In Rainbow Insurance Co Ltd v Financial Services Commission [2015] UKPC 15 the Privy Council has affirmed the ambit of legitimate expectations and the circumstances in which a public body is obliged to consult. The case concerned the suspension of an insurance provider for failure to comply with statutory solvency requirements.

Key points

  • Where a public authority exercises regulatory powers in the interests of third parties there can be no legitimate expectation that it will act contrary to its statutory obligations.
  • There is no common law duty to consult. An obligation to consult will only arise under a statutory scheme or from creating a legitimate expectation.
  • Judicial review is not an appeal on the facts. The Court will only review questions of disputed fact where necessary to effectively review a measure's legality.  
  1. Background
  2. Judgment
  3. Comment

1. Background

The Financial Services Commission of Mauritius ("FSC") investigated concerns that Rainbow, an insurance business, was in breach of its solvency obligations under the Insurance Act (Mauritius) 1987 (the "Act") and commissioned an inspection report (the "Report") which identified multiple breaches. On 1 March 2007, the FSC wrote to Rainbow stating that as a result of the Report it had "reason to believe" that Rainbow was in breach, and proposed to suspend Rainbow's registration. The letter directed Rainbow to stop issuing and renewing insurance policies.

Rainbow referred the case to the Minister of Finance and Economic Development (the "Minister") for review. The Minister supported the FSC and on 24 September 2007 Rainbow's registration was suspended.

Rainbow raised four substantive grounds in alleging that the suspension was premature:

  1. procedural unfairness;
  2. illegality;
  3. irrationality; and
  4. breach of a legitimate expectation.

2. Judgment

As an overarching point of principle, the Court emphasised that in judicial review a court will only examine disputed facts where they affect review of a measure's legality. Public bodies should have discretion to exercise professional regulatory judgment over alleged factual errors.

Procedural unfairness

Rainbow argued that there is a common law duty to act fairly that was breached when the FSC decided without prior consultation to prevent them taking on new business from 1 March 2007. It argued that the suspension decision was effectively taken on that date and its subsequent turnaround proposals were ignored.

The Court noted that fairness is a variable concept and affirmed that there is no general common law duty to consult those potentially affected by a proposed measure. Such a duty can only arise under statute (which was not the case here) or as a result of a legitimate expectation being created.

In any event the Act gave Rainbow an opportunity to air its views by referring the case to the Minister and making representations. The FSC was not obliged to respond constructively so had not acted unfairly in imposing directions.


Rainbow argued that "reason to believe" was not a sufficient basis for effectively making the suspension decision on 1 March 2007, and that the FSC had improperly delegated decision-making power by basing its belief on the Report.

The Court found that the inspector was merely a fact-finder, and the 1 March 2007 letter was justified and appropriate as it acted upon the suspicion of breach which arose from those facts but only imposed temporary measures. Clear evidence of breach had been obtained before the final suspension decision.


Rainbow claimed the FSC's decisions were based on a flawed report and discriminatory because it did not allow Rainbow to include recoverables from third parties by subrogated claims within its asset calculation.

The Court held that a prohibition on shortfall in the Act entitled the FSC to act where a shortfall was discovered even if the Report was challenged. The FSC was concerned the recoverables lacked a legal basis and could not be accurately valued, so disallowing them was not discriminatory.

Legitimate expectations

Rainbow argued the FSC had thwarted its legitimate expectations by suddenly altering several relevant policies, having by its past conduct led it to believe that there would be a transitional period. It argued the FSC was required to consult to give it a reasonable time to adapt to the changes.

Lord Hodge noted that legitimate expectations shield against gross unfairness or abuse of power by a public body and are underpinned by the rule of law. Procedural legitimate expectations arise where a person is led to believe they will be given a chance to air their views before a decision is taken which could disadvantage them; and substantive legitimate expectations occur where a person is led to believe they will retain a benefit or advantage. Both can arise from an express promise or an established practice which can reasonably be expected to continue (Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374, 401), but a substantive legitimate expectation based on established practice may be overridden by public interest.

Rainbow argued that a "secondary procedural expectation" as outlined by Laws LJ in R (Niazi) v Secretary of State for the Home Department[2008] EWCA Civ 755 applied where, as in this case, the public body had given no assurance of consultation or continuing a policy but its past conduct was "pressing and focused" on those who could be affected, and there is a group of people that could expect the substance of the relevant policy to continue for a reasonable period as a cushion against change.

The Court noted that there are cases where a change of policy cannot be made abruptly because it would be so unfair as to amount to an abuse of power. The frustration of the substantive legitimate expectation comes not from the alteration of the policy itself but the way in which it is done. However, there is no entitlement to a relaxation of a statutory requirement beyond the public body's discretion. There can be no legitimate expectation that a public body would act contrary to a statute (R v Secretary of State for Education and Employment, ex p Begbie [2000] 1 WLR 1115).

In this case, the FSC was exercising regulatory powers in the interests of policy holders, so there could be no legitimate expectation that it would act contrary to the statute, which obliged it to suppress illegal practices. Further, Rainbow had been told of the FSC's concerns three years before it was suspended and had itself proposed a turnaround plan, so there was no legitimate expectation of any consultation to give it additional time to adapt.

3. Comment

This case affirms the absence of an implied common law duty to consult. Where there is no statutory consultation requirement applicants will have to establish a legitimate expectation, and this case outlines the limited ambit of that doctrine particularly where third party rights are involved. Proactively taking any opportunity to make representations is therefore important as failure to do so is unlikely to be remedied by claiming an implied duty or a legitimate expectation of consultation.

More generally, the case serves as another example of the difficulties in successfully challenging decisions of expert regulators.