Rainbow Insurance and judicial review

The file

Rainbow Insurance Company Ltd was registered as an insurer for general business and for life business. On 1 March 2007 the Financial Services Commission issued directions under section 44(1)(b) of the Insurance Act 1987. Those directions included an order not to issue or renew policies. On 21 September 2007 the Minister supported a proposal to suspend Rainbow’s registration. On 24 September 2007 the Commission suspended the registration with immediate effect and appointed an administrator. Rainbow’s judicial review was refused by the Supreme Court. Rainbow appealed to the Privy Council. Lord Hodge gave the judgment on 20 April 2015.

The events sit under the 1987 Act. The Insurance Act 2005 came into operation on 28 September 2007, after the decisions under challenge. This case is not a commentary on the current Insurance Act. It is a judgment about review of those decisions.

The Commission’s concerns, as the Board records them, included the margin of solvency, a reserve fund, and Rainbow House, the office which was principal asset of the long-term fund and which had been mortgaged. Section 26(6) of the 1987 Act kept the long-term fund from being applied to other business. Those facts explain why the regulator acted. They are not an invitation to retry the arithmetic on this page.

Issues the court decided

Rainbow’s challenge was grouped by the Board as procedural unfairness, illegality and abuse of power, irrationality, and a legitimate expectation of time to adapt. At the centre was the complaint that Rainbow was not given a proper chance to agree a turn-around plan before the business was suspended.

The Board decided that judicial review does not reopen the facts as an appeal. It decided the consultation argument on the section 44 directions. It decided that the statutory scheme for a section 46 suspension gave the insurer a route to the Minister. It decided the legitimate-expectation argument against Rainbow. It dismissed the appeal.

The holding in the court’s words

“Judicial review is not an appeal on the facts. There may be occasions in which, to achieve effective review of legality, the court will have to examine questions of disputed fact. … But in most cases it is not necessary to do so; and this is one such case. The court is not the primary decision-maker.”

“The Board considers that the statutory scheme envisaged that the insurer had an opportunity to engage with and make representations about the proposed section 46 suspension in the context of the ministerial review. It did not provide for consultation prior to the section 44 directions and fairness did not require such consultation, especially where the findings of the report gave rise to the section 20(3) prohibition.”

“The Board concludes that the FSC did not act unfairly towards Rainbow in the period of over six months between 1 March 2007 and the eventual suspension of its registration on 27 September 2007.”

“For the reasons set out above the Board dismisses the appeal.”

Lord Hodge also recorded factual disputes the Board could not resolve, and said they were not central. The Board acknowledged the quality of Rainbow’s argument. Acknowledgement is not success. Rainbow had not succeeded on the points it raised.

What the court did not decide

The Board did not become the solvency calculator. It did not decide that a regulated firm is never entitled to be heard. It did not decide the Insurance Act 2005. It did not decide that a legitimate expectation can displace a statutory solvency rule. It said the law should be slow to weaken legality, and this was not a case in which an unlawful representation should prevail. It did not lay down a general timetable for every later FSC direction.

The trap

The trap for a promoter or an officer is to treat a judicial review as a second hearing of the inspection. The Board’s first sentence on the law is the correction: review is not an appeal on the facts. The second trap is to collapse the 1 March directions and the September suspension into one “ban,” and then to argue that the consultation required for one was required for the other. The judgment separates section 44 from section 46.

A licence letter is still the book of what the firm may do. This judgment is the book of what a court does when the firm says the regulator’s decision was unlawful. They are different books. The insurers chapter reads the permission. This case reads the challenge.

The judgment

[2015] UKPC 15, Privy Council Appeal No 0065 of 2013, given on 20 April 2015. The PDF is the source. Quotes on this page are from that judgment.