July 6, 2016

In Campbell v Peter Gordon Joiners Ltd [2016] UKSC 38, the Supreme Court had to determine whether a company director was liable in damages, under the Employers’ Liability (Compulsory Insurance) Act 1969 (‘the Act’), for the company’s failure to provide adequate employers’ liability insurance cover. The Court’s decision is considered by Clare Dixon of 4 New Square.

THE FACTS

Mr Campbell was injured while operating a saw at work. The Scottish company for which he worked had employers’ liability insurance, but this excluded cover for claims arising from woodworking machinery powered by electricity – rather surprisingly, since the company was a firm of joiners. His employer was, therefore, in breach of section 1(1) of the Act:

‘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’.

The company went into liquidation and so Mr Campbell sued its sole director, relying on a combination of sections 1(1) and 5 of the Act.

Section 5 provides:

‘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 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’.

In short, therefore, it is a criminal offence for an employer to have inadequate employers’ liability insurance and, if a director has consented to, connived in, or facilitated that failure, then that director is deemed also to be guilty of an offence. Section 5, however, says nothing about civil liability.

The general rule is that where a statute imposes an obligation, and criminal sanction for failure to comply with that sanction, then there is no civil liability. However, this general rule is subject to exceptions. The relevant exception for this case was that civil liability would be imposed “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”; Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173.

The issues in Campbell were therefore as to: (a) what criminal obligation the Act imposed upon the director and (b) if the necessary criminal obligation was imposed, whether the exception applied such that the director could be liable for civil damages as well as for criminal sanction.

THE DECISIONS BELOW

Mr Campbell was successful at first instance (the Outer House) but lost on appeal (in the Inner House). In this regard the Scottish Courts arrived at the same conclusion as the Court of Appeal had done in Richardson v Pitt Stanley [1995] QB 123. Mr Campbell appealed to the Supreme Court.

THE DECISION IN THE SUPREME COURT

Mr Campbell’s appeal was dismissed by a majority (with Baroness Hale and Lord Toulson dissenting).

Their Lordships were unanimous that Mr Campbell fell within the class of individuals who could fall within the exception to the general rule as set out in Lonnrho. However, the contentious issue was upon the nature of the obligation which was imposed upon the director by the Act.

The majority held that Mr Campbell’s claim failed before the “general rule” stage was even reached because the Act imposed an obligation to insure on the company only and no corresponding direct responsibility was imposed on a director. Therefore, the Act itself did not provide for primary criminal liability on the part of a director and, if Parliament had wanted the corporate veil to be pierced in this way, then that would have been spelt out in the Act.

For the minority, Lord Toulson (with whom Baroness Hale agreed with additional reasons) considered that the approach of the majority was too formalistic and failed to take sufficient account of the reality of the liabilities imposed by the Act. Their view was that the Act extended the pool of those bearing responsibility for insurance beyond the company and to the company’s officers. The mechanism used by the drafter to achieve that purpose was a deeming provision. However the use of that mechanism should not then be used to obscure the substantive fact that the Act placed an obligation on the director not to allow the company to be without insurance through their consent, connivance or neglect.

COMMENTARY

Mr Campbell’s attempt to obtain compensation for his personal injuries through a somewhat circuitous route, therefore, failed. If the decision had been otherwise then the effect would have been not only to allow the extrapolation of civil liability from the imposition of criminal liability but also permit a piercing of the corporate veil beyond that which it appears the drafter of the Act had intended. The Supreme Court declined to take this step and the status quo was maintained.

Keywords: ,