Vol 10 (2013) - Issue 2

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Unwarranted Attention

The case
Autoquake Limited v Car Care Plan Limited [2012] EWHC 1344 (Ch) is a case of interest to practitioners in relation to the administration of a retail company with a large number of potential contingent consumer creditors, in this case holders of warranties purchased along with second hand motor vehicles. Although very fact specific, as in all cases of this nature, it provides a useful insight into a number of issues that can arise in the course of an administration and how the Companies Court (at both Registrar and Judge level) are likely to view those issues and assist an office holder in carrying out his functions.

Background
Autoquake Limited ('Autoquake') was incorporated on 17 August 2005 as an online car retailer. It only sold motor vehicles via its website and did not have a physical car show room. Cars were collected by purchasers from designated collection centres in London and Leeds. Although never profitable it nonetheless sold approximately 1,000 vehicles per month.
For this purpose it had a wholly owned e-commerce internet-based platform specifically designed to facilitate and support the sale of motor vehicles via the internet. When a car was sold it also sold warranties and breakdown cover to the purchasers of vehicles.
Autoquake entered administration on 17 March 2011 on which date there were approximately 5,600 unexpired warranties with various periods left to run, from a few days to approaching three years. The warranty scheme was not an insurance scheme (or insured in any way) but was meant to be self funded by Autoquake by means of a contribution into a designated fund which was administered on its behalf by an independent scheme administrator.

The warranty scheme
The details of warranty were contained in the Autoquake warranty handbook (the 'Handbook') which made reference to (but did not set out) the provisions of the Motor Industry Code of Practice for Vehicle Warranty Products (the ‘Motor Code’), stating that ‘This product conforms to the Motor Industry Code of Practice for Vehicle Warranty Products’.
The Motor Code to which the independent administrator ('the Warranty Administrator') was a subscriber and which was available to all the purchasers of cars from Autoquake on the internet and stated:
'– The product literature will clearly state that the product is a non-insured product.
– Claim funds are protected by a trust, statutory trust to protect claims funds for the payment of claims. The product literature will clearly state that a protected claims fund is in place.
– In the event that a retailer ceases to trade, we will continue to pay all claims from the protected claims fund, as long as funds remain in place.
– The exact nature of how a claims fund is protected is available from us upon request.'
The scheme was governed by a separate contract between Autoquake and the Warranty Administrator (the 'Contract') which operated as follows:
– Autoquake would sell the warranty in the form provided to it by the Warranty Administrator and register the warranty with the Warranty Administrator when sold;
– The Warranty Administrator would invoice Autoquake on a weekly basis for an amount made up of an agreed contribution to a claims fund for each warranty sold and administration fee plus VAT;
– On a monthly basis the Warranty Administrator would produce a statement setting out the current level of the claims fund taking into account the amount of money paid out in respect of any claim and the amount paid into it by Autoquake;
– Depending upon the outcome of that exercise there would be a payment to Autoquake of any surplus or a payment the other way if there was a shortfall;
– The claims fund was to be reviewed after 6 months and subsequently on a regular basis.