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A Civil Right or Remedy is not Available Where a Statute Gives a Criminal Penalty for an Offence Committed by a Director of a Company

A Civil Right or Remedy is not Available Where a Statute Gives a Criminal Penalty for an Offence Committed by a Director of a Company

Campbell v Gordon

Supreme Court of the United Kingdom

2016] UKSC 38 on appeal from [2015] CSIH 11

Hale D.P, Mance J, Reed J, Carnwath J and Toulson J

July 6th, 2016

Reported by Linda Awuor & Kakai Toili

Download the Decision

Statutes – interpretation ofstatutes – Employers’ Liability (Compulsory Insurance) Act 1969 – section 5 – penalty for failure to insure – whether the United Kingdom’s Parliament intended that breach of section 5 should give rise not only to criminal liability but also to civil liability towards an employee who had been injured by the employer’s breach of duty towards him – Interpretation Act (Northern Ireland) 1954, section 20; Companies Act (United Kingdom) 2006, section 1255.

Labour law – employment law – duties of an employer - insurance – compulsory insurance – Insurance for employees – employers liability for failure to provide adequate insurance for employees – whether a director of a company breached section 1 of the Employers’ Liability (Compulsory Insurance) Act 1969 on insurance against liability for employees by failing to provide adequate insurance for the company’s employees.

Insurance law – compulsory insurance – Insurance for company employees – employer’s liability for failure to provide adequate insurance for employees –directors -   whether the failure by a director of a company to provide adequate insurance made him personally liable in damages to an employee of the company.

Brief Facts:

The Appellant was employed as an apprentice joiner by a company whose sole director was the Respondent. The Respondent was responsible for the day-to-day operation of the company. The Appellant suffered an injury whilst working with an electric circular saw on June 28, 2006. The company’s employers’ liability policy excluded claims arriving from the use of woodworking machinery powered by electricity, and thus excluded any claim arising out of the Appellant’s accident. The company’s failure to have in place appropriate assurance was a breach of its obligations under section 1(1) of the Employers’ Liability (Compulsory Insurance) Act 1969 (the 1969 Act). The company went into liquidation in 2009. The Appellant’s claim was upheld by the Lord Ordinary, but dismissed by the Inner House by a majority.

Issues:

(i) Whether theUnited Kingdom’s Parliament intended that breach of section 1 on insurance against liability for employees and section 5 on penalty for failure to insure of the Employers’ Liability (Compulsory Insurance) Act, gave rise not only to criminal liability but also to civil liability towards an employee who had been injured by the employer’s breach of duty towards him.

(ii) Whether a director of a company breached section 1 of the Employers’ Liability (Compulsory Insurance) Act 1969 on insurance against liability for employees by failing to provide adequate insurance for the company’s employees.

(iii) Whether the failure by a director of a company to provide adequate insurance made him personally liable in damages to an employee of the company.

Relevant Provisions of the Law:

Employers’ Liability (Compulsory Insurance) Act 1969

Section 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)  Regulations may provide that the amount for which an employer is required by this Act to insure and maintain insurance shall, either generally or in such cases or classes of case as may be prescribed by the regulations, be limited in such manner as may be so prescribed.

(3)  For the purposes of this Act—

(a)“approved policy” means a policy of insurance not subject to any conditions or exceptions prohibited for those purposes by regulations;

(b)“authorised insurer” means—

(i)    a person who has permission under [F2 Part 4A] of the Financial Services and Markets Act 2000 to effect and carry out contracts of insurance of a kind required by this Act and regulations made under this Act, or

(ii)  an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to the Financial Services and Markets Act 2000, which has permission under paragraph 15 of that Schedule to effect and carry out contracts of insurance of a kind required by this Act and regulations made under this Act;

(c)“business” includes a trade or profession, and includes any activity carried on by a body of persons, whether corporate or unincorporate;

(d)except as otherwise provided by regulations, an employer not having a place of business in Great Britain shall be deemed not to carry on business there.

(3A) Subsection (3)(b) must be read with—

(a)section 22 of the Financial Services and Markets Act 2000;

(b)any relevant order under that section; and

(c)Schedule 2 to that Act.

Section 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 persons, 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.

(3)  A person who fails to comply with a requirement imposed by or under this section shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale.

Section 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 [F31level 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.

Interpretation Act (Northern Ireland) 1954

Section 20 – Offences

(2) Where an offence under any enactment passed after the commencement of this Act has been committed by a body corporate the liability of whose members is limited, then notwithstanding and without prejudice to the liability of that body, any person who at the time of such commission was a director, general manager, secretary or other similar officer of that body or was purporting to act in any such capacity shall, subject to sub-section (3), be liable to be prosecuted as if he had personally committed that offence and shall, if on such prosecution it is proved to the satisfaction of the court that he consented to, or connived at, or did not exercise all such reasonable diligence as he ought in the circumstances to have exercised to prevent the offence, having regard to the nature of his functions in that capacity and to all the circumstances, be liable to the like conviction and punishment as if he had personally been guilty of that offence.

Companies Act (United Kingdom) 2006

Section 1255 – Offences by bodies corporate, partnerships and unincorporated associations

(1)  Where an offence under this Part committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, an officer of the body, or a person purporting to act in any such capacity, he as well as the body corporate is guilty of the offence and liable to be proceeded against and punished accordingly.

(2)  Where an offence under this Part committed by a partnership is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, a partner, he as well as the partnership is guilty of the offence and liable to be proceeded against and punished accordingly.

(3)  Where an offence under this Part committed by an unincorporated association (other than a partnership) is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any officer of t h e association or any member of its governing body, he as well as the association is guilty of the offence and liable to be proceeded against and punished accordingly.

Held by majority of the Court (with Hale D.P & Toulson L.J dissenting):

  1. The foundation of the claim had to be found in the Employers’ Liability (Compulsory Insurance) 1969 Act. The primary duty to insure was placed on the employer by section 1 of the Act on insurance against liability for employees. Section 4 on certificates of insurance provided for regulations governing the issue of certificates of insurance and their display for the information of employees and production on demand to inspectors duly authorised by the Secretary of State. These were obligations placed on the employer. Section 5 which was at the heart of the appeal provided for penalty for failure to insure.
  2. Section 5 of the Employers’ Liability (Compulsory Insurance) 1969 Act on the penalty for failure to insure, did not in terms impose any duty to insure on a director or other officer as such, let alone any civil liability for failure to do so. The duty rested on the corporate employer. The veil of incorporation was pierced for a limited purpose. It arose only where an offence was committed by the company, and then in defined circumstances imposed equivalent criminal liability on the director or other officer on the basis, not that he was directly responsible, but that he was deemed to have been guilty of the offence committed by the company.
  3. The United Kingdom’s Parliament had recognised that a director or officer might have borne some responsibility for the failure to insure, but had dealt with it, not by imposing direct responsibility equivalent to that of the company, but by a specific and closely defined criminal penalty, itself was linked to the criminal liability of the company.
  4. The fact that the company could only have acted through its officers told one nothing about their potential liability to third parties for its acts or failures.
  5. There were differences of wording between the Employers’ Liability (Compulsory Insurance) Act 1969, the Interpretation Act (Northern Ireland) 1954 and the Companies Act (United Kingdom) 2006. Section 20 (2) of the Interpretation Act (Northern Ireland) 1954 on offences, talked not of neglect as in section 5 of the Employers’ Liability (Compulsory Insurance) Act 1969 Act on penalty for failure to insure and section 1255 of the Companies Act,2006 on offences by bodies corporate, partnerships and unincorporated associations, but of failure to have exercised reasonable diligence.
  6. The reference to liability as if he had personally been guilty seemed to have anticipated the language of deemed criminal liability in the Employers’ Liability (Compulsory Insurance) 1969 Act, but was not replicated in the United Kingdom Companies Act. However, the general pattern was the same. In spite of the apparent frequency of the use of the formula, the research had not disclosed any reported authority in which its significance or meaning had been considered, nor any previous suggestion that it might have been treated as giving rise to civil liability.
  7. Without more substantial research it was impossible to have known to what extent the formula had been used in comparable contexts involving protection of employees. However, it tended to confirm the view that the language of section 5 of the Employers’ Liability (Compulsory Insurance) on penalty for failure to insure, was deliberately chosen and was intended to mean what it said. The formula was specifically directed at criminal liability, and had always been used in that context. Where theUnited Kingdom’s Parliament had used such a well-established formula, it was particularly difficult to have inferred an intention to impose by implication a more general liability of which there was no hint in its actual language.

Toulson J dissenting:

  1. The object of the Employers’ Liability (Compulsory Insurance) Act 1969 was that a company’s employees should have had the protection, in the event of suffering an illness or injury that arose out of their employment for which the company was liable, of the liability being covered by insurance up to a specified sum. Failure by the company to have arranged and maintained such insurance carried a penal sanction. But the pool of those bearing legal responsibility for seeing that such protection was in place was not confined to the company itself. It extended to the company’s relevant officer or officers.
  2. In order to have brought the company’s relevant officer or officers within the pool of those bearing legal responsibility for insuring employees, the drafter had used the device of a deeming provision. The form of the drafting device was that a director, manager, secretary or other officer of the company who consented to, connived at or by neglect facilitated, a failure to maintain the requisite insurance was deemed to have been guilty of the same offence as the company. The effect in substance was to place on such an officer a legal obligation not to have caused or permitted the company to be without the required insurance by consent, connivance or neglect, on pain of a criminal penalty.
  3. To have said that the imposition of criminal responsibility for a specified act or omission carried with it a legal obligation not to act or omit to act in such a way was to state the obvious. The two were opposite sides of the same coin.
  4. The language of deeming involved artificiality. The Court had a choice whether to adopt a formalistic approach or to look through the artificiality and consider the function, substance and effect of the provision in real terms. The answer to the question of what it really did was that the provision was a concise means of extending statutory responsibility for seeing that the company was properly insured to the company’s appropriate officer(s), backed by a penal sanction.
  5. As an alternative, the drafter would have used words such as it should have been illegal for any director, manager, secretary or other officer of a corporation which was an employer carrying on business in the United Kingdom to consent to, connive at or by neglect facilitate a failure by the corporation to insure , and any such person should have been liable on summary conviction .That would have been longer but the practical result would have been the same; the director or officer would have been liable to a criminal penalty for his wrongful act or omission, imposed for the protection of employees.
  6. It was difficult to have believed that the United Kingdom’s parliamentary draftsman would have intended to make provision that there should have been no civil right or remedy by having used the formula of section 1 of the Employers’ Liability (Compulsory Insurance) Act 1969 on insurance against liability for employees, ‘shall insure’, followed by section 5 on penalty for failure to insure, ‘shall be guilty of an offence’ as contrasted with the formula of having declared an act or omission to have been unlawful and then separately having provided a criminal penalty for the breach.
  7. The approach which commended itself to the majority concentrated on the form of the language. The structure of theEmployers’ Liability (Compulsory Insurance) Act 1969 was such that the only duty created by it was explicitly placed on the company by section 1(1)on insurance against liability for employees, and that the mechanism by which a director or other officer of the company was deemed to have been guilty of a breach of that duty was consistent with and supported that proposition. The alternative approach looked at the function and substantive effect of the deeming provision in real terms.
  8. The choice between a formal approach and a functional approach in the interpretation and application of statutory language was an aspect of the choice between formalism and realism which had been a fruitful subject since as long ago as the publication of Holmes’s The Common Law. In deciding which approach was preferable, the context mattered. The context was legislation for the protection of a vulnerable group, a company’s employees. In that context the functional approach was more appropriate.
  9. If, however, a formalist approach was preferred, there should have been no half measure about it. On the formalist approach, the director in the eyes of the law was himself guilty of committing an offence under sections 1on insurance against liability for employees and 5 on penalty for failure to insure, of the Employers’ Liability (Compulsory Insurance) Act 1969 . The language of the Act did not impose an accessory liability on the director. It would have been unnecessary for that purpose. Rather, it explicitly deemed him to have been himself guilty of the offence of failing to have insured and maintained insurance.
  10. As a matter of insurance law, it was of course the insurer who insured and someone else, usually the insured, who procured the insurance, but the meaning of ‘shall insure, and maintain insurance’ in section 1 of Employers’ Liability (Compulsory Insurance) Act 1969 on Insurance against liability for employees, was clear enough. The effect of the deeming provision was that in the eye of the law the director was guilty as a principal of having failed to insure and maintain the necessary insurance.
  11. Logic and justice would not have permitted the director to say that his criminal liability was in substance and reality a form of accessory liability, if one was living in formality land on the formalist’s approach the director was in law guilty as a principal of having failed to insure.
  12. On either approach the Respondent breached a statutory provision intended for the protection of a particular class, employees, of which the Appellant was a member, the functional approach was preferable.
  13. The conventional jurisprudence was that the Court’s function was to ascertain as a matter of interpretation whether the United Kingdom’s Parliament intended that there should have been civil liability, but that understated the role of the courts in cases where the legislation was silent on the point. In such cases the judges faced hieroglyphs without a rosetta stone, the judges’ role in such cases was the active role of filling gaps left by the legislature. Courts used a combination of methods for the purpose. They examined the whole purview of the legislation and they employed default rules, with which the United Kingdom’s parliamentary drafters may have been taken to be familiar.
  14. A breach of law would ordinarily have given rise to a potential cause of action, unless the language of the legislation pointed clearly in the opposite direction. The Employers’ Liability (Compulsory Insurance) Act 1969 was plainly intended for the protection of employees.

Hale L.J dissenting:

  1. The United Kingdom’s Parliament was presumed to have legislated in the knowledge of the current state of the law when it was doing so. Statutory duties imposed upon employers for the benefit of employees who suffered injury as a result of their breach gave rise to civil as well as criminal liability, absent a clear statutory intent to the contrary. That was still the law, the United Kingdom’s Parliament understood that when it passed the Health and Safety at Work Act 1974, section 47 on civil liability, which made clear which breaches did not give rise to civil liability, and amended it in 2013, further to restrict the extent of civil liability.
  2. The statutory duty imposed upon employers was very specific and imposed upon specified officers where the employer was a limited company. There could have been no difference in substance between having imposed criminal liability for failing to do something and imposing a duty to have done it. The purpose was to protect a very specific class of people, namely employees who might have been injured by the employer’s breach of duty whether arising by statute or at common law. The protection intended was that they should have been compensated for their injuries even if, for whatever reason, the employer was unable to have done so. Failure to insure meant that the employee was denied the very thing that the legislation was intended to have provided for him.

Appeal dismissed.

Relevant Provisions of the Law:

The Employment Act, 2007 under section 34 (1) provides that an employer should ensure sufficient provision of proper medicine for his employees during illness and if possible, medical attendance during serious illness. Section 34 (2) goes on further to state that an employer should take all reasonable steps to ensure that he is notified of the illness of an employee as soon as reasonably practicable after the first occurrence of the illness.

The Occupational Health and Safety Act, 2007 under section 6 states that every occupier should ensure the safety, health and welfare at work of all persons working in his workplace.

Kenyan Courts have handled various cases dealing with director’s being liable for certain offences, however they are yet to handle cases where a civil remedy is sought against a director where a statute provides for a criminal penalty. In Joel Ndemo Ong’au Vs Loyce Mukunya Civil Appeal No. 416 Of 2012 the Court held that since there was a claim for dishonesty and fraud on the part of the Appellant who was a director of a company and which claim had not been sufficiently controverted the Trial Court was correct in finding the Appellant personally liable in paying the Respondent.

This case will go a long way in assisting Kenyan Courts to handle similar issues as the one that faced the UK Supreme Court more effectively.

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