In Re Digital Satellites Warranty Cover Limited & ors  EWHC 122 (Ch) the English Companies Court considered three “public interest” petitions brought by the UK Financial Services Authority (the FSA) for the winding-up of two companies and a partnership (the Respondents). The FSA alleged that the Respondents had carried on (either in succession or with some overlap) substantially the same business namely the selling of extended warranty cover for satellite TV equipment without the authorisation required under the Financial Services and Markets Act 2000 (the FSMA). The warranties in question did not contain any obligation to pay money to the customer in any circumstances and were, for repair and replacement of equipment, cabling etc.
Council Directive 73/239/EEC (the Directive) effected a measure of co-ordination across the European Community requiring Member States to regulate direct insurance (other than life assurance). One of its aims was consumer protection. In the UK, the Financial Services and Markets Act 2000 (Regulated Activities) Order (SI 2001/3544) (the RAO) gives effect to the Directive. Neither the Directive nor the FSMA contain a definition of insurance or of a contract of insurance. The judge held that the RAO provided only a circular definition of "contracts of insurance" and therefore the Court had to look to the common law for a definition.
The judge referred to the widely acknowledged starting point of the judgment of Mr Justice Channell in Prudential Insurance Co v Inland Revenue Commissioners  2 KB 658 at : "A contract of insurance, then, must be a contract for the payment of a sum of money, or for some corresponding benefit ... to become due on the happening of an event, which event must have some amount of uncertainty about it ..." The judge held that the contracts entered into by the Respondents were clearly contracts of insurance at common law. In addition, the judge held that his finding in relation to the application of the common law applied equally to the application of EU law.
The judge then had to consider whether the contracts entered into by the Respondents fell within the RAO. The judge found that the contracts did fall within paragraph 16(b) of Schedule 1 to the RAO "risks of loss to the persons insured attributable to their incurring unforeseen expense". The judge found that there was no material distinction when considering whether a contract fell within paragraph 16 between a contract providing for repair and replacement and one which provides indemnity for costs incurred by the insured. The judge held in each case, that "the risk covered is essentially the same".
The Respondents were therefore in breach of the general prohibition under s.19 of the FSMA and, as a result, the judge made the winding-up orders.
This acts as a reminder of the lengths that the FSA will go to in order to meet its objectives under the FSMA which includes inter alia consumer protection.