The recent case of Re WASA International (UK) Insurance Co [2002] All ER (D) 127 (Dec) concerned the transfer under Part VII of the Financial Services and Markets Act 2000 (FSMA) of certain insurance businesses carried on by WASA (UK) and AGF Insurance Company Ltd. (AGF) to WASA (Sweden). In his judgment, Park J. considered whether an order sanctioning an insurance business transfer scheme would have the effect of automatically transferring to WASA (Sweden) the rights and obligations arising under reinsurance contracts between WASA (UK) and certain reinsurers, even though the contracts were expressed not to be transferable without the consent of the reinsurers and such consent had not been obtained.
The statutory regime
Section 112 of the FSMA deals with the effects of a court order sanctioning an insurance or banking business transfer scheme. In the WASA judgment the court was concerned with section 112(2)(a), which provides that such an order may:
"transfer property or liabilities whether or not the [transferor] otherwise has the capacity to effect the transfer in question".
Facts
WASA (UK) was party to several outwards reinsurance contracts under which the third party reinsurer’s consent to any transfer was required and had not been obtained. The question arose as to whether these reinsurance contracts would, by means of the order sanctioning the scheme, be transferred automatically to WASA (Sweden) under section 112(2)(a), with WASA (UK) thereby being released from any liabilities in relation to them.
The judgment
In his judgment Park J. followed the decision of Laddie J. in the unreported case of Re Cater Allen Limited (April 2002), which involved the transfer of banking business under the FSMA. Park J. quoted from Laddie J.’s judgment, as follows:
"Section 112(2) should be construed widely and gives the court power to sanction, where it considers in all the circumstances that it is justified, the transfer of property or liabilities even in cases where those properties or liabilities might otherwise be non-transferable, for example by reason of express contractual provision."
Both Park J. and Laddie J. dismissed the argument that section 112(2)(a) should be read as being concerned with matters of constitutional capacity only. Park J. agreed with Laddie J. that the effect of reading the section in this way would mean that insurance and banking business transfers which involve third party consent issues may need to proceed under private Act of Parliament, if the parties to the transfer want to avoid asking counter-parties to consent to their contracts being transferred.
Park J. therefore held that the effect of section 112(2)(a) was that the rights and obligations of WASA (UK) under the reinsurance contracts would be transferred automatically to WASA (Sweden) without the consent of the reinsurers having been given, even though such contracts were not otherwise transferable in the absence of such consent.
Comment
What the WASA judgment did not address was the effect of any contractual provisions in a third party agreement which are expressed to be triggered on a transfer of the contract. For example, would section 112(2)(a) override a provision which says that, not only is counter-party consent to transfer needed, but also that a transfer will trigger some form of option or an increase in rates?
This question would need to be considered in the light of the particular contracts which a transferor wishes to transfer by way of court scheme and applies to both insurance and banking business transfers.
It needs to be borne in mind that contract counter-parties have a right to object to a transfer scheme by making their views known at the court hearing. A court might be influenced by arguments put forward by a counter-party that a transfer would ride roughshod over his express contractual rights.