18 SEP 2016
Case note on UPG v The Attorney General of Trinidad and Tobago  UKPC 17
Commercial law practitioner, 3 Veralum Buildings
The appellants were residents of Trinidad and Tobago and holders of life policies issued by a life insurance company ('the Company'). The Company’s parent holding company held assets equivalent to more than 70% of the country’s GDP. In the aftermath of the 2009 banking crisis, the Company’s financial position became precarious. In response the government and Central Bank of Trinidad and Tobago took various remedial measures. This included, in February 2009, the Central Bank’s decision to take control of the Company in the hope of buttressing market confidence in the Company. At the same time they asked the policyholders not to seek early withdrawals. A number of other public statements were made including one by the Company’s new chief executive at the time of the takeover that the Company wished to assure all its policyholders that all terms and conditions of existing policy contracts would be honoured and all policyholder funds were guaranteed by the government and Central Bank. There were other similar statements, though generally more qualified.
In 2010 there was a change of government. The new government formed an unfavourable view of its predecessor’s response to Company’s financial difficulties. It did not see the problem as a mere liquidity issue to be covered in the short term. It identified more significant problems with the Company. In September 2010, the new minister of finance criticised the approach of the former government which had cost the nation funds equal to more than 10% of the country’s GDP. A different policy was adopted and instead of offering a full indemnity, the new government offered annuity policyholders a buy out of their rights at a discount.
The question arose in the Privy Council whether the appellants had been given a legitimate expectation of full pay out as a result of the statements made and if so whether the government was entitled to resile from that legitimate expectation.
The appellants’ appeal failed. The Board asked two questions: first whether there was a legitimate expectation and second whether the government was entitled to resile from it. The Board was prepared to assume without deciding that the appellants had a legitimate expectation. It focused on the government’s entitlement to resile from that assumed expectation as a means of determining the case. It found no grounds for impugning the Court of Appeal’s decision that the government could resile as it had done.
Points of interest
The following three points of interest arise.
First, it is interesting to note the reasons why the Board was disinclined to decide that there was no legitimate expectation. In that regard they remained unimpressed by the submission that the macro-economic and macro-political fields in which the case lay were inherently inimical to the development of a legitimate expectation. They considered that whilst such factors were pertinent to the question of whether the government could resile from a legitimate expectation they were less relevant to whether such an expectation arose in the first place. By contrast, they considered it significant that the assurances were not made to an unidentified class but to the appellants specifically as investors and therefore to an identifiable group (see paragraph 49). This helps confirm that the impact of a macro-economic context in a legitimate expectation claim is of relevance to the second half of the question not the first.
Secondly, in concluding that the government could resile, the Board was influenced by the following factors: a) by contrast to Paponette  1 AC 1, the government’s thinking had been explained to Parliament at the time (paragraph 62); b) the government’s decision gave rise to considerations in the macro-economic sphere where it was right to give its reasons considerable weight. In this context arguments as to what alternative economic policy the government could have taken were unpersuasive (paragraphs 68-70); c) of more persuasive weight was the need for the government to weigh up the assurances themselves which the Board was convinced had been done (paragraphs 72ff). What is notable about this analysis is the absence of an overt and structured proportionality analysis in assessing whether the government was entitled to resile, despite the general acceptance of its relevance for that purpose in the principles cited in Lord Carnwath’s judgment (see paragraphs 118, 120 and 121). Although not made explicit, this is in line with the approach of the case law in the macro-economic context. Indeed, Laws LJ in ex p Begbie  1 WLR 1115 at paragraph 69 considered that the rationality test was more appropriate in such situations. In other cases the proportionality test has remained but the courts have, as here, focused on whether the decision maker took the legitimate expectations into account as a relevant consideration (see R (on the application of Ibrahim) v Redbridge LBC  EWHC 2756 at paragraph 12, for example). It is interesting to note in this regard how similar in effect the protection afforded by a substantive legitimate expectation can be to that usually afforded by a procedural expectation, namely protections that go particularly to the process of making a decision, as what factors needed to be considered by the decision maker.
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The third point of interest comes from Lord Carnwath’s concurring opinion which provided a useful overview of the current state of the law of substantive legitimate expectations. He began by noting that some of the confusion as to the nature of substantive legitimate expectations may have arisen from attempts to unify approaches in procedural and substantive legitimate expectations observing that 'with hindsight, it appears that the court in Coughlan may have been unnecessarily ambitious in seeking a grand unifying theory for all the authorities loosely grouped under the general heading of legitimate expectation' (paragraph 112).
At paragraph 114, he reaffirmed the distinct application of the legitimate expectation doctrine in the tax setting, noting that whilst the Revenue is not governed by special principles of public law those principles take effect in a special context. This can hamper taxpayer appellants bringing a legitimate expectations claim. He cited Lord Wilson in R (Davies) v Inland Revenue Comrs  UKSC 47,  1 WLR 2625, paragraph 49, who held that to have legal effect the promise must constitute a 'specific undertaking', in other words, taxpayers needed evidence of a 'practice … so unambiguous, so widespread, so well-established and so well-recognised as to carry within it a commitment to a group of taxpayers including themselves of treatment in accordance with it'. It is interesting that this phrasing suggests that the special role of the Revenue means it is harder for legitimate expectations to arise at all rather than easier for the government to resile from them (i.e. unlike the presence of macro-economic factors, this aspect goes to the first stage of the test, not the second). As above, this contrasts, perhaps unusually, with the Board’s view of the stage at which macro-economic factors should be considered.
Lord Carnwath further noted that aspects of the broader Coughlan decision were now covered by other principles. In the immigration context, for example, matters had been moved on from Coughlan and legitimate expectations by the general principle that policy must be consistently applied to avoid it being irrational (paragraph 116).
Having made these distinctions he approved of the identification of the narrower basis of the decision in Coughlan by ex p Begbie  1 WLR 1115. Simply stated this was: 'Where a promise or representation, which is “clear, unambiguous and devoid of relevant qualification”, has been given to an identifiable defined person or group by a public authority for its own purposes, either in return for action by the person or group, or on the basis of which the person or group has acted to its detriment, the court will require it to be honoured, unless the authority is able to show good reasons, judged by the court to be proportionate, to resile from it' (paragraph 121). This phrasing suggests that detriment or a promise “in return for action” by the promisee group is an essential element of the doctrine of legitimate expectation. However, in R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (No 2)  AC 453 at paragraph 60, quoted in Lord Neuberger’s judgment at paragraph 85, Lord Hoffman summarised the requirements adding that 'it is not essential that the applicant should have relied upon the promise to his detriment, although this is a relevant consideration in deciding whether the adoption of a policy in conflict with the promise would be an abuse of power and such a change of policy may be justified in the public interest'. Further De Smith’s review of the case law concludes that 'despite dicta to the contrary, it is not normally necessary for a person to have changes his position or to have acted to his detriment in order to qualify as the holder of a legitimate expectation' (De Smith’s Judicial Review, 7th Ed. at 12-041). The chapter cites ex p Hamble Fisheries  2 All ER 714 at 725 in support. Paragraph 121 of Lord Carnwath’s review seems to add to the contrary dicta in that respect.
Whist the Board refrained from delving deep into the constitutional foundations of substantive legitimate expectations, considering such a wholesale review of its architecture inappropriate in the current case, the judgments are useful in a variety of ways.
First, the analysis of the Board reinforces the structure of the test for legitimate expectations (albeit obiter). The macro economic factors were applied to the question of whether the government was entitled to resile not whether the legitimate expectation arose in the first place.
Secondly, it provides a useful example for the application of substantive legitimate expectations in a decidedly macro-economic context. In particular, the Board’s refusal to scrutinise in detail what alternative policies could have been adopted instead is indicative of the greater deference given to a government’s reasons for resiling in such an area. The Board’s focus instead on whether the government considered the assurances sufficiently as a factor in making its decision provides an example of the sort protection that a substantive legitimate expectation gives rise to in a macro-economic context. It is interesting how similar in effect this approach is to that in a procedural expectation. Whilst in theory the validity of any government’s decision to resile from a substantive legitimate expectation must be tested against a proportionality assessment (see paragraph 121), in macro-economic settings the courts’ tendency to give weight to government reasons and shy away from detailed scrutiny may in practice, as here, makes the review of the resiling act appear closer to an assessment of procedural fairness.
Finally, Lord Carnwath’s useful albeit brief overview makes some pertinent distinctions. It observed the differences in the tax context, recognised how different but related methods of review have similar effects in other spheres (like that of immigration) and reasserted the narrower approach in Coughlan as the usual basis for substantive legitimate expectations. In that respect it is interesting that detrimental reliance seems to have been considered a necessary factor for a substantive expectation to arise.