Strand, London, WC2A 2LL
B e f o r e :
|IN THE MATTERS OF: DIGITAL SATELLITE WARRANTY COVER LIMITED (company number 05986843)|
|NATIONWIDE DIGITAL SATELLITE WARRANTY SERVICES LIMITED (company number 05597928)|
|BERNARD FREEMAN AND MICHAEL ANTHONY JOHN SULLIVAN TRADING AS "SATELLITE SERVICES" (a firm)|
|AND IN THE MATTER OF THE FINANCIAL SERVICES AND MARKETS ACT 2000|
|AND IN THE MATTER OF THE INSOLVENCY ACT 1986|
Lloyd Tamlyn (instructed by Messrs Brabners Chaffe Street LLP) for the Company and the Partnership
Hearing dates: 13th and 14th of January 2011
Crown Copyright ©
Mr Justice Warren :
The relevant facts
a. The recipient is told that, without a warranty, a minimum call-out fee of £72 would be incurred. The customer is invited to "restore peace of mind and extend your sky digital warranty with us…".
b. A highlighted box contains the words "Extend your warranty cover with unlimited call-outs" with "no repair bills, call-out charges or labour to pay".
c. The application form is headed "Sky Digital Satellite Coverplan".
"Now I do appreciate what you're saying HOWEVER… Not only do you get unlimited call outs, you are covered for all repairs including outside dish, set top box, cables and remote control…."
a. Condition A under "What is provided" purports to provide that a contract upon those terms comes into being upon signing and return of the application form duly completed or by verbal acceptance (presumably in the telephone call with the salesperson). There is nothing to suggest that a customer would know of these terms and conditions during the course of the telephone call.
b. Condition C refers to "repair or replace". There is no obligation to meet any cost incurred by the customer.
c. Condition F provides that where a remote control unit needs replacing, it must be sent back to the service department when a replacement will be provided. There is no exclusion in this provision for accidental damage.
d. There is a section headed "What is not provided under your service contract with us". Condition E under this heading excludes a case"Where any damage to the Equipment has been caused by theft, attempted theft or intentionally, or the damage is caused by fire, explosion, dampness or liquid spillings or foreign bodies inside the Sky Box."
e. And under Condition J, cover is not provided where the fault existed before the application form was sent.
A. The relevant Directives
a. The third recital tells us that"a classification of risks in the different classes of insurance is necessary in order to determine, in particular, the activities subject to a compulsory authorization and the amount of the minimum guarantee fund fixed for the class of insurance concerned"
b. The sixth recital tells us that"it is necessary to extend supervision in each Member State to all classes of insurance to which this Directive applies…."
c. The tenth recital tells us that"it is desirable to require a minimum guarantee fund related to the size of the risk in the classes undertaken, in order to ensure that undertakings possess adequate resources when they are set up and that in the subsequent course of business the solvency margin shall in no event fall below a minimum level of security"
d. Article 1 explains that the First Directive is concerned with direct insurance in the classes of insurance defined in the Annex. Articles 2 and 3 exclude from the scope of the First Directive various types of insurance (exclusions which are not restricted to life assurance). And Article 4 excludes from its scope various institutions in different Member States.
e. Each of Articles 5 to 22 contains provisions concerning authorisation or margins of solvency designed to effect the purposes apparent from the recitals which I have mentioned. I should mention the following:
f. Article 6(1) provides that "each Member State shall make the taking-up of direct insurance in its territory subject to an official authorization". There is nothing in Article 6 which expressly restricts direct insurance (not excluded from the scope of the First Directive by Articles 2 to 4) to those classes of insurance set out in the Annex. However, it is, I think, clear that, reading Articles 1 and 6 together, the direct insurance referred to in Article 6 is the same as the classes of insurance defined in the Annex. This conclusion is supported by reference to Article 7(2) which provides that an authorisation shall be given for a particular class of insurance. The First Directive is not concerned with direct insurance which is not within one of the classes defined in the Annex assuming that there is such a category of insurance. Mr Davis submits that the classes are exhaustive of all direct insurance within the meaning of the Community law other than life assurance and the matters excluded by Articles 2 to 4. Mr Tamlyn, in contrast, submits that the First Directive itself defines, by reference to the Annex, what classes of insurance are covered; it is possible to have a category of direct insurance which does not fall within any of the classes so that the conduct of insurance business relating to that class does not require authorisation. I will consider this aspect further later in this judgment.
g. Part A of the Annex contained, in its original form, 17 paragraphs under the introductory words "Classification of risks according to class of insurance". Class 3, 4, 5 6 and 7 relate to various types of physical property. Class 8 relates to fire and natural forces, the risk being damage to or loss of property other than those classes due to fire and various other specified items. Class 9 relates to "Other damage to property", the risk being all damage to or loss of property other than those classes due to "hail or frost and any event such as theft, other than those mentioned under 8". Classes 10 to 13 relate to liabilities (motor vehicles, aircraft, ships and general). Class 14 relates to credit, class 15 relates to suretyship (both direct and indirect) and class 16 relates to "Miscellaneous financial loss". Class 17 relates to legal expenses.
h. Under class 16 are listed a number of items of risk which the class covers. With the exception of "bad weather", they are all expressly something to do with money – income, benefits, expense, value, rent or revenue, indirect trading losses, and "other financial loss (non-trading)". There is a residual item of "other forms of financial loss". It is not clear what the difference between these last two items is.
a. Paragraph 8: Fire and natural forces. This class covers fire, explosion, storm, natural forces other than storm, nuclear energy or land subsidence (the same risks as class 8 in the Annex).
b. Paragraph 9: Damage to property. This class covers loss of or damage to property due to hail or frost or any other event (such as theft) other than those mentioned in paragraph 8 (the same risks as class 9 of the Annex).
c. Paragraph 16: Miscellaneous financial loss. The wording of this paragraph is significantly different from that of the Annex. It comprises cover against the following risks:(a) Loss attributable to interruptions of the carrying on of a business or a reduction of the scope of the business.(b) Loss attributable to the incurring of unforeseeable expense (other than loss within paragraph 18).(c) Risks not within (a) or (b) and which are not of a kind covered by contracts within any other provisions of the Schedule.
d. Paragraph 18: Assistance. This reflects the Amending Directive. This class covers insurance providing either or both of the following benefits.(a) assistance (whether in cash or kind) for persons who get into difficulties while traveling, while away from home or while away from their permanent residence; or(b) assistance (whether in cash of kind) for persons who get into difficulties otherwise than as mentioned in (a).
Contract of insurance
"A contract of insurance, then, must be a contract for the payment of a sum of money, or for some corresponding benefit such as the rebuilding of a house or the repairing of a ship, 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"
"That definition, including Channell J's careful pronouncement that there must either be the payment of a sum or some corresponding benefit, seems to me to meet the present case and particularly so when, in substance, there seems to me to be no difference between the defendant company paying a chauffeur on the one hand and on the other hand agreeing to pay to the individual member a sum of money which would represent the cost to him of providing himself with a chauffeur in the event of his being disabled from driving himself. I cannot see any difference in logic between the two and therefore I see no reason why, in the present case, the arrangement made by the defendant company should not amount to insurance."
I do not think it would have made any difference to the decision if the insurer had had on its staff chauffeurs whom it would be able to provide to insured persons.
a. The contract must provide that the assured will become entitled to something on the happening of some event;
b. The event must be one which involves some element of uncertainty;
c. The insured must have an insurable interest in the subject matter of the contract;
There was a dispute about what that "something" was: was it simply "some benefit" or was it "money or money's worth"? The judge decided, following the St Christopher case, that the "something" to which the assured becomes entitled when the stipulated event happens does not need to be money but can be the provision of services paid for by the insurer.
"The true effect of the contract is to be ascertained, I think, not upon a scrutiny of the terms used but upon an examination of its effect."
"The court in its judgment (Case C-349/96)  2 AC 601 621 et seq noted that "insurance transactions" and the concept of insurance are not defined either in the Sixth VAT Directive or in Council Directive 73/239/EEC (the First Council Directive on direct insurance other than life insurance) but said, at p 625:
'17 ... the essentials of an insurance transaction are, as generally understood, that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded.
18 It is not essential that the service the insurer has undertaken to provide in the event of loss consists in the payment of a sum of money, as that service may also take the form of the provision of assistance in cash or in kind of the type listed in the annex Directive 73/239 as amended by Directive 84/641. There is no reason for the interpretation of the term 'insurance' to differ according to whether it appears in the Directive on insurance or in the Sixth Directive.'"
Contracts of insurance within the Annex or Schedule 1 RAO
"When something goes wrong phone the Service Plan Emergency Number…. And we'll recommend a qualified engineer in your area. We'll reimburse you or pay the bill direct, minus the standard £15 service charge per claim."
"….while I accept that the fact that the cover is described in terms of –
…..the company will indemnify the insured against the full costs incurred for labour, repairs and replacement parts….."
is far from conclusive that financial loss is the subject of the insurance, nevertheless that formulation is consistent with the construction which I prefer. It is of course true that any risk in relation to property belonging to the insured person can be rewritten in terms of an indemnity to the insured against the cost of making good the relevant loss or damage. The true nature of the risk insured against should not be allowed to be obscured by any such verbal formula. In my judgment the critical factor in this case is that the risk insured against is not on its true construction one which falls within class 9 and not that it is identifiable as a separate type of financial loss separately identified in class 16."
a. In the case of DSWC, cover included, since there is no exclusion, accidental damage and storm damage to satellite dishes outside the building and certain other damage.
b. In the case of NDSWS, although accidental damage is excluded, there is cover for some other risks which, standing alone, would clearly fall within classes 8 or 9.
c. In the case of the Partnership, the position is the same as in relation to DSWC.
a. NDSWS appears to have operated on the basis that it was making VAT exempt insurance supplies.
b. When the FSA visited DSWC in May 2010, the investigators were told that "the difference was that with NDSWS they weren't paying VAT".
c. NDSWS was warned by the FSA in April 2006 that it was considered to be effecting and carrying out contracts of insurance. The last that the FSA heard was a letter from NDSWS's solicitors dated 9 October 2006, indicating that NDSWS was preparing new documentation which would be submitted to the FSA for approval.
d. NDSWS has never filed any annual return or accounts at Companies House.
e. The indication given to the FSA's Companies Investigation Branch by Mr Freeman (one of the partners in the Partnership and a respondent to the Partnership petition) in September 2009 was that NDSWS had been closed down.
f. The indication given to the FSA's investigators on 12 May 2010 was that NDSWS was inactive and had been struck off the register.
g. The FSA has found that:i. There are two business accounts at Barclays bank in the name of Mr Sullivan trading as Nationwide Digital Satellite Warranty Service. The turnover on one of these accounts is substantial and increasing:2008: £131,770
2010 to date: £2,234,043;ii. The FSA has also found that Mr Sullivan has a merchant services facility with Barclays in the name "Nationwide Digital Satellite":