Equitable strife

The Equitable Life battle pitted two of the bar’s greatest rivals against each other – Tony Grabiner and Jonathan Sumption. But just before the case got to the House of Lords, Equitable Life switched from Grabiner to Elizabeth Gloster. Chris Brock reports.

As most financial advisers will tell you, one of the most important things in life is planning for the future. It is a lesson the Equitable Life Assurance Society, the world’s oldest mutual, has learned to its cost. Few at the society could have predicted that a straightforward test case on guaranteed annuity rates would see one of the biggest legal battles in recent years and pit two of the biggest rivals of the bar against each other. Few could have imagined that the case would carry on for 18 months and that Equitable Life would face a legal bill of £2.5m. And few at the society might have predicted that the outcome of the case would have led to it being put up for sale.

In the 1960s, the society started offering policies with the option of guaranteed annuity rate bonuses and it thought it was on to a winner. Who could resist a fund that promised such high returns whether annuity rates rose or fell? More than 90,000 customers signed up for around 116,000 policies with the guarantee.

Even when annuity rates began to fall below the guaranteed levels in October 1993, Equitable Life did not seem to anticipate the possibility of any difficulties. It was only when the rates failed to rise again that a problem reared its ugly head. A problem that would not only affect Equitable Life, but the whole of the pensions industry.

With the national rates much lower than anyone had foreseen, the society was faced with bonus pay-outs it could not afford. If all the policies had matured at the same time, the cost would have been in the region of £1.5bn. The pot was not big enough. The board had to make an executive decision – it lowered the bonus rates.

Inevitably, policyholders complained. Taking pride in its policy of openness, the society decided to launch a major test case. The board was confident that what it had done was consistent with the terms of its original policy. It chose a policyholder, semi-retired stockbroker David Hyman, to represent the rest of its clients and began what it believed would be a high profile case, satisfying its customers and the general public that it had done the right thing.

In this action, it turned to its long-standing law firm Denton Hall, now Denton Wilde Sapte, which in turn instructed Tony Grabiner QC of One Essex Court.

Past experience also played an important role in Hyman’s choice of firm. Armed with a blank cheque signed by the society, he approached Norton Rose, with which he had worked before. And when Norton Rose learned that Equitable Life had chosen Grabiner as counsel, it knew who to place opposite him.

Norton Rose commercial litigation partner Peter Hardy says: “They had appointed Lord Grabiner by the time I got involved in December 1998. We went to Sumption because we believed that this would require top flight advocacy and he had the technical skills to get to grips with something like this. Hyman was aware that Denton Wilde Sapte clearly had a pretty hefty machine in place and he wanted the best in place to oppose it. They’re both the absolute top of the tree.”

Jonathan Sumption QC and Grabiner were the perfect choice. The two, neither of whom likes to get out of bed for less than £800 an hour, had last been seen battling for pole position in the headline grabbing case brought by Sphere Drake against Orion, which went to the High Court in October 1998. Grabiner and Sphere Drake had won at first instance, but the case went to appeal in October 1999. At the appeal Sumption and Orion won.

And when Grabiner and Sumption get in the ring, it gets personal.

Sumption kicked off by attacking the clarity of Equitable Life’s literature. “Some aspects of its affidavit can only be described as irrational,” he told the court, before later moving to confront Grabiner for not making his case in a straightforward way.

Grabiner did not take this lying down. He lashed out at Sumption’s “rude remarks” and “shaggy dog stories”.

Unfortunately for Norton Rose and the policyholders, Sumption’s skills were not enough at the first instance. At the High Court, the society got what it was looking for. As Denton Wilde Sapte partner Cindy Leslie describes it, the society achieved “certainty” to three questions that it was asking.

The answers it got in the High Court were yes, it did have discretion over the bonuses, and yes, it had exercised its discretion correctly. Problem solved. The decision of Sir Richard Scott, then vice-chancellor, meant that the society appeared to be correct in its actions and that it had not contravened any contractual obligation.

Norton Rose’s Hardy says: “Sir Richard Scott was effectively saying that there was a very broad discretion that Equitable have. He was not prepared to say that what it did was so wrong that the court is prepared to intervene.”

Equitable Life went home happy. That is until Hyman appealed. In January this year, there was a rematch before Master of the Rolls Lord Woolf, Lord Justice Morritt and Lord Justice Waller at the Court of Appeal, with both sides facing a completely different angle.

“It was a broader canvas they were painting,” says Hardy. “There is a self-evident commercial purpose to a guarantee. If you promise that an annuity will remain at a level even if the market rates drop, and they do drop, you’d expect to have a more valuable annuity than somebody without a guarantee.”

The Court of Appeal found against the society. It was a victory for the common person against a Goliath of commerce. This was a picture the society did not like and so it took the next step. The House of Lords was waiting.

Hardy says: “There is a different forum in the Lords completely. You start with a fresh canvas in a way because you start from scratch.”

Sumption prepared for the third, and ultimate, encounter with Grabiner in this now monumental case. But when the proceedings began there was a new face present. Grabiner was no longer representing the society, and instead Sumption was battling it out with Grabiner’s colleague from One Essex Court, Elizabeth Gloster QC.

Why change advocates? Was it to throw Sumption, obviously well versed in Grabiner’s style, off his stroke? Were the policyholders dissatisfied? A spokesperson for One Essex Court, Grabiner’s chambers, suggests that he had other commitments, though Leslie from Denton Wilde Sapte believes they needed a fresh approach to the now ageing case.

“We didn’t change our approach,” says Hardy. “We did try and make sure that when we were in front of the Court of Appeal we got the broader perspective across. But we didn’t change our approach because the advocate changed on the other side.”

Meanwhile, Gloster, whose résumé is bulging with high-profile cases such as the collapse of Barings Bank and the litigation surrounding Bermuda Fire & Marine Insurance, smoothly stepped in. She was even commended by Lord Woolf for showing “a full grasp of the intricacies of a case that has its recondite depths”.

As the final judgment loomed, both sides waited nervously. Equitable Life knew that if it lost it would be the end of its mutuality. It was without doubt that the judgment would send shock waves throughout the whole of the assurance industry. But if it won the consumer would have little defence in future against any suggested breach of contract under similar circumstances. As Leslie says, it was an “unprecedented situation”.

On 20 July, the ruling arrived. It was unanimously agreed that the society was in the wrong.

The implications were devastating, but would the decision have been any different had it maintained the same silk all the way through?

“No,” says Hardy. “It wouldn’t have won in my view. Lord Woolf’s approach was the right one and the one embraced by the House of Lords.

“If you’re fundamentally wrong, it doesn’t matter how you try to jig the figures, you’re still going to be wrong. The only way to get it right is to recognise that it comes at a price.”

On the very same day of the result Equitable Life went up for sale. Despite Leslie’s insistence that the board’s actions had been “a fair and proper exercise of our discretion” it was the only choice it was left with. If it had been forced to pay out bonuses as it was set from its own coffers, it would have been weakened so much that the society’s future would have been in jeopardy.

There is also talk in the press of more litigation against the society. Holders of policies without the guarantees which have been the core issue of this test case, are concerned that they will lose out as more funds are allocated to those with the guarantees. Other companies which offer similar policies are worried that they too may face action now that a precedent has been set. Denton Wilde Sapte may be busy for a while to come.

Meanwhile, the next round of the Grabiner and Sumption battle is set for the House of Lords early next year in the last stage of the Sphere Drake v Orion case. Expect sparks.


The crux of the Equitable Life case revolved around the issue of whether the company directors were able to differentiate between the bonuses paid to holders of policies with and without guaranteed annuity rates, and whether the company was within its rights to alter the rates of bonuses after the guarantee had been set.

The initial argument for the society was that, as it was a mutual, it was acting in the best interests of the policyholders when it made the decision to change the rates and that the policy agreement was so broad it allowed the freedom to do this. However, Master of the Rolls Lord Woolf was more concerned with the idea that if a promise of guarantee is made to a policyholder, whatever the context or environment at the time, that promise must be kept.


For Equitable Life

Cindy Leslie, Denton Wilde Sapte

Large scale fraud specialist Cindy Leslie joined Oppenheimers (later Denton Hall, now Denton Wilde Sapte) in 1976, where she was made a partner in 1982. In her time with the firm she has acted for the Newspaper Publishers Association over TV listings and for Virgin Retail with regard to Virgin Megastore Radio.

Tony Grabiner QC, One Essex Court

Head of One Essex Court chambers, Grabiner is considered one of the finest QCs in the country. He is director of the London Court of International Arbitration. Last year he earned in the region of £2m.

Elizabeth Gloster QC, One Essex Court

Specialising in commercial and especially insolvency, Gloster is no stranger to high profile cases. She worked on the liquidation of Barings Bank, the takeover of Wellcome by Glaxo and the Maxwell pensions. She has acted for the Serious Fraud Office and the DTI.

Brian Green QC, Wilberforce Chambers

Since being called in 1980, Green has worked extensively in pensions. Cases include Lloyds Bank Pension Trust Corp v Lloyds Bank; Express Newspapers Trustee v Express Newspapers; and Law Debenture v Pensions Ombudsman.


Andrew Lenon, One Essex Court

James Ayliffe, Wilberforce Chambers

For David Hyman

Peter Hardy, Norton Rose Insurance and reinsurance partner Hardy joined from Norton Rose in 1990 from what is now Addleshaw Booth & Co, and became a partner in 1994. Cases include acting for the MCC companies in the Maxwell Crime Policy litigation and acting for the loss insurers in the market-wide eastern European shipbuilding dispute.

Susan Dingwall, Norton Rose

Dingwall joined Norton Rose from DLA in January 1999, where she had been head of reinsurance. At Norton Rose she has acted for Lloyd’s in a test case to recover funds from Names, for the Mirror Group over disputes following the death of Robert Maxwell, and for the BCCI liquidators in connection with the bank’s worldwide insurance cover.

Jonathan Sumption QC

Sumption, like Gloster, is a deputy High Court judge and also a judge of the Court of Appeal. Regarded as one of the heavyweights of the bar, he has represented clients as diverse as Citibank, boxing promoter Frank Warren and some of the world’s biggest tobacco firms. Other big name cases have included BBL v Eagle Star, R v Home Secretary ex parte: Pinochet and Commercial Union Assurance Co & ors v NRG Victory Reinsurance.


Simon Salzedo, Brick Court Chambers

Sarah Asplin, 3 Stone Buildings