Court Of Appeal Rules On Winding-Up Of Firms Offering Satellite Warranties

On 29 November 2011, the Court of Appeal dismissed the appeal lodged by Digital Satellite Warranty Cover Limited (DSWC) and Bernard Freeman and Michael Sullivan, trading as Satellite Services (SS)1 , in respect of winding-up orders previously secured by the Financial Services Authority (FSA) against these companies.

DSWC and SS had provided "extended warranties" for satellite television equipment in return for an insurance premium. This was deemed by the High Court2 to effectively be a contract of insurance, which – under the general prohibition in section 19 of the Financial Services and Markets Act 2000 (FSMA) - can only be carried out by entities authorised by the FSA. Such authorisation had not been sought by DSWC or SS.

The Court also considered the definition of "insurance contract", in particular, as explored under the common law3 under which it was held that:

"A contract of insurance ... 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, and must be of a character more or less adverse to the interest of the person effecting the insurance".

The Court therefore found that:

"a contract which provides cover for risk in the shape of a consideration other than money, and in particular an obligation to repair or replace, is, at common law, capable of being an insurance contract". As a result, DSWC and SS were deemed guilty of breaching the general prohibition in FSMA and it was held that they should therefore be wound up in the public interest, as per the FSA's petition.

This position has been reconfirmed in the ruling of the Court of Appeal of 29 November. DSWC and SS now have 28 days to seek permission from the Supreme Court of the United Kingdom to appeal the Court of Appeal's decision. The ruling in this case will be of particular significance as it supports the position held by regulated entities – such as insurers – to date, i.e. that the provision of...