Mr Campbell, an apprentice joiner, was injured by an electric circular saw. His employer’s insurance excluded electrically powered woodworking machinery, the company later went into liquidation, and he sued its sole director for the failure to insure. By a majority, the Supreme Court held that the Employers’ Liability (Compulsory Insurance) Act 1969 may impose criminal liability on a director in defined circumstances, but does not give the injured employee a claim for damages against him.
The claim against the director
Mr Campbell was employed as an apprentice joiner. Mr Gordon was the company’s sole director and ran it day to day. On 28 June 2006 Mr Campbell was injured while using an electric circular saw. The company had employers’ liability insurance, but the policy excluded claims arising from electrically powered woodworking machinery, and so excluded his accident. Lord Carnwath recorded that this was a breach of the company’s duty under section 1(1) of the Employers’ Liability (Compulsory Insurance) Act 1969. The company went into liquidation in 2009, and Mr Gordon was recently bankrupt. The court was told of discussions about rights he might have against the broker who arranged the policy. The only issue was whether he was civilly liable for the failure to insure.
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The Lord Ordinary upheld the claim. A majority of the Inner House dismissed it (Lord Brodie and Lord Malcolm; Lord Drummond Young dissenting), reaching the same conclusion as the majority of the English Court of Appeal in Richardson v Pitt-Stanley.
Criminal liability, not a director’s duty to insure
Section 1 requires an employer carrying on business in Great Britain to insure against liability for bodily injury or disease sustained by employees in the course of their employment. Section 5 makes an employer who is not insured when required to be so guilty of a summary offence and liable to a fine. If a corporation commits that offence with the consent or connivance of, or facilitated by neglect on the part of, a director or other officer, that person is deemed guilty of the offence and may be prosecuted and punished.
Lord Carnwath, with whom Lord Mance and Lord Reed agreed, treated this as an unpromising basis for damages. Section 5 does not impose a duty to insure on a director, or civil liability for failing to do so. The duty rests on the company. The corporate veil is pierced only where the company has committed the offence, and then only to deem the officer guilty of that offence.
For Mr Campbell, it was argued that a statutory obligation imposed for the protection of a particular class can give rise to civil liability despite a criminal penalty. That principle, stated by Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No 2), had been applied to factory and mine safety duties and, in Monk v Warbey, to a failure to insure a motor vehicle. Lord Carnwath found it unnecessary to decide how far later cases had modified Lord Diplock’s formulation. He assumed, without deciding, that it remained a reliable guide for duties imposed for employees’ benefit, and he agreed with Sir John Megaw in Richardson that the employer’s section 1 duty was imposed for the employees, not the employer.
That did not make the director liable. The starting point was a statutory obligation binding the person sued. There was no authority for imposing indirect liability for someone else’s statutory duty, or for looking through the corporate veil unless the statute justified it. Monk v Warbey pointed the other way: the Road Traffic Act 1930 placed direct responsibility both on the user and on a person who caused or permitted the use. The 1969 Act places direct responsibility only on the employer. Whether the employer is civilly liable, despite section 5, had divided the courts below and did not arise. For officers, Parliament chose a defined criminal penalty linked to the company’s offence.
Lord Carnwath also rejected the reasons given by Lord Drummond Young. A company can act only through its officers, but that does not decide their liability to third parties. At common law, as Atkin LJ had stated, directors are not generally liable for the company’s torts unless they ordered or procured the wrongful act. No such claim was before the court. The question was the meaning of this statute, not general fairness.
A further point, raised for Mr Gordon in oral argument, was the history of the consent, connivance and neglect formula. A search described to the court had found more than 900 provisions using those words, apparently for corporate offences, although precisely the same wording was said to be much rarer. Similar provisions appear in the Companies Act 2006 and, in a related form, the Interpretation Act (Northern Ireland) 1954. Counsel and the court’s legal assistants had found no reported case treating the formula as creating civil liability. Lord Carnwath was cautious about a late point, and accepted that further research would be needed before one could say how often it is used in employee-protection statutes. Even so, it supported reading section 5 as deliberately confined to criminal liability.
The dissenting view
Lord Toulson, with whom Lady Hale agreed, would have looked at the substance of the deeming provision. In his view it places on the relevant officer an obligation not to consent to, connive at, or by neglect facilitate a failure to insure, backed by a criminal penalty. In legislation protecting employees, he preferred that functional reading to a formal one. He agreed with Lord Drummond Young that a formalist approach was excessively conceptual and focused on structural differences that did not reflect the statute’s objectives. Even formally, he considered the director deemed guilty as a principal of failing to insure.
On civil liability, he relied on the line of authority from Groves v Lord Wimborne through Butler (or Black) v Fife Coal Co Ltd and Cutler v Wandsworth Stadium Ltd to Lord Diplock’s statement in Lonrho. Where legislation protects employees, breach ordinarily gives a potential claim unless the language clearly points the other way. He did not accept that later cases about prisons, social welfare or electricity regulation had changed that approach: those schemes served the public at large, whereas this Act has no purpose other than protecting employees. He would have allowed the appeal.
Lady Hale considered it plain that, in 1969, Parliament intended civil as well as criminal liability. Parliament is presumed to know the existing law, under which an employer’s statutory duty for the benefit of an injured employee gives rise to civil liability unless a clear contrary intent appears. She noted that Parliament later identified, in section 47 of the Health and Safety at Work etc Act 1974, which breaches did not give rise to civil liability, and restricted that liability further in 2013. She saw no difference in substance between criminal liability for failing to insure and a duty to insure. The intended protection was compensation even if the employer could not pay. She would have allowed the appeal and let the case go to proof.
Verdict: The Court dismissed Campbell’s appeal by three votes to two. Section 5 did not give him a civil claim against the director for the company’s failure to insure. Lord Toulson and Lady Hale would have allowed the claim to proceed.
Source: Campbell v Gordon [2016] UKSC 38
