WILLIAM CAMPBELL AGAIN (FIRST) PETER GORDON JOINERS LIMITED AND DEREK FORSYTH, the Liquidator thereof; and (SECOND) PETER GORDON
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2015] CSIH 11
PD672/09
Lord Brodie
Lord Drummond Young
Lord Malcolm
OPINION OF LORD BRODIE
in the cause
by
WILLIAM CAMPBELL
Pursuer and respondent;
against
(FIRST) PETER GORDON JOINERS LIMITED and DEREK FORSYTH, the liquidator thereof; and (SECOND) PETER GORDON
Defenders and reclaimers:
Act: Smith QC and Murray; Lefevre Litigation
Alt: Pugh; Harper Macleod LLP (Second Defender and reclaimer)
3 February 2015
Introduction
[1] In this action the pursuer and present respondent seeks damages against two defenders. The first defender is his former employer, Peter Gordon Joiners Limited, a company now in insolvent liquidation. The second defender and reclaimer is Peter Gordon who is the sole director of the first defender.
[2] The respective defenders are sued on distinct bases. The pursuer avers that on 28 June 2006 when working in the course of his employment with the first defender as an apprentice joiner, he sustained injury to his left hand when using an unguarded electrical circular saw. He ascribes the accident and therefore his injuries to fault and negligence and breach of duties under the Provision and Use of Work Equipment Regulations 1998 on the part of the first defender. The pursuer’s action against the first defender is accordingly for damages as reparation for personal injury caused by negligence and breach of statutory duty. The pursuer’s claim against the second defender arises from the facts that the first defender is insolvent and, contrary to the provisions of section 1 of the Employers’ Liability (Compulsory Insurance) Act 1969, was not insured against the risk of becoming liable to the pursuer by reason of the circumstances of the pursuer’s accident. Founding on sections 1 and 5 of the 1969 Act the pursuer sues the second defender in respect of a breach of what is averred to have been a duty to arrange proper and adequate insurance and the consequent loss to the pursuer of the benefit which would have otherwise accrued to him in the event of him obtaining an award of damages against the first defender, by virtue of the Third Parties (Rights against Insurers) Act 1930.
[3] The second defender disputes the pursuer’s averments both in relation to the circumstances of the accident, which he alleges was the pursuer’s fault, and as to whether the second defender was responsible for the admitted lack of insurance cover. Mr Pugh, who appeared on behalf of the second defender stressed that this was not a case where there had been no employers’ liability insurance whatsoever. Rather, there was insurance in place but it excluded the risk of liability arising out of the use of electrically powered woodworking machinery such as the circular saw which had caused the pursuer’s injuries. This is all as may be but, for present purposes it must be assumed that the pursuer’s averments are true.
Proceedings before the Lord Ordinary
[4] The case came before the Lord Ordinary for debate on the procedure roll. The pursuer sought to have his whole averments remitted to proof. The second defender submitted that the case as pled against him should be dismissed as irrelevant. The second defender enjoyed partial success. The case of breach of duty to arrange proper and adequate insurance was pled by the pursuer on the basis of negligence at common law and, alternatively, a breach of statutory duty imposed by the 1969 Act. The Lord Ordinary dismissed the common law case. No issue is taken with that part of the Lord Ordinary’s decision. However, he held that the pursuer had pled a relevant case based upon the argument that the 1969 Act allows a director to be held civilly liable for breach of his qualified statutory duty not to permit the employer company to carry on its business without having in place an approved insurance policy with an authorised insurer insuring the employer against liability for bodily injury or disease sustained by employees in the course of their employment. It is against that decision that the second defender reclaims.
Employers’ Liability (Compulsory Insurance) Act 1969
[5] The Employers’ Liability (Compulsory Insurance) Act 1969 provides, inter alia, as follows:
“1.- Insurance against liability for employees.
(1) Except as otherwise provided by this Act, every employer carrying on any business in Great Britain shall insure, and maintain insurance, under one or more approved policies with an authorised insurer or insurers against liability for bodily injury or disease sustained by his employees, and arising out of and in the course of their employment in Great Britain in that business, but except in so far as regulations otherwise provide not including injury or disease suffered or contracted outside Great Britain.
2 - Employees to be covered.
(1) For the purposes of this Act the term ‘employee’ means an individual who has entered into or works under a contract of service or apprenticeship with an employer whether by way of manual labour, clerical work or otherwise, whether such contract is expressed or implied, oral or in writing.
…
3.- Employers exempted from insurance.
(1) This Act shall not require any insurance to be effected by –
(a) any such authority as is mentioned in subsection (2) below; or
(b) any body corporate established by or under any enactment for the carrying on of any industry or part of an industry, or of any undertaking, under national ownership or control; or
(c) in relation to any such cases as may be specified in the regulations, any employer exempted by regulations.
…
4.- Certificates of insurance.
(1) Provision may be made by regulations for securing that certificates of insurance in such form and containing such particulars as may be prescribed by the regulations, are issued by insurers to employers entering into contracts of insurance in accordance with the requirements of this Act and for the surrender in such circumstances as may be so prescribed of certificates so issued.
(2) Where a certificate of insurance is required to be issued to an employer in accordance with regulations under subsection (1) above, the employer (subject to any provision made by the regulations as to the surrender of the certificate) shall during the currency of the insurance and such further period (if any) as may be provided by regulations –
(a) comply with any regulations requiring him to display copies of the certificate of insurance for the information of his employees;
(b) produce the certificate of insurance or a copy thereof on demand to any inspector duly authorised by the Secretary of State for the purposes of this Act and produce or send the certificate or a copy thereof to such other person, at such place and in such circumstances as may be prescribed by regulations;
(c) permit the policy of insurance or a copy thereof to be inspected by such persons and in such circumstances as may be so prescribed.
…
5. Penalty for failure to insure.
An employer who on any day is not insured in accordance with this Act when required to be so shall be guilty of an offence and shall be liable on summary conviction to a fine not exceeding level 4 on the standard scale; and where an offence under this section committed by a corporation has been committed with the consent or connivance of, or facilitated by any neglect on the part of, any director, manager, secretary or other officer of the corporation, he, as well as the corporation shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.”
The reasoning of the Lord Ordinary
[6] For the Lord Ordinary the issue was one of statutory interpretation. It was not in dispute that the question whether a statutory duty gives rise to a civil right of action was to be answered by considering the whole of the relevant Act and the circumstances in which it was enacted. Certain features had been identified by the authorities as pointing one way or the other. For example, if a statutory duty is prescribed but no remedy by way of penalty or otherwise for its breach is imposed, it can be assumed that a right of civil action accrues to the person who is injured by the breach. But where an Act creates an obligation and enforces its performance in a specified manner, it may generally be taken that performance cannot be enforced in any other manner. That general rule is, however, subject to exceptions one of which is that where the particular obligation or prohibition posed by the statute can be seen to have been imposed for the benefit or protection of a particular class of individuals then the statute may be taken to have created a correlative right in those persons who may be injured by its contravention. On the other hand, if a statute is intended to establish a regulatory system for the benefit of the public at large, that may point the other way. In the present case section 5 of the 1969 Act imposed a substantial criminal penalty in the event of an employer breaching the obligation to insure imposed by section 1. However, to the Lord Ordinary, it was obvious that the purpose of section 1 was to protect employees from being left without any remedy in the event that they established liability against their employer but were prevented from recovering directly by reason of the employer’s insolvency. That was a strong indication that section 1 gave rise to a civil right of action at the suit of an affected employee in the event of breach. The Lord Ordinary recognised that there was no mention of officers of a corporate employer in section 1 of the 1969 Act. However, that did not mean that such persons could not be held civilly liable in the event that an employer company was uninsured. It was clear from section 5 that if the corporate employer’s failure to maintain the relevant insurance is committed through the fault of any director, manager, secretary or other officer, then they, as well as the company, are to be regarded as guilty of the failure to insure. In these circumstances the officers stand in the same position as the corporate employer and there was, in the opinion of the Lord Ordinary, no reason to consider that breach of that duty should not give rise to civil liability. The Lord Ordinary recognised that in the decision of the English Court of Appeal in Richardson v Pitt‑Stanley [1995] QB 123, there was authority to a different effect. However, for the reasons set out in this opinion, the Lord Ordinary did not find the reasoning of the judges who made up the majority in Richardson to be compelling. The decision was not binding on a Scottish court and should not be followed.
Submissions of parties
Second defender and reclaimer
[7] Mr Pugh, on behalf of the second defender and reclaimer, moved for recall of the Lord Ordinary’s interlocutor of 30 January 2014 insofar as it refused the second defender’s motion for dismissal and appointed the cause to proof; and to dismiss the action in so far as laid against the second defender. It was Mr Pugh’s submission that the second defender was not made liable to the pursuer by reason of the terms of the 1969 Act; no civil liability attached to him for any breach of its provisions. The applicable law was to be found set out in the opinion of Lord Rodger in Morrison Sports Ltd v Scottish Power UK Plc 2011 SC(UKSC) 1, under reference to the speech of Lord Browne‑Wilkinson in X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at pp 731‑732. As far as the specifics of the 1969 Act were concerned, Mr Pugh adopted the reasoning of the majority in Richardson v Pitt‑Stanley. The obligation created by the 1969 Act was imposed on the employer and not, where the employer was a corporation, on the directors. Moreover, it was imposed because of pre‑existing duties in respect of employees’ safety which were also duties of the employer. The method of enforcement of the obligation is specified in the Act – it is by way of a daily fine. The level of that fine is subject to judicial control, having regard to the degree of culpability and the resources of the offender. There are no such control measures applicable in the event that section 5 were to be construed as imposing civil liability. The 1969 Act is not simply designed to provide protection to a limited class of persons. It includes provisions for regulation and enforcement by the Secretary of State. It was not enacted solely for the benefit of employees. As was held in Richardson the requirement for insurance provides protection for employers also. The risk to be insured against is “their liability”. To recognise civil liability on the part of directors would be to pierce the corporate veil to an intolerable extent. Given these various circumstances it could not be said that it was Parliament’s intention to impose civil liability on a director in the event of a corporate employer’s failure to insure. It was significant that there has been no legislation to reverse the effect of the decision in Richardson. It would be unsatisfactory if, in respect of a United Kingdom statute, a different interpretation were to be adopted in Scotland from that which had been adopted in England. The decision in Monk v Warbey [1935] 1 KB 75 proceeded upon statements of the general rule which were inversions of the modern formulation found in X (Minors) v Bedfordshire County Council. In any event the judgment related to a different piece of legislation in a different field. It was a factor pointing away from the imposition of liability that what was in issue here was liability in respect of pure economic loss.
Pursuer and respondent
[8] Mr Smith QC moved the court to refuse the reclaiming motion. He relied on the test for the existence of civil liability which appears in the speech of Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd [1982] AC 173 and the application of that rule in Monk v Warbey which decision, Mr Smith submitted, was on all fours with the present case. The fact that parliament had not expressed its intention in explicit terms did not relieve the court from its obligation to construe the statute in question. The respondent was also assisted by what had been said by Lord Wright in Houston v Buchanan 1940 SC(HL)17 at 39. The primary purpose of the 1969 Act was to protect employees. The right to recover went hand in hand with the obligation to insure. Whether there might be benefit to an employer in being insured against the risk of incurring liability to its employees was incidental and unimportant once, as had been conceded, it is recognised that the primary purpose was the protection of employees. The reference to economic loss was a red herring. The reason that the court is cautious about imposing liability for pure economic loss is to avoid opening the floodgates to indeterminate claims by an ever widening class of people: Frank Houlgate Investment Co Ltd v Biggart Baillie LLP 2014 SLT 1001 at paragraph 73. Here the class of persons to whom the duty is owed and therefore who have a right of action, is readily identifiable.
Decision
[9] The pursuer’s case depends on the proposition that, properly construed, the 1969 Act is to be understood as having imposed a duty on the second defender to arrange adequate insurance as against the risk of the first defender being found liable in damages to the pursuer (or at least a duty not to consent to or connive at that failure to make, or neglect to make such arrangements) and, further, as having conferred a right on the pursuer to sue the second defender in damages in the event of breach of that duty to arrange insurance where that breach has caused the pursuer loss. An untutored response to that proposition might be – if that is the case why does the Act not say so; other statutes do so and do so in terms: see e.g. the Health and Safety at Work Act 1974 section 47(2). However, quite apart from the fact that there are statutes which specifically exclude civil liability whereas the 1969 Act does not do so, that such a response would have to be regarded as untutored becomes clear on consideration of more than a century’s jurisprudence emanating from the highest courts. Where a statute imposes a duty or prohibition and where that duty or prohibition can be seen to have been imposed for the benefit of a particular group of people (in other words a duty is owed to them) then, as a matter of necessary inference, the statute may be construed as conferring a right on members of that particular group to sue on breach, as the correlative of the duty: Black v Fife Coal Co 1912 SC (HL) 33, Lord Kinnear at 45.
[10] I say that such a statute may be construed in this way. Lord Kinnear’s speech would suggest that it must be construed in this way, absent clear indicators to the contrary. That, effectively, was the position adopted by Mr Smith on behalf of the respondent. In this, as Mr Smith submitted, he can derive support from the speech of Lord Diplock in Lonrho Ltd v Shell Petroleum (No.2) supra at 185. That this is not the modern law appears from the judgment of the Supreme Court of the United Kingdom given by Lord Rodger in Morrison Sport Ltd v Scottish Power UK Plc 2011 SC (UKSC) 1 at paragraphs 28, 29 and 41 (see also R v Deputy Governor of Parkhurst, ex p Hague [1992] 1 AC 58, Lord Jauncey, at 170H to 171A. In Morrison Lord Rodger explained that the relevant authorities as to whether a breach of statute or subordinate legislation gave rise to a private law statutory cause of action were conveniently summarised in the speech of Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council supra at 731 to 732 in the following terms:
“The basic proposition is that in the ordinary case a breach of statutory duty does not, by itself, give rise to any private law cause of action. However, a private law cause of action will arise if it can be shown, as a matter of construction of statute, that the statutory duty was imposed for the protection of a limited class of the public and that Parliament intended to confer on members of that class a private right of action for breach of the duty. There is no general rule by reference to which it can be decided whether a statute does create such a right of action but there are a number of indicators. If the statute provides no other remedy for its breach and the Parliamentary intention to protect a limited class is shown, that indicates that there may be a private right of action since otherwise there is no method of securing the protection the statute was intended to confer. If the statute does provide some other means of enforcing the duty that will normally indicate that the statutory right was intended to be enforceable by those means and not by private right of action….However, the mere existence of some other statutory remedy is not necessarily decisive. It is still possible to show that on the true construction of the statute the protected class was intended by Parliament to have a private remedy”.
[11] In X Lord Browne-Wilkinson stressed that as the question was one of statutory construction each case must turn on the particular provision under consideration. In the present case, while regard must be had to the whole enactment the critical provision from the perspective of the second defender is section 5. Section 1(1) clearly imposes a duty to insure, which must be seen as being for the benefit of a particular group of persons: the employees who may be affected. On this I agree with the Lord Ordinary, notwithstanding what was said by Stuart-Smith LJ in Richardson v Pitt-Stanley supra at 131F, but the section 1(1) duty is imposed upon the employer not, for example, a director of the employer such as the second defender. Thus, on the analysis of imposition of a duty for the benefit of an identifiable and sufficiently definite class giving rise to a correlative duty on the part of members of that class which allows any member to sue in respect of any damage he sustains by reason of breach of the duty, if the pursuer here has a right, it is a right against the first defender and not the second defender. Of course, the right to sue an ex hypothesi insolvent and uninsured employer for the economic loss consequent upon the employer’s failure to insure is a palpably redundant, worthless and perhaps illusory sort of right. If, as is indicated by the authorities, a useful approach to statutory interpretation is to try to discern what was the intention of Parliament, it might readily be supposed that Parliament did not intend to create such a useless right. It was the opinion of the majority in Richardson that there was no such right as against an employer which had failed to put in place the relevant insurance. I agree with that opinion and if I am right about that, that is a reason pointing away from the imposition of liability on the second defender, as appears from the reasoning of the majority in Richardson. It would be anomalous if the effect of the 1969 Act were to create a right to sue a company officer in damages in respect of the company’s failure to discharge its obligation to put in place insurance where there was no equivalent right to sue the company.
[12] In terms of section 5 of the 1969 Act, a director of an employer company who is not insured may be deemed to be guilty of the same offence as is committed by the employer, but I do not find in section 5 either a duty or a prohibition imposed on such a director. The expression found in section 5 “deemed to be guilty” is perhaps not without significance. The ultimately successful argument in Rickless v United Artists Corporation [1988] QB 40 was that a provision which did no more than classify a specified act as a criminal offence did indeed create civil liability. However, in that case Sir Nicolas Browne-Wilkinson V-C observed that, while not decisive, it was generally easier to spell out civil liability where Parliament had expressly stated that an act was unlawful rather than merely classifying it as a criminal offence. In the present case, according to section 5 of the 1969 Act, someone in the position of the second defender and who has consented to or connived at or facilitated by neglect, the commission of an offence by a corporation is not even said to be guilty of a criminal offence. Rather he is deemed to be guilty of the offence of which the company is guilty. That only the employer can be “guilty of that offence” would seem to underline where the obligation to insure lies: with the corporate employer and not with the corporate officer.
[13] The Lord Ordinary took a different view. From the expression “consent or connivance of or facilitated by any neglect” the Lord Ordinary understood section 5 to be addressing situations where the company employer’s failure to have insurance in place was due to some sort of fault on the part of the company’s officers. The Lord Ordinary went on:
“That means that they were under a duty (albeit a qualified duty) to ensure that the relevant insurance was in place. That duty is imposed for the benefit of the employees of the company. In those circumstances they stand in the same position as the corporate employer, and there is no reason to consider that breach of that duty should not give rise to civil liability” (Opinion of the Lord Ordinary para.11).
[14] I disagree. The Lord Ordinary read “consent or connivance…neglect” as references to fault. In my opinion the function of these words is merely to indicate causal connection. It is the corporate employer’s obligation to be insured. If it is not insured it commits an offence. If the commission of the offence is due to an act (consent or connivance) or omission (neglect) on the part of a company officer then that company officer is deemed also to have committed an offence, the purpose of the provision being to encourage compliance by the employer company. However, if I am wrong about that and the wording of section 5 should be read as reference to fault, and here I may be repeating myself, such fault does not arise from a duty imposed by section 5. The language of section 5 is not apt to create a duty that has not previously existed. While, as I have indicated, I do not see this as the function of the expression under consideration, I do recognise that it might be apt to refer to breach of a duty arising from some other source, a contract of employment or the fiduciary relationship between a company and its director, for example. But if that is so it will be a duty owed, not to the employees in the position of the pursuer, but to the company. It will be borne in mind that the Lord Ordinary in a decision which has not been challenged has expressly negatived the existence, in the circumstances of this case, of any duty incumbent on the second defender (other than what may arise from section 5) and owed to the pursuer to arrange proper and adequate insurance against the risk of the first defender being found liable to the pursuer in damages.
[15] Accordingly, applying what I understand to be the usual principles of statutory construction I do not interpret the 1969 Act as creating a right in someone in the position of the pursuer (who for present purposes I assume will obtain an award of damages for personal injuries against the first defender which will not be satisfied as a result of the first defender not being insured in respect of that risk) to sue someone in the position of the second defender for the value of these awards against the first defender. I am reinforced in that conclusion by the general consideration that the law is slow to recognise a right to sue in respect of pure economic loss and the further consideration that company officers are not the guarantors of the company’s solvency; indeed the purpose of incorporation is usually to limit financial liability.
[16] Uninstructed further by authority I would therefore be inclined to allow the reclaiming motion and dismiss the action insofar as directed against the second defender. There are, however, two cases which I must consider further before coming to a conclusion.
[17] The first of these cases is Monk v Warbey supra, a decision of the English Court of Appeal which has the endorsement of Lord Wright in the Scottish appeal to the House of Lords in Houston v Buchanan supra. The provision under consideration in Monk was section 35 of the Road Traffic Act 1930 which was in those terms:
“…it shall not be lawful for any person to use, or to cause or permit any other person to use, a motor vehicle on a road unless there is in force in relation to the user of the vehicle by that person or that other person….a policy of insurance….”
The facts were that Warbey was the owner of a motor car in respect of which he was insured against third party risks. He allowed the car to be used by May who was not insured. May was alleged to have driven the car negligently and injured Monk. May was impecunious. Monk sued Warbey for damages on Warbey’s breach of the duty constituted by section 35 of the 1930 Act. In his defence Warbey argued, inter alia, that the alleged breach of statutory duty was not such a breach as gave a cause of action to an injured member of the public. This and Warbey’s other lines of defence were rejected at first instance. His appeal was refused.
[18] Mr Smith submitted that Monk was exactly on point and should be followed. I would accept that Monk v Warbey is analogous to the present case on its facts. It is not, however, exactly on point. Monk was concerned with the construction of section 35 of the Road Traffic Act 1930. The present case is concerned with the construction of section 5 of the Employers’ Liability (Compulsory Insurance) Act 1969. While Greer LJ in Monk may have been entitled to regard section 35 of the 1930 Act as imposing an “absolute and unqualified duty” on persons such as the defendant, that cannot be said in respect of section 5 of the 1969 Act in relation to the second defender. Moreover, the reasoning in Monk gives a weight to a supposed presumption in favour of the existence of a private right of action which is inconsistent with the statements of the law contained in R v Deputy Governor of Parkhurst Prison, X (Minors) v Bedfordshire County Council and Morrisons Sports Limited v Scottish Power UK Plc. In Monk Greer LJ puts it this way (supra at 81):
“…prima facie a person who has been injured by the breach of a statute has a right to recover damages from the person committing it unless it can be established by considering the whole of the Act that no such right was intended to be given”.
Maugham LJ is to exactly the same effect (supra at 84):
“…prima facie the rule is that where there is a breach of a statutory duty resulting in damage to an individual an action for damages will lie”.
Thus, although the Court of Appeal in Monk recognised that consideration of the whole statute might lead to a different conclusion, their starting position was that a statement of general duty gave rise to a right of action for damages at the instance of an individual who has suffered loss in consequence of breach of that duty. Compare, for example, what was said by Lord Jauncey in R v Deputy Governor of Parkhurst (supra) at 170 to 171:
“I take from these authorities that it must always be a matter for consideration whether the legislature intended that private law rights of action should be conferred upon individuals in respect of breaches of the relevant statutory provisions. The fact that a particular provision was intended to protect certain individuals is not of itself sufficient to confer private law rights of action upon them, something more is required to show that the legislature intended such conferment”.
[19] The second case which I wish to consider, Richardson v Pitt-Stanley supra, is exactly in point. It is a decision of the English Court of Appeal on the interpretation of the United Kingdom statute. It has stood for some 10 years without provoking corrective legislation. Accordingly, while the Lord Ordinary was correct in saying that it was not formally binding upon him, for this court to depart from its conclusion would represent a significant step.
[20] The Lord Ordinary subjects the reasoning of the Court of Appeal in Richardson to critical analysis at paragraphs 13 to 19 of his opinion. I would accept that the Lord Ordinary has accurately identified the basis upon which the majority of the Court of Appeal decided as they did. Their approach, consistent as I would see it with the more modern authorities, was to ascertain the intention of Parliament in passing the legislation with a view to determining whether it created civil liability on the part of an officer of a corporate employer in the event of a failure to insure. They had regard to a number of factors, which the Lord Ordinary considers in turn in his opinion. Agreeing with the Lord Ordinary, I am not persuaded, as Stuart-Smith LJ was persuaded, that the sole purpose of this legislation was not simply to protect employees but also had, as a secondary purpose, the object of protecting employers against the possibility of being faced with a large claim for damages at the instance of an injured employee. On the other hand, unlike the Lord Ordinary, I do see the other factors founded on by the majority in Richardson as pointing to a construction of the Act which does not impose civil liability on the part of an officer of a corporate employer. For reasons that I have attempted to set out above, I do not consider that civil liability is imposed on an employer and, accordingly, that points away from liability being imposed on the officer of an employer where the employer is a corporation. I do consider it significant that what is in issue here is liability for purely economic loss. Again, as I have already attempted to explain, it is very significant that nowhere in the Act is a straightforward statement to the effect that an officer of a corporate employer has an obligation to effect insurance. I agree with Stuart-Smith LJ that the fact that the 1969 Act makes a company officer liable to a criminal penalty is a factor pointing away from civil liability. That much is clear from all the authorities which were cited to us. Stuart-Smith LJ also attached significance to the fact that the fine which might be imposed upon a company officer might be very substantial and levied at a daily rate. He considered it improbable that Parliament intended to impose an “unlimited civil liability on …a director, who may have done no more than overlook the need to renew a policy”. Mr Pugh, in his submissions, touched on this point, contrasting the availability of judicial control in matching the level of a criminal penalty to the level of culpability, with the absence of such control in the event that the same failure on the part of a company officer is held to give rise to civil liability. In the latter case the officer would become liable for the whole of the loss caused by the failure to insure. Like the Lord Ordinary, I am not sure that I understand the importance of the fact that in terms of section 5 of the 1969 Act a fine may be levied at a daily rate. While one could only be sympathetic towards a company officer who had incurred liability to pay what might be a very large sum of damages in consequence of a minor administrative failing on his part, one would be equally sympathetic towards the injured employee who has been denied compensation by reason of absence of insurance. However, I would add this. Construing the Act in such a way as to find a right conferred on an employee requires the Act to be construed as imposing a corresponding liability on the part of the company officer. Such liability, as recognised by Stuart-Smith LJ and submitted by Mr Pugh, may be very onerous indeed. It appears to me that it is at least a factor to be had regard to that if a statute is to impose a liability, whether criminal or civil, it should do so in clear and explicit terms.
[21] The dissent in Richardson was by Sir John Megaw. In his opinion the practical difficulty of suing an ex hypothesi insolvent employer did not necessitate the conclusion that the employer was not civilly liable for a failure to insure. What would otherwise be the anomaly consequent on recognising a right to sue a director did not therefore arise. Sir John takes the applicable rule to be what can be derived from Lord Diplock’s speech in Lonrho. As Sir John recognised, Lord Diplock stated the "the general rule" to be that "where an Act creates an obligation, and enforces the performance in a specified manner ... that performance cannot be enforced in any other manner." However, an exception to that general rule was where “the obligation ... was imposed for the benefit or protection of a particular class of individuals, as in the case of the Factories Acts and similar legislation." On Sir John’s analysis the exception effectively becomes the applicable rule: where a statutory obligation is imposed for the benefit or protection of a particular class of individuals then members of that group must be taken to have a right to sue for damages in the event of their having sustained loss in consequence of breach unless there is clear indication of Parliamentary intention to the contrary. In the instant case Sir John found no such indication. He was unimpressed by the consideration that the statutory formula in the relevant provisions was "shall insure" followed by "shall be guilty of an offence" rather than a declaration that failure to insure shall be “unlawful”. Why, he asked rhetorically, should such subtle wording be used to indicate that the breach of duty which it contemplates is not actionable?
[22] In large part I have already indicated why I take a different view of the effect of the 1969 Act than that expressed in the dissenting judgment in Richardson. My starting point is the law as stated by Lord Jauncey in R v Deputy Governor of Parkhurst Prison and by Lord Rodger in Morrison Sports v Scottish Power. Sir John’s starting point is the law as stated by Lord Diplock in Lohrho. The difference between the two positions may not be great; both bear to be concerned with construction of the statute, but the latter position, the one adopted by Sir John Megaw following Lord Diplock, effectively begins with a presumption in favour of civil liability in cases where the statute can be seen to have been enacted for the benefit of a particular group. I would see that approach to have been departed from in the more recent cases to which I have referred.
[23] Lord Diplock’s general rule applies where “an Act creates an obligation.” A further point on which I would take issue with the dissent in Richardson is that I do not find in the 1969 Act an obligation imposed on directors as opposed to employer companies. This is not a matter of subtle wording; as I read the statute the obligation is simply not there. A director may be made criminally responsible for a breach of the company’s obligation but that is something different from the imposition of an obligation.
[24] I would add this in relation to the dissent in Richardson. Sir John points to the plight of the unhappy employee who has been deprived of his lawful compensation by the fact that his employer is not insured against the relevant risk and is left without remedy if he has no right against a company officer. I do not dispute that the plight of the employee is unhappy but, as I would see it, the remedy provided by the Act to protect against an employee being deprived of compensation due to the insolvency of his employer is the requirement on the employer to insure, bolstered by the imposition of a criminal penalty with a view to encouraging compliance with that requirement. This requirement to insure is no more than ancillary to the obligation on the employer to protect the employee from physical harm. The 1969 Act is a measure to provide a remedy against the contingency of the employer’s insolvency, not a measure to provide a remedy against the contingency of lack of employers’ liability insurance. If, despite the regulatory scheme designed to enforce the section 1 obligation, there is no insurance in place then there is simply no remedy; what the 1969 statute set out to achieve has not been achieved. That is not without possible consequences but these take the form of criminal prosecution, if the prosecuting authority considers that is an appropriate step to take. Moreover, I take Sir John to proceed on the basis that Parliament intended to provide a remedy for the unhappy injured employee of an uninsured employer in the form of a right of action against a company officer. As an exercise in risk allocation or the provision of an effective remedy I find that to be so arbitrary and haphazard a mechanism that I would not be prepared to ascribe such an intention to the legislature.
[25] As far as effectiveness is concerned, unless it be assumed that this is a risk against which company officers will be insured (which I very much doubt), the usefulness of the remedy depends on the degree of solvency of the officer. It is not at all obvious why a manager, company secretary or director of a company will have any deeper a pocket than an injured employee.
[26] There is then a concern over the justice of such a supposed remedy. I accept of course that an employee may be badly injured and in no way to blame for his injury (although of course he may be partly to blame and yet have a good claim against his employer, subject to a deduction in damages in respect of contributory negligence). It does not follow that it is necessarily just or indeed rational to reallocate the loss due to his injury to another employee or a director of the employer simply because that employee or director can be said to have been responsible, not for the employee’s injury, but for the failure to insure the employer against the risk of liability for that injury. I share what I see to have been the anxiety on the part of Stuart‑Smith LJ about a director becoming liable in a large sum of damages for what might have been a trivial oversight on his part. The averments of the second defender in this case, albeit not yet the subject of evidence, provide an example of how a director might do his best to comply with what the Act requires of an employer and yet find his company uninsured against a relevant risk. The particular risk of an employee being avoidably injured in the course of his employment is part of the risks undertaken and created by the employer’s enterprise. It is rational and indeed just that the employer should bear that particular risk and all its financial consequences irrespective how substantial they may be. That is hardly the case with, say, a manager or company secretary or, indeed director of a limited company. By entering into a contract of employment or accepting appointment he is not undertaking to shoulder all the risks associated with the company’s enterprise or to act as an insurer for the company’s employees. That point would seem to me to be underlined in the present case by the Lord Ordinary’s accurate observation at paragraph 27 of his opinion that the pursuer does not make any averments which would entitle him to say that the second defender had assumed personal responsibility to his employees for ensuring that the company had the requisite policy of insurance. The company can limit its liability. It can obtain insurance. The company’s officers cannot limit their liability. I question whether they can obtain insurance against the liability which Sir John Megaw and the Lord Ordinary would impose upon them.
[27] Sir John in Richardson, like the Lord Ordinary in the present case, seeks to temper the consequences of their construction of the 1969 Act by emphasising that liability is only imposed if what Sir John refers to as “relevant fault” can be demonstrated on the part of what the Lord Ordinary describes as the “delinquent director”. Neither discusses what they mean by this, other than Sir John’s explanation that such fault is “other than the mere fact that he has general responsibilities as a director”. It cannot be breach of a common law duty owed to employees in the position of the pursuer. There is no such duty. It would therefore appear that “relevant fault” can only mean such act or omission as would infer deemed criminal liability in terms of section 5. That in turn will depend upon how responsibilities were divided among the company’s personnel. As a control mechanism for ensuring a just reallocation of risk that would seem less than satisfactory. Criminal liability and civil liability have different consequences. As Mr Pugh emphasised in submissions, where criminal liability is incurred by reason of some trivial or highly technical failure or was for some reason unavoidable, then prosecutorial discretion and the court’s duty to respond proportionately are available to prevent injustice. Not so when deemed criminal liability and no more than deemed criminal liability is enough to bring with it unlimited civil liability.
[28] Thus, while I have not been persuaded by every aspect of the reasoning in Richardson, I am persuaded that the construction of the 1969 Act adopted by the majority of the Court of Appeal in that case is correct, substantially for the reasons set out in the judgments of Russell and Stuart-Smith LJJ. As I have already indicated, that is the conclusion to which my own reading of the Act has led me. Accordingly, I would move your Lordships to allow the reclaiming motion, recall the interlocutor of the Lord Ordinary and to dismiss the action quoad the second defender and quoad ultra allow proof.
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2015] CSIH 11
PD672/09
Lord Brodie
Lord Drummond Young
Lord Malcolm
OPINION OF LORD DRUMMOND YOUNG
in the cause
by
WILLIAM CAMPBELL
Pursuer and respondent;
against
(FIRST) PETER GORDON JOINERS LIMITED and DEREK FORSYTH,
the liquidator thereof; and (SECOND) PETER GORDON
Defenders and reclaimers:
Act: Smith QC and Murray; Lefevre Litigation
Alt: Pugh; Harper Macleod LLP (second defender)
3 February 2015
[29] The question that arises in this case is whether the Employers’ Liability (Compulsory Insurance) Act 1969 imposes civil liability upon a director of a company that has failed to obtain insurance where an employee has been injured in the course of his work but has failed to obtain redress from the company. That raises the general question of when a criminal statute creates civil liability.
[30] In theory a range of possible answers exists. At one extreme the law might have decided that a criminal statute does not create civil liability unless that is expressly stated. Close to the other extreme is the general approach adopted in the United States. The law in most if not all American jurisdictions has been profoundly affected by a celebrated article written by Professor Ezra Ripley Thayer, “Public Wrong and Private Action”, published in 1914 at 27 Harvard L Rev 317. Thayer’s thesis is that the reasonable man fulfils his statutory obligations, even if the statute only provides for criminal sanctions; consequently if he does not fulfil a statutory obligation and injury results civil liability follows. The result is in practice close to a rule that injury caused by breach of a criminal statute will always be civilly actionable.
[31] In the jurisdictions of the United Kingdom neither of these approaches has been followed. Instead, the question has been regarded as turning on the construction of the particular legislation in question. The general approach that has been followed was described by Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173, at 185, and a broadly comparable account is given by Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council, [1995] 2 AC 633, at 731-732; the latter was expressly approved by Lord Rodger in Morrison Sports Ltd v Scottish Power UK PLC, 2011 UKSC 1 at paragraph [28]. The starting point is that, where a statute creates an obligation and enforces performance in a specified manner, performance cannot be enforced in any other manner. Thus the general rule is that where the only manner of enforcing performance provided in a statute is prosecution for a criminal offence there is no civil liability.
[32] Nevertheless that general rule is subject to exceptions. For present purposes one of these exceptions is important. This occurs “where upon the true construction of the Act it is apparent that the obligation or prohibition was imposed for the benefit or protection of a particular class of individuals, as in the case of the Factories Acts and similar legislation”: [1982] AC 185. Whether a particular statute or statutory provision falls within the exception or the general rule is a matter of construction. By far the most numerous class of statutes that have been held to fall within the exception are those dealing with health and safety at work. The basis of liability is set out by Lord Kinnear in Black v Fife Coal Co Ltd, 1912 SC (HL) 33, a case dealing with contraventions of the Coal Mines Regulation Act 1887, at page 45:
“If the [statutory] duty be established, I do not think there is any serious question as to the civil liability. There is no reasonable ground for maintaining that a proceeding by way of penalty is the only remedy allowed by the statute.… We are to consider the scope and purpose of the statute, and in particular for whose benefit it is intended. Now the object of the present statute is plain. It was intended to compel mineowners to make due provision for the safety of the men working in their mines, and the persons for whose benefit all these rules are to be enforced are the persons exposed to danger. But when a duty of this kind is imposed for the benefit of particular persons, there arises at common law a correlative right in those persons who may be injured by its contravention. Therefore I think it is quite impossible to hold that the penalty clause detracts in any way from the prima facie right of the persons for whose benefit the statutory enactment has been passed to enforce the civil liability”.
[33] That principle can be traced back to the decisions in Groves v Lord Wimborne, [1898] 2 QB 402 in England and, even before that, Kelly v Glebe Sugar Refining Co, 1893, 20 R 833, in Scotland. A L Smith LJ indicated (at [1898] 2 QB 406-407) that the relevant statute, the Factory and Workshop Act 1878, was “a public Act passed in favour of the workers in factories and workshops to compel their employers to do certain things for their protection and benefit”. On that basis duties to fence machinery imposed civil liability on the employer, and the existence of a criminal penalty was immaterial for this purpose. A similar approach was taken by Rigby LJ (at 414) and Vaughan Williams LJ (at 415-416). The duties under consideration in that case were framed in the passive in abstract terms, for example (in section 5(3)) “All dangerous parts of the machinery… shall… be securely fenced”. That was sufficient to impose a duty on the employer itself.
[34] Provisions for compulsory insurance were first considered in the context of motor insurance in Monk v Warbey, [1935] 1KB 75. Section 35 of the Road Traffic Act 1930 made it illegal to use or to cause or permit any other person to use a motor vehicle on a road unless there was in force in relation to the user of the vehicle a policy of insurance against third party risks that complied with the requirements of the Act; the corresponding provision is now found in section 143 of the Road Traffic Act 1988. It was held by the Court of Appeal that, where the owner of a car permitted its use by a person uninsured against third party risks and injury to a third party was caused by the negligent driving of that person, the owner was liable in damages to that third party for breach of his statutory duty. Greer LJ (at 79-80) considered the mischief at which the legislation was aimed: “it had become apparent that people who are injured by the negligent driving of motor cars were in a parlous situation if the negligent person was unable to pay damages”. To deal with this problem two statutes were passed. First, the Third Parties (Rights against Insurers) Act 1930 enabled a person thus injured to recover damages from the insurance company notwithstanding the bankruptcy of the negligent driver. That statute did not, however, deal with the case where the owner of a car had lent it to an uninsured person. Greer LJ continued (at 80):
“Consequently the Road Traffic Act, 1930, was passed for the very purpose of making provision for third parties who suffered injury by the negligent driving of motor vehicles by uninsured persons to whom the insured owner had lent such vehicles. How could Parliament make provision for their protection from such risks if it did not enable an injured third person to recover for a breach of s. 35? That section… would indeed be no protection to a person injured by the negligence of an uninsured person to whom a car had been lent by the insured owner, if no civil liability were available for a breach of the section”.
The situation thus fell exactly within the language of A L Smith LJ in Groves v Lord Wimborne, supra, quoted in the last paragraph.
[35] In the same case Maugham LJ also referred to Groves v Lord Wimborne (at 85), and continued:
“[A] consideration which strongly tends to support the view that the statute was not intended to preclude a civil action is that it is brought by a person pointed out on a fair construction of the Act as being one whom the Legislature desired to protect”.
That is of course the basic test that is used in determining whether a criminal statute imposes civil liability, as explained in cases such as Black v Fife Coal Co Ltd, and Lonrho Ltd v Shell Petroleum Company Ltd.
[36] In Scotland, Monk v Warbey was followed in Houston v Buchanan, 1940 SC (HL) 17. Lord Wright (at 39) referred to Monk, and continued:
“The class of persons whom the section is intended to protect includes those who are likely to be injured by the negligent user of the vehicle, that is prima facie and generally persons using the highway.… The particular mischief which [section 35] is aimed at averting is the danger that the user of the wrongdoing vehicle (if I may call it so) is not covered against third party risks, so that the injured person has not the right which he would have had, if there had been an insurance, of recourse against the insurers…. The provision is an important element in the policy of the Legislature to secure the benefit of insurance for sufferers from road accidents”.
That view is in accordance with the speeches of the remainder of the House of Lords and the dissenting opinions of Lords Moncrieff and Carmont in the Court of Session.
[37] I have discussed the foregoing cases in some detail because in my opinion they disclose the basis on which the question of liability in the present case must be decided. Like the Road Traffic Acts, the Employers’ Liability (Compulsory Insurance) Act 1961 provides for compulsory insurance against certain risks. Section 1(1) provides as follows:
“Insurance against liability for employees.
(1) Except as otherwise provided by this Act, every employer carrying on any business in Great Britain shall insure, and maintain insurance, under one or more approved policies with an authorized insurer or insurers against liability for bodily injury or disease sustained by his employees, and arising out of and in the course of their employment in Great Britain in that business…”.
Subsection (2) states that regulations may prescribe the minimum amount of insurance to be provided; since 1998 the relevant amount has been £5 million. Section 2 of the Act defines the term “employee” as including any person working under a contract of service with an employer, whether by way of manual labour, clerical work or otherwise. Section 3 exempts certain employers from insurance; it is not relevant to the present case. Section 4 provides that provision may be made by regulations for securing that certificates of insurance may be issued to employers and displayed to employees.
[38] Section 5 provides as follows:
“Penalty for failure to insure.
An employer who on any day is not insured in accordance with this Act when required to be so shall be guilty of an offence and shall be liable on summary conviction to a fine not exceeding [level 4 on the standard scale]; and where an offence under this section committed by a corporation has been committed with the consent or connivance of, or facilitated by any neglect on the part of, any director, manager, secretary or other officer of the corporation, he, as well as the corporation shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly”.
The level of fine specified in section 5 is a sum not exceeding £2,500 per day.
[39] The question that has arisen in the present case is whether sections 1 and 5 of the 1969 Act impose civil liability upon any director who has consented to a corporation’s failure to insure in accordance with section 1, or who has connived in or facilitated any such failure to insure. In my opinion those sections do impose such liability. Section 1 imposes an obligation on the company to provide insurance, an obligation that would be actionable by an employee. Directors are obliged as an aspect of their general responsibility for the management of the company to ensure that it has implemented that obligation. Against that background, I am of opinion that section 5, when taken with section 1, imposes civil liability upon those directors if the conditions set out in section 5 are satisfied. An injured employee who cannot recover from the company would have a correlative right to recover damages from any such director. I reach this conclusion for a number of reasons.
[40] In the first place, I consider it clear that the obligation in section 1 of the 1969 Act was intended for the benefit of particular persons, namely employees who might be injured in the course of their work in such a way as to become entitled to payment of compensation. In the words of Lord Kinnear in Black (at 1912 SC (HL) 45) that gives rise to “a correlative right in those persons who may be injured by its contravention”. The existence of a penalty, as provided in section 5, does not detract from that right: ibid. The same principle is stated in later cases such as Lonrho Ltd v Shell Petroleum Co Ltd, supra, and also in the cases dealing with compulsory motor insurance. In Monk v Warbey, supra, Greer LJ (at [1935] 1 KB 80) emphasized that the purpose of the statute was to protect persons injured by the negligent driving of motor vehicles, and in Houston v Buchanan, supra, Lord Wright (at 1940 SC (HL) 39) stated that the compulsory insurance provision was “to secure the benefit of insurance for sufferers from road accidents”. Thus in the case of motor insurance the victims of accidents caused by negligent driving are regarded as a class to be protected. In my opinion exactly the same applies to the class of employees who may be injured in circumstances that attract legal liability on the part of the employer, whether through negligence or breach of statutory duty. The right of the injured employee under the 1969 Act would exist against the employer, for what that is worth, and in my opinion it would also exist against any director of a corporate employer if the conditions for liability in section 5 are satisfied. To the extent that the decision in Richardson v Pitt-Stanley, [1995] QB 123, is to the opposite effect, I cannot agree; I discuss this matter subsequently.
[41] In the second place, in addition to the fact that the 1969 Act is designed to benefit a particular class, the objectives and policy that underlie the Act in my opinion support the existence of civil liability. It is axiomatic that legislation should be construed purposively, in such a way as to give effect to its objectives and the policy that underlies it. Such an approach is apparent in cases such as Black, Monk v Warbey and Houston v Buchanan. The purpose of compulsory insurance provisions is to ensure that funds are available to compensate persons who are injured and consequently have a claim for damages. That purpose would be frustrated if civil liability under the Act did not exist.
[42] The argument for the reclaimer was that the Act could only impose civil liability on the employer, the company, and not on the reclaimer as sole director of that company; the duty in section 1 was according to its terms only incumbent upon the company, and directors were only mentioned in section 5 for the purpose of criminal liability. If that were correct, however, the existence of civil liability under the Act would rarely if ever be of significance. Where an employee has a claim for compensation for an accident at work, the employer is ex hypothesi liable, whether for negligence or breach of statutory duty. Thus if the employer is solvent there is no need to invoke the Act; an action directly against the employer will produce an effective remedy. It follows that the Act is only significant when the employer is insolvent. In that event, however, any right against the employer under section 1 would be worthless, and the Act would be of no practical effect. The underlying purpose of the legislation thus supports the notion that a director who is complicit in breach of the statute should be liable as well as the employing company.
[43] In the third place, a good reason exists for imposing the primary duty to insure, found in section 1, on the company alone. When an employee is injured, the primary liability is that of the employer, the company. Consequently, insurance against that risk must be in the company’s name, and the primary duty to insure must be imposed on the company, not its directors or officers. That explains why section 12 only refers to the employer, and not the directors. Nevertheless a corporate employer can only act through its officers, and there is a duty on directors to ensure so far as possible that the company fulfils its statutory duties. In that way it is apparent that section 1, by itself, has the effect of imposing a duty on the directors.
[44] In the fourth place, the common law relating to directors’ liability strongly supports the view that a director who is complicit in the company’s breach of the duty under section 1 should be civilly liable to an injured employee. A director who personally commits a delict in the course of his duties is liable to the injured party. A person who commits a wrong is liable for it himself, and it is immaterial that he was acting as an agent for or employee of another person: Cullen v Thompson’s Trustees, 1862, 4 Macq 424. Likewise, a director who, although not committing a delict himself, has authorized or directed or procured the commission of a delict by his company may be personally liable to the victim of the delict: C. Evans and Sons Ltd v Spritebrand Ltd, [1985] 1 WLR 317. The relevant principle was stated by Atkin LJ in Performing Right Society Ltd v Ciryl Theatrical Syndicate, [1924] 1 KB 1, at 14-15:
“Prima facie a managing director is not liable for tortious acts done by servants of the company unless he himself is privy to the acts, that is to say unless he ordered or procured the acts to be done.… I conceive that express direction is not necessary. If the directors themselves directed or procured the commission of the [wrongful] act they would be liable in whatever sense they did so, whether expressly or impliedly”.
[45] Failure to maintain insurance as required by section 1 of the 1969 Act is a wrongful act on the part of the company that would, for the reasons already discussed, give rise to civil liability for breach of statutory duty on the part of the company. If the company’s failure is with the consent or connivance of a director, or is facilitated by any neglect on the part of a director, the foregoing principle in my opinion renders the director personally liable for that breach of duty; in such a case it can be said that the director directed or procured the commission of the wrongful act, whether expressly or impliedly. Consent, connivance and facilitation through neglect are the criteria for the imposition of criminal liability under section 5 of the Act. On general common law principles they are also sufficient to render the director civilly liable for the company’s breach of section 1. The matter is concisely expressed by Sheriff Principle Bowen in Quinn v McGinty, 1999 SLT (Sh Ct) 27, at 29I:
“There can be no doubt that s 1 of the Act creates an obligation on the part of employers to insure; the effect of s 5 is in my view to create an obligation on the part of officers of an employing company to see that such insurance is in place”.
That consideration is in my opinion conclusive in fixing liability for breach of section 1 on a director.
[46] In the fifth place, where a director has been responsible for the company’s failure to obtain insurance as required by section 1 of the Act, it is possible that he ignored or deliberately disregarded the existence of the statutory duty. In that event he is personally liable for the failure, and in my view it cannot be argued that the imposition of liability is unfair; directors are responsible for the management of a company, and an important aspect of that is ensuring that the company fulfils its statutory obligations. Alternatively, the director, aware of the duty to obtain insurance, may have obtained proper professional advice from an insurance broker and acted on that advice. In that event, while personal liability is fastened on the director, it is likely that he will have a right of recourse against the insurance broker for professional negligence. The court was informed that in the present case the reclaimer did obtain advice from an insurance broker. I further note that the reason that the insurance was ineffective was that it expressly excluded any legal liability arising out of the use of electrically powered woodworking machinery. In the case of a joinery business, such an exclusion might be thought to be of some significance. In all the circumstances, I cannot conclude that there is anything unfair in imposing personal liability on the reclaimer.
[47] In the sixth place, the argument for the reclaimer focused on the difference in structure between section 1, which imposes the duty to insure on the employer, and section 5, which imposes criminal liability on both the employer and, in the case of a corporate employer, any director or other officer who has consented to or connived at the breach of duty or facilitated such breach through neglect. The argument, in short, was that this indicated that the statutory intention was that a director should only be subject to criminal liability, not civil liability. In my opinion this runs contrary to the fundamental principle of statutory interpretation that effect should be given to the objectives and underlying policy of the statute. It is not appropriate to frustrate that policy through an over-literal construction of the statute, or an excessively conceptual approach to its provisions. I think that the argument for the reclaimer can be considered excessively conceptual; it focuses on differences of structure that do not reflect the basic objectives of the statute. Moreover, the common law principles relating to directors’ liability strongly suggest that the differences in wording between section 1 and section 5 relate to the importance of precision in the definition of a criminal offence rather than any difference of substance. So far as civil liability is concerned, I am of opinion that the objectives of the Act demand that a director who has consented to or who has been complicit in a breach of the duty to obtain insurance, or who has facilitated such a breach through neglect, should incur civil liability. This substantive point should prevail over structural niceties.
[48] The reclaimer also referred to the scale of penalty that can be imposed for a breach of the Act. This is at level 4 on the standard scale, which at the present day amounts to a fine of up to £2,500 per day. In a case where the breach had continued for some months, the amount involved could clearly be a very substantial. In my opinion this argument is not significant. That level of fine is a maximum. In a case where a director incurs or is likely to incur civil liability that is a factor that should be taken into account in setting the amount of any fine. The level of fine should not frustrate the fundamental purpose of the statute, namely the provision of compensation to injured employees.
[49] For all of the foregoing reasons I am of opinion that a director or other corporate officer may be liable in damages where a company is in breach of section 1 of the 1969 Act. In this respect I am in full agreement with Sir John Megaw in Richardson v Pitt-Stanley, with Sheriff Principal Bowen in Quinn v McGinty, and with the Lord Ordinary in this case. Correspondingly, I disagree with the approach taken by the majority of the Court of Appeal in Richardson v Pitt-Stanley.
[50] In that case, Russell LJ summarized the provisions of the 1969 Act and referred to the need to ascertain the intention of Parliament. He noted ([1995] QB 128G-H) that the Act did not contain any express provision creating civil liability on the part of the employers or on the part of directors. He thought that it would be anomalous if the directors were to bear civil liability while the company of which they were directors was subject to no such liability. My reaction to that observation is twofold. First, I consider that the wording of sections 1 and 5 of the Act does create a statutory liability on the employer. Secondly, the company, the employer, is ex hypothesi liable to the employee either at common law or for breach of statutory duty. That liability can be enforced by an injured employee unless the employer is insolvent. It is in that situation that a compulsory insurance statute such as the 1969 Act becomes of critical importance. At that point it is obvious that any right of action against the employer under section 1 of the Act is worthless, and only a right of action against directors or other officers will give the injured employee an effective remedy. Russell LJ then (at page 130A-B) expressed the view that the Act was intended to be a statute within the confines of the criminal law, in respect of both employers and a fortiori of directors. The plaintiff had a remedy at common law and under the Factories Act, and the failure to insure did not deprive it of any remedy as such. That is no doubt correct so far as it goes, but with all due respect it seems to me to the effectiveness of any remedy. In my opinion the fundamental purpose of the 1969 Act was to ensure that an employee had an effective remedy in the event of his employer’s insolvency.
[51] Russell LJ then stated (at page 130A-C) that where criminal statutes have created civil liability in the field of personal injury litigation the breach of the statute has generally resulted in direct physical injury to the employee. The breach of the 1969 Act, however, did no more than involve the plaintiff in economic loss, namely the inability to recover damages. With respect, I have difficulty in understanding the relevance of the latter point. It is correct that pure economic loss is not generally recoverable in delict (or tort). The loss in Richardson and in the present case cannot be considered pure economic loss, however. The loss suffered by the employee in each case is physical injury (which in turn gives rise to various categories of economic loss, such as loss of wages and loss of pension rights). While the lack of insurance deprives the employee of his ability to recover damages, and that is in a sense economic, the ultimate source of the claim is a physical injury. In these circumstances I cannot draw any inference from the nature of the claim that the Act is not intended to create civil liability on the part of the directors. Furthermore, exactly the same point could be made about compulsory motor insurance, where the liability of the vehicle owner who has failed to insure has been clearly established. Russell LJ sought to distinguish Monk v Warbey (page 130F-H). He stated that the owner of the motor vehicle, unlike the employer, had no direct liability to the injured party; that the wording of the two statutes was different; and that the road traffic legislation would not have created direct responsibility on the part of the director. With respect, I find it difficult to accept this reasoning. There are obviously differences in the legislation involved in the two cases, but in Richardson I can find no attempt to engage with the underlying substantive similarities, which appear to me to be far more significant.
[52] Stuart-Smith LJ began his opinion (at page 131E-H) by rejecting an argument that the primary social purpose of the 1969 Act had been to secure that an injured employee should not obtain a barren judgment against his employer. He referred to two factors: first, insurance is normally taken out for the protection of the insured; and secondly, a small or even medium sized employer might be faced with disastrous consequences for his business, with adverse consequences for his other employees, if he were faced with a large claim by an injured employee which would make large inroads into his resources. These points are no doubt correct so far as they go. Nevertheless, insurance confers important economic benefits on third parties who may be affected by the activities of the insured. That is particularly important in a case where a person who may not have great resources is injured by the activities of the insured. That consideration applies both to road accidents and to injuries at work, and in my opinion it explains why insurance is compulsory in those cases. As to the potentially disastrous consequences for the insured’s business, any form of large claim against a business, for example a claim by a customer for defective work or a defective product, can have that result. Insurance is not compulsory in those cases, however. In my opinion it is obvious that the reason for obliging employers to insure against liability to their employees is precisely to ensure that an injured employee will not be left without an effective remedy. In the words of Sir John Megaw (at page 135C-D),
“The purpose was to give protection to a particular class of individuals, the employees, to eliminate, or, at least, reduce, the risk to an injured employee of finding that he was deprived of his lawful compensation because of that the natural position of the employer. I am confident that it was not part of the purpose or intention of Parliament in enacting this legislation to confer a benefit or protection on the employer”.
I respectfully agree. Any other view appears to me to be over-subtle.
[53] Stuart-Smith LJ then listed eight features of the 1969 Act which, he thought, pointed against civil liability on the part of a director (pages 131H-134B). First, he thought that section 1 did not impose any civil liability on an employer. With respect, I disagree with that view, and in any event the employer will be subject to liability for the injury at common law or under health and safety legislation. Secondly, Stuart-Smith LJ expressed the view that where a civil statutory duty is created and the only penalty prescribed is criminal, the activity involved is usually declared unlawful per se. The lack of such a declaration in section 1 was an indication that Parliament did not intend civil liability. This consideration appears to me to depend on niceties of wording rather than the underlying substance of the statute. Furthermore, it ignores the position of the directors: section 1 imposes a duty to insure on the company, but that entails a duty on the part of the directors to cause the company to fulfil its duty. That failure of the directors amounts in my opinion to a civil wrong. Thirdly, a statutory provision will more readily be construed as conferring a civil cause of action where the provision relates to the safety and health of a class of persons rather than mere economic loss. I have already commented on this matter; I note that Stuart-Smith LJ accepts that this point cannot be taken too far because Monk v Warbey is to the contrary. Fourthly, very substantial penalties are imposed by the 1969 Act. I have already commented on the level of penalties, which seems to me to be irrelevant to the question of whether civil liability exists.
[54] Fifthly, Stuart-Smith LJ took the view that a director charged with the duty of organising insurance for the purposes of the 1969 Act could not be liable in negligence at common law to an employee who suffered economic loss through failure to insure. Unlimited civil liability might result from the mere overlooking of the need to renew a policy. I agree that there would be no liability in negligence, but what is in issue is a statutory civil liability, not common law negligence. Furthermore, it only applies to a director who has consented to or connived in, or facilitated by neglect (the wording of section 5), the company’s failure to obtain insurance. That wording requires that the director be implicated in the failure to renew. The statutory duty is clearly an important part of the statutory regime governing health and safety of employees, and I can see nothing unfair in placing the burden of securing insurance on the directors who are responsible for the overall management of the company.
[55] Sixthly, it had been said in Parliamentary debates that nothing in the Bill altered the common law regarding liability in the relationship between an employer and an employee. For my part, I cannot see that that supports either side in Richardson or in this case. Seventhly, Monk v Warbey was further distinguished on the ground that the owner of a car who causes or permits another to drive the vehicle puts into the hands of that person a potentially lethal object which can cause injury to members of the public. It seems to me that exactly the same can be said about machinery used at work, and an electrically powered circular saw is potentially dangerous. Eighthly, Stuart-Smith LJ thought that the duty on directors implied by section 5 was owed to the company/employer, and not to the employee. For reasons already stated, I do not agree, on the basis that a director who personally commits a delict or other legal wrong in the course of his duties is liable to the injured party.
[56] I appreciate that Russell and Stuart-Smith LJJ did not rely on any of the foregoing factors individually. They rather took the whole of them together as yielding the inference that the 1969 Act did not impose civil liability on a director who was guilty of an offence under section 5. As I have indicated, I do not agree. In my opinion the factors discussed at paragraphs [40]-[48] above yield the opposite inference. I would add that the latter factors appear to me to go to the substance of the legislation, rather than niceties of form or wording.
[57] For the foregoing reasons I would refuse the reclaiming motion.
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2015] CSIH 11
PD672/09
Lord Brodie
Lord Drummond Young
Lord Malcolm
OPINION OF LORD MALCOLM
in the cause
by
WILLIAM CAMPBELL
Pursuer and Respondent;
against
(1) PETER GORDON JOINERS LIMITED and DEREK FORSYTH, the liquidator thereof,
and (2) PETER GORDON
Defenders and Reclaimers:
Act: Smith QC and Murray; Lefevre Litigation
Alt: Pugh; Harper Macleod LLP (Second Defender)
3 February 2015
[58] The question raised in this appeal is whether section 5 of the Employers’ Liability (Compulsory Insurance) Act 1969 imposes civil liability upon directors and other officers of companies if they consent or connive at, or are negligent in respect of, a company’s failure to provide adequate accident insurance for its employees. (The only consequences set out in the Act are criminal in nature.) William Campbell (the pursuer) was injured at work. In contravention of the terms of section 1 of the Act, his injury is not covered by accident insurance, and his employers (the first defenders) are in liquidation. They are unable to pay compensation. In the absence of recourse against insurers, the pursuer has convened Peter Gordon (the second defender), who is the sole director of the company. He pleads that the second defender is liable in damages for his injuries, and this based upon a breach of duties imposed upon the second defender under the 1969 Act. The Lord Ordinary, Lord Glennie, has rejected a submission made on behalf of the second defender that the Act does not impose civil liability upon persons who are subject to the criminal penalties specified in the Act. That decision, which is to be found at [2013] CSOH 181, is the subject of this appeal. (The Lord Ordinary also dismissed a common law negligence case against the second defender, but that decision has not been challenged.)
[59] The same question was considered by the Court of Appeal in Richardson v Pitt‑Stanley and others [1995] QB 123. The majority of the court (Russell and Stuart‑Smith LJJ) held that Parliament intended the Act to be limited to criminal penalties for any failure by an employer or company officer to provide adequate accident insurance (Sir John Megaw dissenting). After a careful consideration of the judgments in that case, the Lord Ordinary preferred the reasoning of the dissenting judge (as did Sheriff Principal Bowen QC in Quinn v McGinty 1999 SLT (Sh Ct) 27).
[60] I respectfully differ from both the Lord Ordinary and the Sheriff Principal. While I would not adopt all of the reasoning of the majority in Richardson, I agree with the view that the provisions of the 1969 Act do not reveal a legislative intention to impose civil liability upon directors and others who are subject to criminal penalties under section 5. My reasons are as follows.
[61] The 1969 Act imposes a duty to insure upon employers, not upon others – see section 1. Section 5 backs this up with criminal sanctions (currently running at a fine of up to £2,500 for each day of non-insurance) enforceable against both employers and any recalcitrant directors or officers. There is no mention of any intention or non-intention to make employers and/or officers liable in damages to anyone harmed by an absence of insurance.
[62] A long line of case law requires the court to ask itself whether, in the absence of express provision, Parliament nonetheless intended the suggested civil liability in damages. It has often been said that this exercise can be a cloak for judicial law making. However, the court can only do its best on the available material. That said, it seems to me that, when Parliament has expressly imposed only one set of consequences for the breach of a statutory provision, there will require to be cogent grounds for identifying an intention to impose additional but unexpressed outcomes. Not all judges have taken this view – for example in Monk v Warbey [1935] 1 KB 75, Greer LJ said:
“Prima facie the person who has been injured by the breach of a statute has a right to recover damages from the person committing it unless it can be established by considering the whole of the Act that no such right was intended to be given.” (page 81)
[63] The Lord Ordinary’s decision is heavily dependent upon Lord Diplock’s speech in Lonrho Ltd v Shell Petroleum Co Ltd [1982] AC 173 at 185D. Lord Diplock said that the general rule that an Act is limited to the specified consequences suffers exceptions, including where the statute benefits or protects a particular class of individuals. The example often given is a duty imposed under the Factories Acts. In Black v Fife Coal Co Ltd, 1912 SC (HL) 33, Lord Kinnear observed (at page 45) that such statutes create “a correlative right in those persons who may be injured by its contravention”. In this connection, the Lord Ordinary observed, in my view correctly, that the purpose of the 1969 Act was to deal with the mischief of injured employees being deprived of compensation because of an absence of sufficient attachable assets of the employer.
[64] An approach based upon judicially created presumptions has certain attractions, but the weight of recent authority favours the view that an exception to the general rule based upon statutory protection of a particular class of persons is too vague, and that the search is for an intention, not just to confer benefits on a certain section of the public, but also to endow enforceable private law rights on such persons sounding in damages – see Stanton and others “Statutory Torts” at page 34, referring to the speech of Lord Jauncey in Hague v The Deputy Governor of Parkhurst Prison [1992] 1 AC 58, and to that of Lord Bridge of Harwich in Pickering v The Liverpool Daily Post [1991] 1 All ER 622 at 632. In the former case Lord Jauncey said:
“The fact that a particular provision was intended to protect certain individuals is not of itself sufficient to confer private law rights of action upon them, something more is required to show that the legislature intended such conferment.” (pages 170/1)
[65] It is that “something more” which is missing in the present case. Over the years, industrial safety legislation has been regarded as the example par excellence of implied statutory civil liability. It is not difficult to understand why. Such provisions are set against a common law background of an employer’s duty of reasonable care for the safety of his workforce. If Parliament enacts that a certain precaution must be taken, it is a short step to an implication that a reasonable employer will obey the statute. The UK courts have chosen to recognise statutory strict civil liability in such cases, though they could have reached similar outcomes by reference to the common law duties and the standard of care expected of the reasonable employer, as overlaid by the terms of the statute. Professor Glanville Williams has drawn attention to other jurisdictions which avoid “judicial fictions” as to assumed parliamentary intention by adopting this approach (1960 MLR 233: “The Effect of Penal Legislation in the Law of Tort”).
[66] Though it is interesting to note that in the passage quoted earlier from Black, Lord Kinnear referred to the statute giving rise to a “common law” right, it is too late for us to follow this route. But the point remains relevant when considering whether and when it might be proper to understand Parliament as having created a new form of civil liability which has no equivalent or background framework in the pre-existing common law. Writing in 1960, Professor Glanville Williams identified Monk v Warbey as almost a stand alone example of such a result (page 248). At the conclusion of his article he said “Monk v Warbey, which uses penal legislation to found a new type of civil claim, without words in the statute to justify it, should be regarded as an improper type of judicial invention.”
[67] In recent years, judges have shown a marked reluctance to read civil liability into statutory duties. The majority opinion in Richardson reflects this tendency. The contrary position relied upon an alleged analogy with the circumstances in Monk v Warbey, however their Lordships found reasons to distinguish the two cases. Furthermore, in Richardson it was argued that a civil statutory duty upon directors would pierce the corporate veil and make directors the insurers of their corporations. In my view that is a weighty factor to be taken into account before concluding that this was Parliament’s intention.
[68] In addition, it seems to me to be unlikely that there was an intention to impose statutory civil liability upon ex hypothesi insolvent employers. The question only arises when the employer is already under a civil liability in damages for the accident itself. Unless one adopts tenuous considerations based on possible actions of interdict, and the like, so far as employers are concerned, civil liability under the Act adds nothing. I am not persuaded by the argument that Parliament might still have intended something which will rarely if ever be exercised. And I agree with Russell LJ that “It would be anomalous if the directors were to bear civil liability whilst the company of which they were directors was subject to no such liability.” Stuart‑Smith LJ expressed similar sentiments.
[69] Russell LJ also observed that any breach of the statutory duty did not cause the personal injury, and that, Monk aside, it would be innovative for Parliament to impose statutory civil liability for pure economic loss. No doubt there is a risk that the background of an industrial accident might obscure the point, but it is repeated by Stuart‑Smith LJ at page 132H in terms with which I agree. “In my opinion, the court will more readily construe a statutory provision so as to provide a civil cause of action where the provision relates to the safety and health of a class of persons rather than where they have merely suffered economic loss.” In a later passage (page 133B-E) he explained the novelty of the proposed liability, which would not be foreshadowed or reflected in a common law remedy, and that it would pierce the corporate veil “with a vengeance”. Incorporation is designed to protect against such liabilities. All of this strengthens the argument against a contrary implication in the 1969 Act.
[70] The potentially draconian criminal financial penalty is another weighty factor – see Stuart-Smith LJ at page 133C. And if one assumes that Monk v Warbey, and its Scottish equivalent of Houston v Buchanan 1940 SC (HL) 17, were correctly decided, I agree with the majority in Richardson that they can be distinguished. In any event, the search is for the intention revealed in the 1969 Act, not that disclosed in an earlier and different statute. Finally, I repeat the point made earlier, namely that the Act places a duty on the employer alone. Directors and officers are mentioned only in the context of failing to ensure that this duty was fulfilled by the company.
[71] So far as Sir John Megaw’s dissenting judgment is concerned, as with the Lord Ordinary’s opinion in the present case, heavy emphasis was placed upon Lord Diplock’s exception, which, in my respectful opinion, is only a part of the necessary analysis. With Sir John there was also a wholly understandable desire that employees should not be left without a remedy. However, were that the touchstone, civil liability would have been imposed far more often than has been the case.
[72] For these reasons, in my opinion the reclaiming motion should be upheld, the action so far as directed against the second defender dismissed, and the remainder remitted to the Lord Ordinary to proceed as accords.