Re Digital Satellite Warranty Cover Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Clarke,Lord Sumption,Lord Mance,Lady Hale,Lord Neuberger |
| Judgment Date | 13 February 2013 |
| Neutral Citation | [2013] UKSC 7 |
| Date | 13 February 2013 |
| Court | Supreme Court |
[2013] UKSC 7
Lord Neuberger, President
Lady Hale
Lord Mance
Lord Clarke
Lord Sumption
Appellant
Lesley Anderson QC Lloyd Tamlyn (Instructed by Brabners Chaffe Street LLP)
Respondent
Jonathan Crow QC Charlotte Cooke (Instructed by the Financial Services Authority Legal Department)
Heard on 10 and 11 December 2012
Lord Sumption (with whom Lord Neuberger, Lady Hale, Lord Mance and Lord Clarke agree)
This appeal arises out of applications by the Financial Services Authority for orders to wind up the appellants in the public interest under section 367(1)(c) of the Financial Services and Markets Act 2000, on the ground that each of them "is carrying on, or has carried on, a regulated activity in contravention of the general prohibition." The general prohibition is the prohibition in Section 19 of the Act, which provides that no person may carry on a regulated activity unless he is either an authorised or an exempt person. Regulated activities are those specified by subordinate legislation: see section 22(5). They include a wide range of general insurance business, defined by Article 10 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544), as the business of effecting or carrying out any of eighteen classes of contract of general insurance listed in Schedule 1, Part I to the Order. The class which is most directly relevant to the present appeal is Class 16 (" Miscellaneous Financial Loss").
The first appellant is Digital Satellite Warranty Cover Ltd and the second is Bernard Freeman and Michael Anthony John Sullivan trading as "Satellite Services". The business of both firms consisted of selling and performing extended warranty contracts under which, in consideration of a periodic payment, they contracted to repair or if necessary replace satellite television dishes, digital boxes and associated equipment in the event of breakdown or malfunction or, in certain cases, physical damage. This is a sufficient summary of the terms for present purposes. Two further points should, however, be made about them. The first is that the courts below proceeded on the footing that at common law the contracts were contracts of insurance. That assumption, although not accepted by the appellants, is not challenged on these appeals. The second is that it was an important feature of the contracts that the appellants undertook only to provide benefits in kind, i.e. repair services or replacement goods. There was no contractual obligation to pay money. The appellants were not authorised under the Financial Services and Markets Act 2000 to carry on any kind of insurance business, and no question of exemption arises. Their case is that even on the footing that they were making and performing contracts of insurance, the contracts were not of a kind which required their business to be authorised under Financial Services and Markets Act 2000. Warren J [2011] Bus LR 981 rejected that argument and ordered the appellants to be wound up. Their appeal was dismissed by the Court of Appeal [2012] Bus LR 990, and in my opinion it should be dismissed here also.
The United Kingdom legislation governing the authorisation and regulation of direct general insurance business was enacted to give effect to the successive EC Council Non-life Directives. The eighteen classes in the Regulated Activities Order substantially correspond to the eighteen classes in the Annex to the First Council Non-life Insurance Directive 73/239/EEC as amended by Council Directive 84/641/EEC. The argument as presented to us was that in this Directive Classes 1 to 17 do not extend to contracts of insurance providing benefits in kind, and that in transposing the Directives into national law, member states were not entitled to regulate either wider or narrower classes of direct non-life business. Therefore, so it is said, the Regulated Activities Order must be construed as applying only to contracts of insurance providing for pecuniary benefits. Ms Anderson QC, who appeared for the appellants, accepted that member states were entitled to regulate additional categories of direct non-life business, but not in the same legislative provisions which transposed the Directive into national law and not by redefining classes of business specified in the Directives more broadly than the Directives themselves. They could do it, she submitted, only by a distinct enactment and then only by identifying distinct additional categories. Ms Anderson also accepted that Class 18 ("Assistance"), which covers contracts of insurance providing assistance for "persons who get into difficulties", did extend to those providing benefits in kind. But the Authority has not sought to bring the present case within Class 18.
The Court of Appeal doubted whether it was correct that Classes 1 to 17 in the Annex to the First Non-life Directive excluded contracts of insurance providing for benefits in kind. For my part I share these doubts, but it may well be that that question could be finally resolved only by a reference to the Court of Justice. So, like the Court of Appeal, I would not decide this appeal on that ground. The real problem about the appellants' case is more fundamental. It depends upon the proposition that in specifying certain categories of direct non-life insurance business which member states must regulate in accordance with EU law, the First Directive has precluded member states from regulating further or wider categories under their national law, at any rate in the same legislative provisions which transpose the Directive into national law. I do not accept this. It is in my view clear that the First Directive is concerned only to prescribe what kinds of business national law must regulate and not what other kinds of business it may regulate. Still less is it concerned with the legislative technique that member states may employ to regulate other kinds of business to which the Directive ex hypothesi does not apply. It follows that even if one assumes in the appellants' favour that Classes 1 to 17 in the Annex to the First Directive are confined to insurance of the relevant descriptions providing pecuniary benefits, there is nothing to prevent the United Kingdom from legislating to regulate insurance of those descriptions irrespective of whether they provide benefits in cash or kind or both.
To explain why this must be so, it is necessary to say something about the way in which the statutory regulation of insurers has developed in the United Kingdom and in the European Union.
Statutory regulation began in the United Kingdom in a limited way with the Life Assurance Companies Act 1870 which applied, as its name suggests, only to life offices, whose contracts depended on their maintaining their solvency over what might be very long periods. However, the first reasonably comprehensive scheme of statutory regulation dates from the Insurance Companies Act 1958 and Part II of the Companies Act 1967. The 1958 Act introduced a basic scheme of solvency regulation applicable to all insurers writing specified classes of business, apart from Lloyd's underwriters and certain trade unions and friendly societies. The Act of 1967 modified that scheme and introduced a system of authorisation and control based mainly on the suitability of officers and controllers. It also brought wider categories of insurance business within the scope of regulation, including "pecuniary loss insurance business". Both Acts, together with amendments made by the Insurance Companies Amendment Act 1973, were consolidated with insignificant changes in the Insurance Companies Act 1974.
Since the United Kingdom joined the EEC in 1973, the regulation of insurance business has been governed by increasingly comprehensive schemes of regulation based on EC Directives. The Insurance Companies Act 1974 was already obsolescent at the time that it was passed, because in July 1973, the EC Council of Ministers issued the First Non-life Insurance Directive which introduced a wholly different principle of regulation. This had been under consideration by the institutions of the European Community since the middle of the 1960s at a time when the United Kingdom was not a member and consequently had only limited input into it.
United Kingdom legislation up to and including the Insurance Companies Act 1974 had been entirely concerned with consumer protection. The protection of assureds is of course in one sense the ultimate purpose of all regulation of the sector. But the legal base of the First Non-life Directive was Article 57(2) of the original treaty, which was one of a number of treaty provisions concerned with freedom of establishment. It provided for the "co-ordination" of national schemes of regulation concerning "the engagement in and exercise of non-wage-earning activities". The Directive was concerned to limit the propensity of national schemes of insurance regulation to impede freedom of establishment. It had two main objects. One was to provide a limited measure of uniformity in the principles governing the authorisation of insurers to carry on direct non-life business under the various national schemes of regulation. The other was to ensure that the national schemes assessed the solvency of insurers in accordance with a uniform system of solvency margins, calculated as a specified percentage of premium income or of claims and provisions, whichever was the higher.
The authorisation of insurers was dealt with by Section A (Articles 6–12). Article 6 required member states to have a system for authorising insurers carrying on business in their territory, which would apply whether the insurer's...
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