EQUITABLE LIFE MEMBERS
MICHAEL JOSEPHS' CORRESPONDENCE WITH SIR JOHN CHADWICK
Last Updated: Thursday, December 10, 2009 12:36 AM
|Letter to Sir John Chadwick - 6 September 2009|
|Letter to Sir John Chadwick - 26 October 2009|
|Letter from Sir John Chadwick 18 November 2009|
|Letter from Sir John Chadwick - 30 October 2009 NEW|
From Michael Joseph to Sir John Chadwick
Dear Sir John,
1) As your staff can readily confirm, I have been involved in an exchange of views with Rudi Vis MP regarding Equitable Life for the last eight years, during which time I have been endeavouring to discover exactly what happened to policyholders' money over the period from 1980 onwards. It remains a matter of considerable regret that the Society itself has provided no proper explanation of the matter in all this time. I have written various papers on that and closely related subjects which Dr Vis has endorsed by passing them on to the Ministers concerned.
2) I have also submitted formal evidence to the Penrose Inquiry, to the Morris Review of the Actuarial Profession, to the EQUI Inquiry of the European Parliament and to the recently published Investigation by the Parliamentary Ombudsman.
3) As a result of my earlier work I am probably the best informed layman on the contents of Equitable's Regulatory Returns from 1972 to 2000, and I was considering making a submission to your Inquiry on the subject of comparability and relative loss, but I found myself confronted by serious doubts, and so sought advice elsewhere.
4) I have discussed those doubts with a number of policyholder advocates including Dr Michael Nassim, Nicholas Oglethorpe and Dr Andrew Goudie who broadly share the concerns set out in paragraph 5.
5) I am not sure that you are aware of the degree of uncertainty and scepticism regarding your role that is to be found both among policyholders and more widely in the media and in Parliament. Personally, I felt that I understood the essence of the matter, only to discover that my ‘colleagues’ all had different views. Even after studying your Interim Report and reviewing your terms of reference, we found ourselves at odds. Accordingly I have set out some questions regarding your modus operandi in the following subparagraphs [A to L] and I hope that you will feel able to respond to them and make it easier to formulate submissions appropriately.
6) May I also emphasise that, in writing this letter, we are not expecting to be entrusted with any privileged or confidential information, and that we would indeed hope that you could make your responses to it generally available.
From Sir John Chadwick to Michael Joseph
Dear Mr Josephs
Thank you for your letter dated 16 September 2009. I set out below responses to points that you have raised, following the same numbering as your paragraphs.
1) Neither my office nor I have seen any correspondence between yourself and Dr
Vis MP. If you have provided material to Dr Vis which you consider to be specifically relevant to my work, I would be grateful if you could send copies to my Office.
I note your comments at paragraphs 2) to 5). In response to the questions which you posed:
A) You are correct that I am not acting as an arbitrator. But, subject to that, your understanding of my role appears incorrect. I am not acting as legal counsel to the Treasury. My task is to provide independent advice on the matters set out in my
Terms of Reference.
B) I understand it to be an overriding requirement of my Terms of Reference that the advice which I am asked to give should be even handed: both as between different classes of policyholder and between the policyholders and the Government.
C) and D) I do not understand your reference to the absence of "any proper accounting for the shortfall in assets which caused Equitable Life to be closed in 2000". An investigation into an alleged shortfall in assets forms no part of my Terms of Reference.
E) I do not understand what you mean by the phrase "showing their hand in detail." It is for policyholders to decide what submissions they wish to make to me. If they choose not to do so, there is an obvious risk that I will not be able to take the points which they wish to make into account.
F) Neither my Terms of Reference, nor the Parliamentary Ombudsman’s remit, required consideration of the "Conduct of Business" regulation of Equitable Life. I am unaware that either my Interim Report or my Proposals made any reference to fault on the part of policyholders. If you disagree with this view I would be grateful if you could direct me to those paragraphs of my Interim Report which you consider relevant in this context.
G) and H) The number of persons who might be found to have suffered relative loss will not affect the advice which I shall give as to the manner in which relative loss be ascertained. The number of persons who ultimately participate in the Government’s ex gratia payment scheme - and the amount of any payments to be made pursuant to that Scheme - is a matter for the Government; not for me. I will not speculate on what my advice would be if I were asked to consider loss resulting from those of the Ombudsman’s findings of injustice which the Government has, to date, rejected.
I) It is incorrect to suggest that my Interim Report does more than record (in neutral terms) what appears in the relevant paragraphs of the Penrose Report. I am not in a position to comment on whether or not the Government has correctly understood Lord Penrose’s phrasing. My comments on whether there should be an apportionment to Equitable Life are set out at Section 3 of my Interim Report: in particular at paragraph 3.11 thereof.
J) It is, indeed, still my understanding that Equitable Life widely advertised its policy of full distribution. This view is based principally on statements contained in the Ombudsman’s Report and the Penrose Report. See, by way of example:
If you think that this understanding is incorrect, I would be grateful for information which you think might lead me to alter it.
J) 2) and 3) I am not able to identify the basis for your comment that "the Report proposes that the narrowest construction be applied to every aspect of the regulative liability". Would you direct me to the passages on which you rely to support that comment.
K) Allegations of maladministration prior to 1995 are not within my Terms of Reference.
L) I have been assured that my actuarial advisers at Towers Perrin have no conflicts of interest. No member of the Towers Perrin team has any connection to Equitable Life; none of them has ever been an Equitable Life policyholder; and they are satisfied that none of their close family members have been Equitable Life policyholders. Towers Perrin also inform me that none of the team providing advice to me has advised clients to invest in Equitable Life. Furthermore, as far as they have been able to ascertain, none of the current principals of the firm have advised clients to invest in Equitable Life since before the early 1990's.
6) I note your comments. As part of my interim report I issued key correspondence between myself and interested parties. In the interests of transparency, I intend to do the same with regard to representations on my interim report. I will presume, unless you write to me otherwise, that you are content for your letter and this reply to be published at that time.
From Michael Joseph to Sir John Chadwick
From: The Right Honourable Sir John Chadwick
To Mr. Michael Josephs
Dear Mr. Josephs
Equitable Life ex gratia payment scheme
Thank you for your letters of 26 October and 11 November 2009. In this letter I respond to a number of the representations which you have made to me. There are other representations in your letters which do not seem to me to call for a specific response at this stage; but I shall, of course, give consideration, also, to those representations as I proceed with my work.
Letter of 26 October 2009
Paragraph 4: I have received advice on actuarial matters – which, naturally, include quantitative data – from Towers Perrin; but it is not the case that "detailed statistics … underlie [my] proposals". To the extent that my Advice (or any interim advice) provides HM Treasury with figures on which to base any decision to make payments, it will be for the Treasury to decide whether those figures and the basis on which they have been determined are made public.
Paragraph 5: Paragraph 2.46 of my Interim Report has been misunderstood by many who have written to me. I have prepared a short note explaining the thinking behind that paragraph. I attach a copy.
Paragraph 11: My Terms of Reference require me to consider whether there should be an apportionment. That is what I shall do. If I come to the conclusion that there should be an apportionment at all as a matter of fairness and practicality - a question on which I have invited representations and have made no determination
- I shall need to go on to consider what apportionment would be appropriate in this case. Again, that is a question on which I currently have an open mind.
Paragraph 14: I note your point that, at the time of the maladministration that has been found and accepted, the Law Commission’s proposals regarding joint and several liability had not been made: and I am aware that the proposals have not been accepted or given effect in law. I do not regard myself as bound by those proposals: but I regard them as providing some guidance as to how the question of apportionment might be approached in the context of regulatory failure. It is important to keep in mind that I am not conducting an exercise in apportionment as between parties each of whom is under some legal duty. I am not seeking to apply legal rules. I find it difficult to see that there is any element of retrospective rule-making.
Paragraph 16: Again, I note your point that the Law Commission’s proposals may be seen as tentative. But, as it seems to me, the passage you quote relates to the proposal for the creation of statutory liability for administrative bodies in its totality; and does not relate specifically to the suggested mitigation of the potential consequences of such statutory liability (by modifying the principle of joint and several liability in such cases).
Paragraph 20: I think it incorrect to state (as you do) at paragraph 20(h) that:
"[The] Ombudsman found that, under the legislation then current, the public bodes shared joint and several liability with the Society for the injustice visited on the victims."
The Ombudsman did not find – and would not have been able to consider – any question of legal liability on the part of the public bodies investigated.
Paragraph 25: Paragraph 3.15 of the Interim Report does not state (or even suggest) that I have "already made a decision" concerning Mr. Headdon’s withholding of the "side letter". I had not done so. Paragraph 3.14 makes plain that the views expressed in this context are provisional. I have still reached no conclusive view on the question of any notional apportionment to Mr. Headdon.
Paragraph 26: I do not understand your statement that "by introducing apportionment, causation will be introduced via a back door". The question of causation is central to the advice that the Government has asked me to provide.
Paragraphs 27 to 30: It is likely that I would need to make my own findings of fact before reaching a view as to any notional apportionment. I would require further persuasion before making the findings that you have there put forward.
Paragraphs 31 to 35: I shall give appropriate consideration to the matters you raise.
Letter of 11 November 2009
In general, I note the points you make in support of the use of a notional comparator. I have not yet reached a definitive view on the question as to what kind of comparator should be used. However, I still tend to the view that a notional comparator is likely to prove more contentious and less readily understood than a basket of actual comparators.
You urge that I should avoid using comparators that were not affected by maladministration of the same kind as Equitable Life. But I do not understand how you suggest that I should identify those comparators which were (or might have been) affected by maladministration. My Terms of Reference do not permit me to investigate whether and, if so, where and when, maladministration occurred in relation to other participants in the life assurance industry.