Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 60-79)



  60. No; it is the same point. I am talking about the conclusions you came to after the Court of Appeal. Make no mistake: you denied that you put reliance on the Waller obiter dicta. Baird says you did. You disagree with that?
  (Sir Howard Davies) No, I did not deny we put reliance on that. I said I did not think we put too much reliance on it because we looked at it in the light of the Woolf judgment as well.

  61. Let us go on to see what Baird, not me, concludes from this. You are not denying you have based reliance on the statement of Waller.
  (Sir Howard Davies) We took it into account.

  62. I am on 6.15.5. Baird is very helpful here. He says that if you had not placed such reliance on Waller, which we have just had an interchange about, you would have seen more clearly that the letter which Equitable Life sent its policyholders in February 2000, the gist of which was that there was not too much to worry about, following the Court of Appeal, required review to ensure it was not misleading. Baird goes on to say that as a result of all this that letter should have been sent by IFSD to your PIA regulators to be reviewed and discussed. IFSD, your people, should have decided what action needed to be taken in relation to, and I am paraphrasing here, potential mis-selling to protect the interests of policyholders who, during that period after the Court of Appeal, were happily shoving money in. What Baird is saying here is that after the Court of Appeal when it went against you, why were you not—
  (Sir Howard Davies) Mr Ruffley, we were not in the case. It did not go against us.

  63. It went against Equitable Life.
  (Sir Howard Davies) Thank you.

  64. It went against your advice in the sense that you are guessing. You took advice about what might happen in the Court of Appeal. In that sense it went against you. You called it wrong. I wish you would accept that.
  (Sir Howard Davies) We were not in the case, Mr Ruffley. That is a very important point.

  65. I did not say you were in the case. I am saying that this shows your legal advice was severely dud because you did not call it right for the Court of Appeal; you did not call it right for the House of Lords. On that question, before I get to the question about your lawyers, can you answer the charges that Baird has put? Why did you not review the letter and ask what action could be taken as a result?
  (Sir Howard Davies) I wish we had.

  66. You agree all of that?
  (Sir Howard Davies) Yes, but I also—

  67. The policyholders could well have had their interests compromised?
  (Sir Howard Davies) I note that he says, "We cannot and do not express a view as to whether the contents of the letter were misleading or not". We were not consulted about the letter by the Equitable Life. We came across it by accident. This was another example of how the company—

  68. But you are the regulator.
  (Sir Howard Davies) Yes, but we do not monitor correspondence between individual companies and their policyholders.

  69. That is very interesting, is it not?
  (Sir Howard Davies) We do not. That is not part of the regime. The PIA regime is a regime which surrounds the sales of policies. As is revealed in this report, there was considerable uncertainty, indeed I would say rightly, about whether we have any locus in relation to continuing communications. We have corrected that in the new regime because we believed that the regime in the past—this is a problem with the old regime that we were operating, which focused only on communications at the point of sale—was not appropriate, and so the Equitable Life's communications with policyholders were not put to us at all. We have attempted to correct that in the new regime because our documents, which I referred to Ms Mountford, on treating customers fairly after the point of sale, explain that we believe that companies do have a duty to communicate effectively with people and honestly and straightforwardly after the point of sale, and that that will in future be covered in the regulatory regime which it was not at the time.

  70. Do you have 100 per cent confidence in your legal advisers inside the FSA as a result of their, on two occasions calling it wrong in the Court of Appeal, calling it wrong in the House of Lords? Do you have 100 per cent confidence in the legal advice that you were relying on?
  (Sir Howard Davies) I do have confidence in my legal team.

  71. One hundred per cent confidence?
  (Sir Howard Davies) Mr Ruffley, I have never been in a job where I have had a legal adviser who called every case and every judgment 100 per cent right all the time.

  72. You got two wrong, did you not?
  (Sir Howard Davies) I have confidence that my legal advisers are good and understand the law in this and give me good advice on which it is my responsibility to act, and I have no intention of coming here and hiding behind my legal advisers. This is something for the executive of the Authority to make a determination on.

  Mr Ruffley: If that is Howard's Way I think we should look at it again.

Mr Plaskitt

  73. Sir Howard, the Court of Appeal judgment, as we have heard, was on 21 January. Baird tells us that on 2 March somebody in your counsel division sends an e-mail to someone in your insurance and friendly societies division suggesting that in the end it might go the way that Lord Woolf was indicating and raising that as a possibility. What happened to that e-mail message? It is 4.53.4, page 140.
  (Sir Howard Davies) I am afraid I cannot tell you what happened to it. I imagine it was received but I do not know what happened to it in the sense of how it was responded to.

  74. You do not know whether any action was taken on the basis of that?
  (Sir Howard Davies) I think we were still in a position that the game was not over, that we were still waiting for the House of Lords and so one could speculate on what the outcome might or might not be. I am not sure that one could have reasonably acted on that so I would regard this as an exchange such as you find regularly within institutions but which did not necessitate any particular action at that time.

  75. You do not think the fact that someone in your counsel division was saying, "Hey, chaps, this could go the way Lord Woolf is indicating", was anything you had to take any action on?
  (Sir Howard Davies) No. I think that at the time we had concluded that since this was definitely going to the House of Lords, to work on the basis of the Court of Appeal judgment and to do extensive work on what that meant for policyholders' reasonable expectations would be nugatory and that decision is clearly described at other points. The Baird Review I would say is somewhat critical of that and thought that we perhaps should have carried on with our analysis of the PRE dimension of this case, but he acknowledges that a decision was made that that should be deferred until we saw the outcome of the court case, so I am afraid this is merely one episode if you like of that story.

  76. So, although this view was there in the organisation and being transmitted to the appropriate place, it does not appear that anything was done about it?
  (Sir Howard Davies) No, I do not think so because I think that we were waiting for the House of Lords because the House of Lords could have gone either way, and it was not clear what we would actually do that was meaningful.

  77. So would you describe the response to that e-mail, to use your words, as a resolution?
  (Sir Howard Davies) The resolution was at a different part of the story. I do not think that there was anything that was needed to be done.

  78. Nothing was needed to be done?
  (Sir Howard Davies) No, because we were waiting for the House of Lords judgment. The point would have been to say, "Should we look at the Court of Appeal judgment and look in detail at what that means for policy holders' reasonable expectations?" That did not seem to me to have been particularly useful work since the House of Lords judgment could have changed things backwards towards the Equitable's interpretation or forwards, and indeed it did. Had we worked on that judgment it would have been nugatory effort.

  79. I have to follow on from that because, moving to the next page, 4.55.4, we find the next step in the communication such as was going on, and it is flowing the other way round. It is Equitable Life contacting you, not you contacting them, saying they were now starting to think about what might happen if it went the way Lord Woolf was implying. Do you not think the lines should go the other way round?
  (Sir Howard Davies) I am sorry, Mr Plaskitt, I have to come back to this point. That is not to say that it was going the way that Lord Woolf suggested it would. It was saying that the House of Lords was going further than Lord Woolf. That was because behind the arras somewhere, I presume, the lawyers for Equitable Life were getting some kind of signals from lawyers from the other side, or indeed from the Lords—I do not quite know how these things work—to suggest that the House of Lords might be taking a view that was even further away from the Equitable than before. That is something where we were not a party to the case so it is quite reasonable that that information should flow from the Equitable to us and not the other way round.

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