Hiding your Guilt behind a Fig Leaf?

Within the last week the Supreme Court has considered a Scottish case relating to the contents of Section 1 (1) of the Employers Liability (Compulsory Insurance) Act 1969. That provision applies to all employers carrying on any business in Great Britain who are required under the Act to 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 employees arising out the course of their employment in Great Britain.

The facts of the Scottish case are simple, but may be astonishing to many.

The employee, Mr Campbell, was employed by a company whose sole director was a Mr Gordon. Mr Campbell was employed as an apprentice joiner. Although the company had employers’ liability insurance the policy excluded claims arising from the use of “woodworking machinery” powered by electricity! Amazing, but true!

The insurance policy therefore did not cover the circumstances of a claim arising out of an accident at work involving Mr Campbell, as he had injured himself with an electric circular saw. The company’s failure to have in place appropriate insurance was a breach of the 1969 Act.

Unfortunately for Mr Campbell the company who employed him went into liquidation and Mr Campbell then directed his attention to Mr Gordon the former sole director on the basis that he ought to be liable in damages to Mr Campbell for the company’s failure to provide adequate insurance cover.

The only question the Supreme Court needed to consider was whether civil liability attached to the director Mr Gordon for that failure.

Three law lords out of five found in favour of the director Mr Gordon. Why you may ask did he escape liability when there was a clear breach of the 1969 Act?

Lord Carnwath stated in his judgment, supported by two other law lords that the 1969 act did not impose any duty to insure on a director or other officer as such let alone any civil liability for failure to do so. The company, which itself is a legal entity, has that duty not the directors. The directors are protected by the so called “veil of incorporation” which Lord Carnwath stated could only be pierced in limited circumstances and those circumstances did not apply here.

Lord Toulson and Lady Hale both disagreed.

Lord Toulson cited a dissenting judgment by Sir John Megaw in a 1995 case where a similar point was considered. Essentially Sir John Megaw had taken the view that he had found it difficult to believe that the parliamentary draftsman would have intended to make provision that there should be no civil right or remedy when drafting the 1969 Act especially where there was provision for regarding an act of omission to be unlawful and to indicate that such an act or omission would give rise to some criminal penalty. To put it another way if it was a criminal offence not to have appropriate insurance in place then how could a guilty party argue that no civil liability should arise from the same set of circumstances?

Lady Hale also made it clear that she thought it was “absolutely plain that parliament did intend there to be such civil liability” in the circumstances of a breach of the 1969 Act. She pointed out that under the Act there is a very specific duty imposed upon employers and that duty is also imposed upon specified officers where, as here, the employer is a limited company

Lady Hale pointed out that the purpose of the 1969 Act was to protect a very specific class of people, namely employees who might be injured by the employers’ breach of duty (whether arising by statute or common law). The aim being, of course, that such a class of people should be compensated for their injuries and she added: “failure to insure means that the employee is denied the very thing that the legislation is intended to provide for him”.

So one could argue that the majority of the Supreme Court reached the wrong conclusion by essentially allowing the “corporate veil” to act as a “fig leaf” for Mr Gordon’s guilt in not obtaining appropriate insurance to protect his employees.

Alternatively, in contrast one could state that the whole purpose of incorporation is to avoid directors facing personal liability for the defaults of the company. Hence, you may conclude that the Supreme Court got the decision right.

It might be an idea, however, to suggest that employees check their employers’ insurance to see whether it is adequate or not – or is this going too far?

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Jane Crosby

Partner, Dispute Resolution

Jane is an employment and commercial litigation solicitor of more than 15 years' experience. Prior to entering the legal profession, Jane was employed in the...

Partner, Dispute Resolution

Jane Crosby

Jane is an employment and commercial litigation solicitor of more than 15 years' experience.

Prior to entering the legal profession, Jane was employed in the aviation industry. This experience is appreciated by many of Jane's clients who note that she is able to take a commercial and pragmatic approach to any legal issue that they face.

Jane acts for a wide range of individuals and businesses and her areas of specialism include aviation, property related industries and IT. Jane regularly advises on aspects of employment law, such as settlement agreements, employment contracts, policies and procedures, redundancies, equal pay, data protection, issues arising from TUPE and reorganisations, the calculation of holiday pay, bonus and commission payments, disciplinary and grievance issues, dismissal and termination issues, the protection of confidential information and the enforcement of restrictive covenants. Jane gets involved in GDPR training for her clients and she is able to deliver tailored employment law training sessions upon request.

As a commercial litigation lawyer, Jane also deals in shareholder and directors disputes, commercial contract disputes and the enforcement of restrictive covenants.

Jane has been involved in successful high value commercial litigation for clients in the High Courts, she is an accredited mediator and she is a member of the Employment Lawyers Association.

Jane is often asked to write for a number of well known publications, including The Daily Mail, The Telegraph and The Week and she has been interviewed on BBC Radio 4.

Here is small selection of the feedback that Jane has received:

“Jane, I cannot sincerely thank you enough for your wise counsel and am delighted to have made your acquaintance. If I am blessed with a new position somewhere I will hand over my contract in the first instance to you. Likewise, any of my friends, peers, romans and countrymen wanting advice, I will point them in your direction.”

“Jane, you have been most resilient on my behalf for which I sincerely thank you for all your endeavours. I have a tremendous working relationship with Hart Brown and you have undoubtedly compounded this further."

“I appreciated the clarity of advice given at a stressful time”.

“A sensitive and highly professional approach and efficient work in the interests of the client”.

“Your advice, conduct and assistance have been indeed outstanding and very professional but also – and most importantly – very humane”.

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