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Where objections to a proposed Financial Services and Markets Act 2000
("FSMA") Part VII transfer of insurance business had been
withdrawn prior to the hearing for sanction of the scheme, the objector
was not entitled to a costs order in its favour.
In order to simplify administration, 16 members of the Royal & Sun
Alliance Group sought the Court's sanction for a transfer of business
to British Engine Insurance Limited, also a member of the RSA Group.
The adequacy of the FSA's powers on a subsequent change of control of
British Engine as a means of protecting the interests of policyholders
was questioned by a reinsured, Hanover Ruckversicherung AG ("Hanover").
Hanover gave notice of an intention to appear at the sanction hearing
to object to the proposed transfer.
Shortly before the sanction hearing a letter from the FSA to the independent
expert appointed in accordance with Section 109 of FSMA was disclosed
to the Court and Hanover. As a result of the disclosure of this letter
the hearing was adjourned. Before the rescheduled hearing, Hanover concluded
that provided the FSA confirmed this position remained as set out in
the disclosed letter, it would not oppose the sanction application.
At the reconvened hearing a number of other objections were raised but
Richards J subsequently concluded that it was appropriate to sanction
the proposed transfer. Hanover sought an Order for its costs. The applicants
submitted the appropriate order would be no order as to costs.
In ordinary contested litigation it would require very unusual circumstances
for a party which had withdrawn opposition to be awarded costs. Cases
under the Companies Act involving the sanction of schemes of arrangement
and reduction of capital indicated that the usual approach in ordinary
litigation did not apply. The Court agreed that a similar approach applies
to FSMA Part VII applications. However, the objections by Hanover had
not been fully argued and had been withdrawn, and the case was not one
where the terms of the scheme were amended as a result of or to accommodate
objections raised. Accordingly Hanover was not entitled to its costs
as no Order for costs was made.
Richards J added, although he did not approach the question of costs
on this basis, that there was much to be said for a degree of certainty
in this area so that in the absence of strong factors justifying a different
order, such as the objector's impecuniosity, parties will know in advance
that the outcome would be no order as to costs.
Finally, Richards J also noted that the independent expert had referred
to the subsequently disclosed letter as a document on which he had relied
in making his report but did not attach the letter to his report as
the FSA wished it to be treated as confidential. Richards J indicated
that it was not in his view acceptable that material on which the expert
had relied, particularly if it was significant to an important aspect
of the expert's consideration of the scheme, should not be put before
the Court and be readily available to the parties. Different considerations
might apply to legal advice.
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