davies’ office and the FSA were made witness to the possibility of this
happening before it did, and also to the fact that the writer reserved a
position on behalf of all FSAVC annuitants in this matter.
This is now part of Financial Ombudsman Service complaint no. 3936405)