Unredacted FINMA judgment into Parreaux, Thiébaud & Partners / Justicia SA [TOP SECRET]
In September 2023, Gaelle Jeanmonod at FINMA published a summary of the judgment against Parreaux, Thiébaud & Partners and their successor Justicia SA.
Madame Jeanmonod redacted the name of the company, the dates and other key details. We have recreated the unredacted judgment.
Many paragraphs are missing. The document released by Madame Jeanmonod only includes paragraphs 55 to 65 and the paragraph 69.
Some entire sentences appear to be missing and replaced with the symbol (...).
Details about the original publication on the FINMA site.
Key to symbols:
| Symbol | Meaning |
|---|---|
| PTP | Parreaux, Thiébaud & Partners |
| A | Mathieu Parreaux |
| X | Parreaux, Thiébaud & Partners |
| Y | Justicia SA |
Important: we recommended reading together with the full chronological history published in the original blog post by Daniel Pocock.
Provision of insurance services without autorisation
Judgment of the financial markets regulator FINMA de 2023
Summary
Following numerous reports that Parreaux, Thiébaud & Partners was operating an insurance business without authorisation, FINMA conducted investigations that led to the opening of enforcement proceedings. In fact, Parreaux, Thiébaud & Partners offered legal subscriptions for companies and individuals, which provided unlimited access to various legal services for an annual fee. In addition, Parreaux, Thiébaud & Partners also financed, in certain situations, advances on costs to pay lawyers' and court fees in the form of a loan at a 0% interest rate. According to its general terms and conditions, Parreaux, Thiébaud & Partners then obtained reimbursement of this loan from the legal costs to be received at the end of the proceedings in the event of victory. In the event of loss, the balance constituted a non-repayable loan. With regard to the areas of law that were partially covered and to disputes prior to the signing of the contract, the claim was partially covered by 50%.
During the procedure, FINMA appointed an investigation officer within Parreaux, Thiébaud & Partners. While the investigation officer's work had already begun, the activities of Parreaux, Thiébaud & Partners were taken over by Justicia SA in [late 2021 or early 2022]. From that point on, Parreaux, Thiébaud & Partners ceased its activities for new clients. Clients who had taken out a subscription with Parreaux, Thiébaud & Partners prior to the month of (…) were informed when renewing their subscription that their subscription had been transferred to Justicia SA. FINMA then extended the procedure and the mandate of the investigation officer to the latter. The business model of Justicia SA is almost identical to that of Parreaux, Thiébaud & Partners. The main difference concerns the terms of repayment of the loan which, according to the general terms and conditions of Justicia SA, was also repayable in the event of defeat according to the "terms agreed between the parties".
The report of the investigating officer contains in particular a detailed analysis of the activity of the two companies as well as a sample examination of client files.
By decision of [April?] 2023, FINMA held that the conditions set by case law to qualify an insurance activity were met and therefore found that Parreaux, Thiébaud & Partners, Justicia SA as well as Mathieu Parreaux, managing partner of Parreaux, Thiébaud & Partners and director of Justicia SA, carried out an insurance activity without having the required authorisation.
FINMA then found that Parreaux, Thiébaud & Partners, Justicia SA and Mathieu Parreaux had carried out insurance activities without the necessary authorisation, appointed a liquidator and ordered the immediate liquidation of the two companies. FINMA also ordered the confiscation of the liquidation proceeds in favour of the Confederation, ordered Mathieu Parreaux to refrain from carrying out, without the necessary authorisation, any activity subject to authorisation under the financial market laws and published the order to refrain for a period of 2 years on its website.
Key points from the judgment
(…)
1. Engaging in insurance transactions without the right to do so
(55) The LSA is intended in particular to protect policyholders against the risks of insolvency of insurance companies and against abuse2. Insurance companies established in Switzerland that carry out direct insurance or reinsurance activities must first obtain authorisation from FINMA and are subject to its supervision3. Where special circumstances justify it, FINMA may release from supervision an insurance company for which the insurance activity is of little economic importance or only affects a limited circle of policyholders4.
(56) In accordance with Art. 2 para. 4 LSA, it is up to the Federal Council to define the activity in Switzerland in the field of insurance. In an ordinance dated 9 November 2005, the Federal Council clarified that, regardless of the method and place of conclusion of the contract, there is an insurance activity in Switzerland when a natural or legal person domiciled in Switzerland is the policyholder or insured5. Furthermore, the LSA applies to all insurance activities of Swiss insurance companies, both for insurance activities in Switzerland and abroad. Thus, even insurance contracts concluded from Switzerland but which relate exclusively to risks located abroad with policyholders domiciled abroad are subject to the LSA. In such cases, there may also be concurrent foreign supervisory jurisdiction at the policyholder's domicile6.
(57) Since the legislature did not define the concept of insurance, the Federal Court developed five cumulative criteria to define it7: the existence of a risk, the service provided by the policyholder consisting of the payment of a premium, the insurance service, the autonomous nature of the transaction and the compensation of risks on the basis of statistical data. It is appropriate to examine below whether the services provided by Parreaux, Thiébaud & Partners and Justicia SA respectively meet the criteria of the given definition of the insurance activity.
(58) The existence of a risk: this is the central element for the qualification of insurance. The object of an insurance is always a risk or a danger, i.e. an event whose occurrence is possible but uncertain. The risk or its financial consequences are transferred from the insured to the insurer8. The uncertainty assumed by the insurer typically consists of determining whether and when the event that triggers the obligation to pay benefits occurs. The uncertainty can also result from the consequences of an event (already certain)9. In a judgment of 21 January 2011, the Federal Court, for example, acknowledged that the rental guarantee insurer who undertakes to pay the lessor the amount of the rental guarantee in place of the tenant while reserving the right to take action against the latter to obtain reimbursement of the amount paid, bears the risk of the tenant's insolvency. Thus, the risk of non-payment by the tenant is sufficient in itself to qualify this risk as an insurance risk10.
(59) In this case, the purpose of the legal subscriptions offered by Parreaux, Thiébaud & Partners / Justicia SA is the transfer of a risk from the clients to Parreaux, Thiébaud & Partners / Justicia SA. Indeed, when the client concludes a legal subscription, Parreaux, Thiébaud & Partners / Justicia SA assumes the risk of having to provide legal services and bear administrative costs, respectively lawyers' fees, court fees or expert fees incurred by legal matters. When a client reports a claim, Parreaux, Thiébaud & Partners / Justicia SA bears the risk and therefore the financial consequences arising from the need for legal assistance in question. In cases where there is a claim prior to the conclusion of the subscription, Parreaux, Thiébaud & Partners / Justicia SA will cover 50% of the costs for this claim, but will continue to bear the risk for any future disputes that may arise during the term of the subscription. In this sense, Parreaux, Thiébaud & Partners / Justicia SA provide services that go beyond those offered by traditional legal protection insurance, which, however, has no influence on the existence of an uncertain risk transferred to Parreaux, Thiébaud & Partners / Justicia SA upon conclusion of the subscription. Furthermore, it was found during the investigation that, in at least one case, Parreaux, Thiébaud & Partners covered the fees without entering into a loan agreement with the client; it was therefore not provided for these advances to be repaid, contrary to what was provided for in the general terms and conditions of Parreaux, Thiébaud & Partners. Furthermore, it could not be established that the new wording of the general terms and conditions of Justicia SA providing for the repayment of the loan regardless of the outcome of the proceedings had been implemented. To date, no loan has been repaid. These elements allow us to conclude that the risk of having to pay for legal services and advances on fees are borne by Parreaux, Thiébaud & Partners and Justicia SA in place of the clients. Finally, in accordance with the case law of the Federal Court, even if the loan granted by Justicia SA is accompanied by an obligation to repay, the simple fact of bearing the risk of insolvency of its clients is sufficient to justify the classification of insurance risk.
(60) The insured's benefit (the premium) and the insurance benefit: In order to qualify a contract as an insurance contract, it is essential that the policyholder's obligation to pay the premiums is offset by an obligation on the part of the insurer to provide benefits. The insured must therefore be entitled to the insurer's benefit at the time of the occurrence of the insured event11. To date, the Federal Court has not ruled on the question of whether the promise to provide a service (assistance, advice, etc.) constitutes an insurance benefit. However, recent doctrine shows that the provision of services can also be considered as insurance benefits. Furthermore, this position is confirmed and defended by the Federal Council with regard to legal protection insurance, which it defined in Art. 161 OS as follows: "By the legal protection insurance contract, the insurance company undertakes, against payment of a premium, to reimburse the costs incurred by legal matters or to provide services in such matters"12.
(61) In this case, when a client enters into a legal subscription contract with Parreaux, Thiébaud & Partners/Justicia SA, he agrees to pay an annual premium which then allows him to have access to a catalogue of services depending on the subscription chosen. Parreaux, Thiébaud & Partners/Justicia SA undertakes for their part to provide legal assistance to the client if necessary, provided that the conditions for taking charge of the case are met. Parreaux, Thiébaud & Partners/Justicia SA leaves itself a wide margin of discretion in deciding whether it is a case of prior art or whether the case has little chance of success. In these cases, the services remain partially covered, up to 50%. This approach is more generous than the practice of legal insurance companies on the market. In fact, cases of prior art are not in principle covered by legal protection insurance and certain areas are also often excluded from the range of services included in the contract.
(62) The autonomous nature of the transaction: The autonomy of the transaction is essential to the insurance business, even though the nature of an insurance transaction does not disappear simply because it is linked in the same agreement to services of another type. In order to determine whether the insurance service is presented simply as an ancillary agreement or a modality of the entire transaction, the respective importance of the two elements of the contract in the specific case must be taken into account and this must be assessed in the light of the circumstances13.
(63) In this case, the obligation for Parreaux, Thiébaud & Partners/Justicia SA to provide legal services to clients who have subscribed to the subscriptions and to bear administrative costs, respectively lawyers' fees, court fees or expert fees does not represent a commitment that would be incidental or complementary to another existing contract or to another predominant service between Parreaux, Thiébaud & Partners/Justicia SA and the clients. On the contrary, the investigation showed that the legal subscriptions offered are autonomous contracts.
(64) Risk compensation based on statistical data: Finally, the case law requires, as another characteristic of the insurance business, that the company compensates the risks assumed in accordance with the laws of statistics. The requirements set by the Federal Court for this criterion are not always formulated uniformly in judicial practice. The Federal Court does not require a correct actuarial calculation but rather risk compensation based on statistical data14. Furthermore, it has specified that it is sufficient for the risk compensation to be carried out according to the law of large numbers and according to planning based on the nature of the business15. In another judgment16, the Federal Court adopted a different approach and considered that the criterion of risk compensation based on statistical data is met when the income from the insurance business allows expenses to be covered while leaving a safety margin. Finally, in another judgment17, the High Court deduced from the fact that the products were offered to an indeterminate circle of people that the risks would be logically distributed among all customers according to the laws of statistics and large numbers18.
(65) In this case, the risks assumed by Parreaux, Thiébaud & Partners/Justicia SA are offset by the laws of statistics, at the very least by the compensation of risks according to the law of large numbers. Knowing that only a very small part of their clientele will use the services provided by Parreaux, Thiébaud & Partners/Justicia SA, the latter are counting on the fact that the income from the contributions from legal subscriptions will be used to cover the expenses incurred for clients whose cases must be handled by Parreaux, Thiébaud & Partners/Justicia SA while leaving a safety margin. Indeed, the analysis of the files revealed that when a client reports a case to Parreaux, Thiébaud & Partners/Justicia SA, the costs incurred to handle the case are at least three times higher than the contribution paid. Support in this proportion is only possible by assuming that only a few clients will need legal assistance and by ensuring that all contributions are used to cover these costs. (…).
(66) (…) The investigation, however, revealed that there is indeed an economic adequacy between the services provided to clients by Parreaux, Thiébaud & Partners / Justicia SA and the subscription fees it collects. In this way, Parreaux, Thiébaud & Partners / Justicia SA offsets its own risks, namely the costs related to the legal services it provides as well as the risk of not obtaining repayment of the loan granted to the client, by the diversification of risks that occurs when a large number of corresponding transactions are concluded, i.e. according to the law of large numbers. In view of the above, there is no doubt that the risk compensation criterion is met within the framework of the business model of Parreaux, Thiébaud & Partners / Justicia SA.
(69) (…) In view of the above, it is established that Parreaux, Thiébaud & Partners and Justicia SA have exercised, respectively exercise, an insurance activity within the meaning of Art. 2 para. 1 let. a in relation to Art. 3 para. 1 LSA and Art. 161 OS without having the required authorisation from FINMA. Indeed, upon conclusion of a subscription, clients can request legal services from Parreaux, Thiébaud & Partners/Justicia SA against payment of an annual premium. In addition to these services, the latter grant a loan to clients to cover legal costs and lawyers' fees. Although these loans are repayable "according to the agreed terms", none of these terms appear to exist in practice and no loan repayments have been recorded. Finally, the mere fact of bearing the risk of insolvency of clients is sufficient for the insurance risk criterion to be met. Furthermore, in view of the current number of legal subscription contracts held by Justicia SA, the turnover generated by its legal subscriptions and the fact that Justicia SA, and before it Parreaux, Thiébaud & Partners, offers its services to an unlimited number of persons, there are no special circumstances within the meaning of Art. 2 para. 3 LSA allowing Parreaux, Thiébaud & Partners and Justicia SA to be released from supervision under Art. 2 para. 1 LSA.
(…)
Dispositif
Loi fédérale sur la surveillance des entreprises d'assurance (LSA; RS 961.01). Art. 1 al. 2 LSA. Art. 2 al. 1 let. a en relation avec l’art. 3 al. 1 LSA. Art. 2 al. 3 LSA. Art. 1 al. 1 let. a OS. HEISS/MÖNNICH, in: Hsu/Stupp (éd.), Basler Kommentar, Versicherungsaufsichtsgesetz, Bâle 2013, nos 5 s ad art. 2 LSA et les références citées. ATF 114 Ib 244 consid. 4.a et les références citées. HEISS/MÖNNICH, op. cit., nos 15 ss ad art. 2 LSA et les références citées. HEISS/MÖNNICH, op. cit., nos 5 s. ad art. 2 LSA et les références citées. TF 2C_410/2010 du 21 janvier 2011 consid. 3.2 et 4.2. HEISS/MÖNNICH, op. cit., nos 23 ss ad art. 2 LSA et les références citées. HEISS/MÖNNICH, op. cit., nos 26 ss ad art. 2 LSA et les références citées. HEISS/MÖNNICH, op. cit., nos 30ss ad art. 2 LSA et les références citées. ATF 107 Ib 54 consid. 5. Ibid. ATF 92 I 126, consid. 3. TF 2C_410/2010 du 21 janvier 2010 consid. 3.4. HEISS/MÖNNICH, op. cit., nos 34 ss ad art. 2 LSA et les références citées.