Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION
	[2013] CSOH 181
PD672/09	OPINION OF LORD GLENNIE in the cause WILLIAM CAMPBELL Pursuer; against (FIRST) PETER GORDON JOINERS LIMITED and DEREK FORSYTH, the liquidator thereof, and (SECOND) PETER GORDON Defenders: ________________

Pursuer: Murray; Lefevre Litigation

Defender: Pugh; Harper MacLeod

26 November 2013

Introduction

[1] This action arises out of an injury suffered by the pursuer in June 2006 in the course of his employment with the first defenders, Peter Gordon Joiners Limited ("the company"). The pursuer was an apprentice joiner. The accident involved an electrically powered circular saw. The company went into voluntary liquidation in December 2009 and the pursuer avers that there are no funds of theirs available to meet his claim. Of more direct relevance to the present action, the employers' liability insurance taken out by the company excludes any legal liability arising out of the use of electrically powered woodworking machinery such as the circular saw. So the claim against the company is worthless. In those circumstances, he also sues the second defender, Peter Gordon, who was the sole director of the company. He contends that the company was in breach of the section 1 of the Employers Liability (Compulsory Insurance) Act 1969, and that Mr Gordon, who as sole director arranged the insurance, is liable under section 5 of that Act.

[2] The matter came before me for discussion on the procedure roll. The pursuer sought to have the action appointed to a proof. The second defender argued that it should be dismissed as against Mr Gordon on the ground that the claim levelled against him was irrelevant.

[3] I should note that the second defender also raises an issue about limitation, but it was agreed that if the second defender was unsuccessful in his plea to the relevancy, the question of limitation, along with other issues in the case, would require the hearing of evidence.

The Employers Liability (Compulsory Insurance) Act 1969
[4] Section 1(1) of the Act provides as follows:

"1(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 ..."

Section 1 goes on to say that regulations may provide for the amount of the required insurance cover. It also goes on to give a definition amongst other things of "approved policy" and "authorised insurer". Section 2 provides a definition of the employees to be covered by the insurance, a definition which includes the pursuer. Section 3 identifies certain employers who are exempted from the obligation to take out insurance, essentially state owned industries and public bodies, all of whom could be expected to be able to meet any liability out of their assets without the employee having to resort to their liability insurance. Section 4 deals with certificates of insurance and, among other things, requires the employer to comply with regulations requiring him to display copies of the certificate for the information of his employees.

[5] The pursuer avers, and I assume it to be true for the purpose of this opinion, that there was in place no insurance policy complying with the Act. The policy which was in place excluded from the scope of the indemnity any legal liability on the company arising out of the use of certain woodworking machinery, including the circular saw in issue here, powered by electricity. Section 1 clearly requires the insurance to be against liability for all types of bodily injury sustained in any way by employees in the course of their employment. On the basis of the pursuer's averments, which I did not understand to be disputed, the company failed to maintain such insurance, since the insurance which was in place did not cover bodily injury sustained by an employee during the course of operating the electrically powered circular saw.

[6] Section 1 places the obligation on the employer, in this case the company. Section 5 deals with the penalty faced by an employer who fails to insure in accordance with the Act. But it goes on to deal with the position of a director who has consented to, connived at or, by neglect, facilitated the offence. Section 5 provides as follows:

"5. 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, which I was told was £2,500]; 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."

It is averred by the pursuer that the offence was committed by the company with, at the least, the consent of Mr Gordon, its sole director; or, possibly, that he facilitated the offence by his neglect. He was responsible for the failure of the company to have proper and adequate employers' liability insurance. Mr Gordon admits that he arranged such insurance as there was. There may be arguments as to whether "consent" as used in section 5 means "knowing consent" and, if so, whether it would be necessary to show that Mr Gordon knew or ought to have known of the limited coverage provided by the policy and whether he knew or ought to have known that employees would be using electrically powered woodworking machinery such as the circular saw which was not covered by the policy. I do not need to decide such questions. It is not disputed that the pursuer's averments are sufficient to instruct a relevant case that the offence was committed with Mr Gordon's consent, or was facilitated by his neglect, so that he too, along with the company, is "deemed to be guilty of that offence" and is liable to be proceeded against and punished in accordance with that section.

[7] This is not enough in itself to make Mr Gordon liable to the pursuer. In order to succeed in his action of damages against Mr Gordon, the pursuer requires to establish that the section gives rise to civil liability on the part of Mr Gordon, as director of the company. The pursuer submits that it does; Mr Gordon that it does not.

Breach of common law duty
[8] The pursuer also advances a case at common law independently of the Act. He contends that Mr Gordon, as sole director of the company, was in breach of his common-law duties to the pursuer to act with reasonable diligence, viz to take reasonable care to arrange insurance cover insuring employees of the company against injury sustained by them in the course of their employment, to take reasonable care to read any insurance policy to ensure that it provided such cover, and/or to take reasonable care to ensure that employees such as the pursuer did not use any machinery in respect of which insurance cover was not in place. Mr Gordon argues that no such duty exists. In any event, he says that the pursuer was employed by the company and he, as director of the company, assumed no personal responsibility to the company's employees.

Discussion
[9] It was not in dispute that the question whether a statutory duty gives rise to a civil right of action is to be answered by considering the whole Act and the circumstances in which it was enacted. Certain indications pointing one way or the other have been identified in a number of well-known cases to which I was referred, in particular Black v Fife Coal Co. Ltd. [1912] AC 149, Cutler v Wandsworth Stadium Ltd. [1949] AC 398, Lonrho Ltd. v Shell Petroleum Co. Ltd. [1982] AC 173 and Morrison Sports Ltd. v Scottish Power UK Plc 2011 UKSC 1. 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, for without such a right the statutory duty would be "but a pious aspiration": see Cutler at p.407. But where an Act creates an obligation and enforces performance thereof in a specified manner, it may generally be taken that performance cannot be enforced in any other manner. That general rule is itself subject to exceptions. The primary exception, the only one relevant to the arguments here, is where the particular obligation or prohibition imposed by the statute was imposed for the benefit or protection of a particular class of individuals, as in the case of the Factories Acts and similar legislation: per Lord Diplock in Lonrho at p.185D. In such cases the statute may be taken to have created "a correlative right in those persons who may be injured by its contravention": per Lord Kinnear in Black v Fife Coal Co. Ltd. at p.165. But if the statute is intended to establish a regulatory system for the benefit of the public at large, that may point the other way.

[10] In the present case, section 1 of the Act imposes an obligation on the employer to procure and maintain insurance against liability for bodily injury or disease sustained by its employees. That obligation was, to my mind, clearly imposed for the benefit of the employees who could, in the event of the employer becoming insolvent and being unable to meet any claim for damages, look to the insurance policy under the Third Parties (Rights against Insurers) Act 1930 (and see now the 2010 Act). Although section 4, dealing with certificates of insurance, provides for a system of inspection by inspectors authorised by the Secretary of State, I do not read the Act as being primarily concerned with establishing a regulatory system. It may be that, in addition to a concern to ensure that an employee's right of action against his employer for personal injury was effective, there was also a desire to protect a company from being driven into insolvency by the occurrence of large uninsured claims against it by injured employees, but that cannot have been the prime consideration. The duty, after all, is placed on the employer, and the obvious purpose is not to save it from itself but to protect its employees from being left without a remedy. That being the case, that is a strong indication that the statutory obligation is civilly actionable at the suit of an employee, notwithstanding that a hefty criminal sanction is imposed on the employer by section 5 (up to £2,500 per day for every day on which the employer is not insured). It may well be that such a right of action will rarely be resorted to by an employee. If an employee is injured as a result of negligence or breach of statutory duty on the part of the employer, he will sue for damages for that injury. If, by then, the employer is insolvent, it will be too late for the injured employee to sue for breach of the obligation to insure. However, there may be circumstances in which an employee comes to learn of the absence of insurance, and where it may be open to him to sue to enforce the obligation by injunction or interdict under section 1 of the Act. But, in any event, it does not seem to me that the fact that a civil action may rarely be resorted to is indicative of its not existing.

[11] The position of the director, manager, secretary or other officer of the corporate employer is dealt with somewhat differently. They are not mentioned in section 1 of the Act. Their liability to criminal sanctions when the offence of not having insurance has been committed with their consent or connivance or has been facilitated by their neglect is imposed by section 5. In terms of that section they are "deemed to be guilty" of the offence committed by the corporation. It might therefore be argued that the Act does not place any obligation on them to procure that the employer has in force the relevant insurance. To my mind this would be too narrow a reading of the Act. It is clear from section 5 that if the company's failure to effect and maintain the relevant insurance is committed through their "fault", to use a compendious expression, they are to be regarded as being guilty of the same failure as the company, that is to say the failure to effect and maintain the relevant insurance. 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.

[12] In Richardson v Pitt-Stanley [1985] QB 123 a majority of the Court of Appeal in England came to the conclusion that the Act did not give rise to civil liability on the part of the employer or of a director or other officer thereof. It is necessary to look at that decision and the reasons for it with some care.

[13] A number of factors appear to have influenced the majority in coming to their conclusion. First, they took the view that the Act did not impose any civil liability on the employer, and that therefore it would be anomalous if civil liability was imposed on directors: see per Russell LJ at p.128F-H and per Stuart-Smith LJ at p.131H-132B. For my part, while I can accept that it would be anomalous if civil liability was imposed on directors of the company but not on the company itself, for reasons which I have already set out, which appear to be similar to those expressed by Sir John Megaw at p.134G-H, I cannot see why it should be assumed that civil liability is not imposed on the company.

[14] Secondly, they regarded it as relevant that breach of the statute here would not result in direct physical injury to the plaintiff but rather would involve the plaintiff only in economic loss, namely his inability to recover damages from the employer: see per Russell LJ at p.130A-C and per Stuart-Smith LJ at p.132H-133B and p.133D-E. That may be true, but it does not lead me to the conclusion that no civil liability attaches. Mr Pugh, for Mr Gordon, did not seek to rely upon this part of the reasoning in the case. After all, the very purpose of the Act is to ensure that an employee who suffers personal injury through the negligence or breach of statutory duty of his employer is not left without a remedy.

[15] Third, Stuart-Smith LJ took the view, at p.131F-H, that insurance was normally taken out for the protection of the insured (the employer), and therefore that the Act should not be regarded as imposing a duty solely or principally for the protection of the employee. For my part, I doubt that the protection of the corporate employer from its own folly was the main purpose in enacting the legislation. While it is possible that it was a secondary aim, that does not seem to me to detract from the argument that its prime purpose was to protect employees from being unable effectively to recover damages for personal injuries suffered through the negligence or breach of duty of their employers. Sir John Megaw, at p.135C-E, was "confident that it was no part of the purpose or intention of Parliament in enacting this legislation to confer a benefit or protection on the employer". He considered that the purpose of the enactment was the protection of the employees. I agree.

[16] Fourth, Stuart-Smith LJ, at p.132C-G, was influenced by the fact that some statutes in which it had been held that a civil duty was created had declared the relevant activity to be "unlawful per se", with the penalty imposed for contravention of that activity, rather than the activity "merely being classified as a criminal offence". So far as the employer is concerned here, section 1 of the Act places an obligation on him, and the criminal sanction is imposed by section 5. In those circumstances I do not consider that the distinction referred to by Stuart-Smith LJ exists or, if it does, that it makes any difference. I accept that, so far as the director or other officer is concerned, the Act does not separately impose that same obligation on him. However, as I have indicated already, the effect of section 5 is to put the director or other officer who has been at fault in allowing the company to carry on its business without relevant insurance in the same position as the company, so it is not difficult to consider him as bound by an equivalent obligation to that imposed on the company by section 1. Again, I agree with what Sir John Megaw said about this point at p.135E-G.

[17] Fifth, Stuart-Smith LJ was impressed by the level of the fine capable of being imposed on both the company and the delinquent director, which he regarded as "to some extent a special penalty, a feature which militates against civil liability": see p.133B-C. I have to say that I do not understand the force of this point. Nor do I see the force of the related point, mentioned at p.133D-E, about the improbability of Parliament intending to impose an "unlimited civil liability on such a director, who may have done no more than overlook the need to renew a policy". If Parliament was prepared to impose on a delinquent director a special penalty in the form of a very large fine accruing on a daily basis, it would not come as any great surprise if it was also willing to countenance the possibility of that director being subject to civil liability for a failure which might have the most appalling consequences for an employee who was injured at work.

[18] Finally, both Russell LJ and Stuart-Smith LJ, at pp.130G-H and 133G-H respectively, distinguished the case from cases such as Monk v Warbey [1935] 1 KB 75 in which section 35 of the Road Traffic Act 1930, making it unlawful for a person to cause or permit any other person to use a motor vehicle on the road without there being in force a policy of insurance, was held to give rise to a civil liability in damages to a third party injured by the negligent driving of an uninsured person.

[19] Stuart-Smith LJ recognised, at p.134A-B, that none of those reasons were "compelling in themselves" but he thought that cumulatively they pointed strongly against the creation of any civil liability on the part of a director who had committed an offence under section 5 of the Act. For my part I share his view that none of those reasons are compelling in themselves. I differ, however, from his conclusion that nonetheless they point strongly against the creation of civil liability on the part of such a director. The consequence of the legislation being construed in such a way that it imposes a criminal penalty but not a civil remedy is that it leaves the employee without any remedy. He cannot even apply for an injunction or interdict to compel the employer to take out the requisite insurance. Indeed, as Sir John Megaw points out at p.135G-136B, the criminal sanction by itself, with the imposition of a very heavy fine increasing day by day as the default continues, may result in the company being rendered unable to compensate the injured employee.

[20] In Quinn v McGinty 1999 SLT (Sh Ct) 27, Sheriff Principal Bowen declined to follow Richardson, holding in effect that the purpose of the Act was to protect employees from the risk of being deprived of lawful compensation and that it was no part of the intention of Parliament to confer benefit on employers, with the result that the Act not only created an obligation on the part of officers of an employing company to see that insurance was in place but also gave a corresponding right in a person affected to sue for breach of that obligation. I find his reasoning compelling.

[21] The decision in Richardson is not, of course, binding in Scotland, but it is deserving of respect. While it is, in my opinion, undesirable that courts in England and Scotland should come to a different view on the effect of legislation which applies throughout the United Kingdom, I am nonetheless unpersuaded by the reasoning of the majority in Richardson and consider that it should not be followed in Scotland.

[22] In those circumstances I have come to the conclusion that the defender's challenge to the relevancy of the pursuer's primary case fails. I should, however, go on to deal with the pursuer's common law case. I shall do so briefly because, in my opinion, there is no merit in it.

[23] The pursuer argued that Mr Gordon, as director of the company, owed a duty to the pursuer to take reasonable care to arrange insurance cover which insured the company against liability for injuries sustained by employees in the course of their employment; and to take reasonable care to read any insurance policy and schedule so as to ensure that it provided appropriate cover. In support of this argument, Mr Murray relied upon four different lines of authority. I deal with each in turn, though in a rather different order.

[24] First, he sought to argue that even if the Act did not give rise to a cause of action in damages against a delinquent director for breach of statutory duty, nonetheless it instructed a common law duty of care on the part of that director which was actionable at the suit of the injured employee who had obtained judgement against the company but had no effective remedy because of the absence of insurance. The short answer to this point can be taken from the speech of Lord Scott of Foscote in Gorringe v Calderdale Metropolitan Borough Council [2004] 1 WLR 1057 at para.71: "...if a statutory duty does not give rise to a private right to sue for breach, the duty cannot create a duty of care that would not have been owed at common law if the statute were not there": see also per Lord Hoffman at paras.23 and 25. I would only add that if, on the other hand, the statutory duty does give rise to a private right to sue for breach, then there is no need to look for a common law duty of care and no justification for finding one.

[25] Secondly, recognising that his case amounted to the assertion of a duty of care to avoid economic loss, and conscious of the incremental approach laid down in Caparo Industries Plc v Dickman [1990] 2 AC 605, he sought to derive some support from the decision of the Court of Appeal in Gwilliam v West Hertfordshire Hospitals NHS Trust [2003] QB 443. In that case the first defendant hospital had organised a fundraising fair and, as part of that, had hired a "splat-wall" from the second defendant, an independent contractor selected from the phone book. The claimant was injured because the splat-wall had been negligently set up by the second defendant, whose public liability insurance had expired four days before the fair. The claimant sued the hospital on the basis that it had owed a duty to visitors to the fair to exercise reasonable care in the selection of persons responsible for operating equipment at the fair. He contended, amongst other things, that the hospital should have checked that the second defendants were covered by public liability insurance. In the course of his judgment, Lord Woolf CJ did make some remarks which, taken out of context, might be understood as suggesting that the hospital was under a duty of care to ensure that the second defendants were insured against public liability. But the context is all important. It is clear from a careful reading of the judgments in the case that Lord Woolf was not suggesting that there was a stand-alone duty to ensure that the second defendants, as independent contractors, were insured. What he was saying was that one of the means of checking that the second defendants were suitable, and therefore were properly selected, was to check whether they were covered by insurance, this being a pointer to their general competence. His judgment provides no support for the proposition that a body in the position of the hospital in that case owed a duty to ensure that independent contractors engaged by them to provide equipment for their activities had in place an appropriate policy of insurance against public liability. It is true that Waller LJ considered that the hospital owed a duty to take reasonable steps to satisfy itself as to the second defendant's financial ability to meet a claim made against it, but Sedley LJ did not consider that any such duty was owed. Subsequent decisions of the Court of Appeal in Naylor (t/a Mainstreet) v Payling [2004] PIQR 615 and Glaister v Appleby-in-Westmorland Town Council [2010] PIQR 123 have preferred the approach of Sedley LJ. In Gwilliam it was held to be sufficient that the hospital had made enquiries as to the second defendants' insurance position and that it would have been unreasonable to expect them to go further and check the policy document itself. That holding appears to me to be inconsistent with there being any general duty of the type alleged here.

[26] Third, the pursuer referred to the duties owed by directors as now set out in sections 171-177 of the Companies Act 2006, and in particular sections 172 (duty to promote the success of the company) and 174 (duty to exercise reasonable skill, care and diligence). Those duties have effect in place of the duties owed at common law: see section 170(3). They are owed to the company: see section 170(1). They do not instruct any duty of care owed to employees. I was referred also to section 212 of the Insolvency Act 1986 and to a number of reported decisions relating thereto, but that section does not assist. While a company and, by extension, its directors may - I emphasise may - owe certain duties to the creditors of the company (see Winkworth v Baron Development Ltd [1986] 1 WLR 1512 at 1516E-F), particularly if the company is on the brink of insolvency, I do not accept that this translates into there being a duty on the directors to ensure that the company has in place insurance against liability to its employees for personal injury sustained by them in the course of their employment.

[27] Fourth, it was suggested that a director may personally incur delictual liability at common law where he procures or directs the commission of the delict by the company: see Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1, 13-14. That is no doubt correct. Some of the relevant decisions and the applicable principles are referred to in my opinion in Naxos Rights International Ltd v Project Management (Borders) Ltd [2012] CSOH 158 at para 62. But the pursuer here makes no averments bringing the case into that territory. Nor does he make any averments which would entitle him to say that Mr Gordon had assumed personal responsibility to his employees for ensuring that the company had the requisite policy of insurance: c.f. Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830.

[28] The pursuer also argued that Mr Gordon was in breach of a common law duty owed to the pursuer not to allow or instruct employees such as him to use machinery such as the electrically powered circular saw without liability insurance being in place. Conversely he submitted that esto Mr Gordon did not want such cover, he had a duty to take reasonable care not to provide such work equipment or allow it to be used. It seems to me that these submissions really raise the same type of point as those discussed previously. On what basis is Mr Gordon to be held personally liable for what was done or omitted to be done by the company? The pursuer makes no averments which would allow the court to ignore the separate legal personality of the employer company in favour of imposing personal responsibility on its director.

Decision

[29] For these reasons I hold that the pursuer has pled a relevant case based upon the argument that the Act allows the 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 him against liability for bodily injury or disease sustained by employees in the course of their employment. Whether that case will succeed is, of course, a matter which will require to be determined in due course. I propose to allow a proof on that issue. However, I am persuaded that the pursuer's common law case, on whichever basis it is put, is irrelevant.

[30] I shall put the case out by order on a date to be afterwards fixed to consider, with the assistance of parties, whether it is necessary or desirable that averments relevant only to the common law case should be deleted at this stage and, if so, the extent of any required deletions. I shall also reserve all questions of expenses.