Examination of Witnesses (Questions 60-79)|
TUESDAY 30 OCTOBER 2001
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
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
(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 pastthis is a problem with the old regime
that we were operating, which focused only on communications at
the point of salewas 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
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
Mr Ruffley: If that is Howard's Way I
think we should look at it again.
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
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 LordsI do not quite
know how these things workto 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.