Digital Satellite Warranty Cover Limited (“DSWC”) and Michael Sullivan and Bernard Freeman (trading as ‘Satellite Services’) v Financial Services Authority

Summary

The Supreme Court dismissed an appeal from the Appellants challenging the FSA’s decision to wind up DSWC and Satellite Services, in the public interest, for offering consumers extended warranty cover for the repair of satellite dishes and digital television boxes. The court agreed that this amounted to the carrying out of regulated insurance contracts and therefore required authorisation by the FSA.

Background

In January 2011, the FSA secured winding up orders from the High Court against DSWC and Satellite on the basis that the firms were offering consumers extended warranty cover for satellite TV equipment, which amounted to contracts of insurance, without authorisation from the FSA. The FSA’s case was that this was in breach of section 19 of the Financial Services and Markets Act 2000 (“FSMA”), which provides that no person may carry on a regulated activity unless he is either an authorised or exempt person. The FSA therefore sought to wind up the companies in the public interest under s.367(1)(c) FSMA.

The Appellants both carried on business which consisted of selling and performing extended warranty cover for satellite dishes and digital television boxes. They were not FSA authorised. They contracted to repair or, if necessary, replace the equipment in the event of a breakdown. The FSA considered the Appellants were offering the equivalent of contracts of insurance to consumers without FSA authorisation and so applied for winding up orders against the Appellants.

The Appellants’ case was that the contracts were not of a kind which required their business to be authorised under FSMA because the classes of regulated activities did not extend to contracts which only provided benefits in kind, i.e. repair services and replacement goods.

Decision

The Supreme Court considered the intentions of the First Council Non-Life Insurance Directive 73/239/EEC. The object of the First Directive as a whole is to impose certain uniform principles of regulation on insurance businesses in the standard classes, but not on any falling outside those classes. Therefore the Supreme Court concluded that it was not intended to limit the freedom of member states to regulate other categories of business and therefore there was nothing to prevent the UK from legislating to regulate insurance of those kinds irrespective of whether they provide benefits in cash or kind or both.

The Supreme Court agreed with Warren J’s reasoning that a “contract for repair or replacement only in the event of breakdown or malfunction which does not oblige the insurer to indemnify the insured for costs which the insured himself incurs” is nevertheless a contract of insurance.

The Court therefore concluded that the business carried out by the Appellants did constitute a regulated activity which should be authorised by the FSA.

Comment

This is the first time the FSA has appeared in front of the Supreme Court in a case involving unauthorised business. The FSA said that the judgment will help protect consumers from inadvertently dealing with unauthorised businesses that offer similar cover.

The Supreme Court’s decision provides guidance to firms that offer warranties and will help them understand when they should liaise with the FSA regarding authorisation.