Dr Nicholas Bevan

Dr Nicholas Bevan

Tuesday, 10 March 2015


The Court of Appeal’ decision
Yesterday the Court of Appeal delivered its judgment in Delaney v Secretary of State for Transport [2015] EWCA Civ 172.   It is a humiliating defeat for the minister.  It upholds Mr Justice Jay’s decision to award Francovich damages against the Secretary of State for failing to properly implement the Second European Directive On Motor Insurance (84/5/EEC).  This is a unanimous decision by Lords Justices Richards, Kitchin and Sales. 

In delivering the only reasoned judgment Richards LJ stated that he had no hesitation in rejecting the Secretary of State’s contention that the Directives conferred a discretion on member states to introduce additional liability exceptions to those expressly sanctioned by the directives. 

The only exclusions of liability that the Motor Insurance Bureau can lawfully impose on an applicant are those expressly permitted by Article 1(4) itself (now set out in Article 10(2) of the consolidated Sixth European Directive On Motor Insurance (2009/103/EC). 

Richards LJ explained the Minister’s interpretation of Article 1(4), ran ‘counter to the aim of protecting victims which is stated repeatedly in the directives and suffuses the reasoning of the Court of Justice in the case-law. That aim is just as valid and important in the Article 1(4) context as it is in the other contexts considered in the cases. As the Court said in Ruiz Bernaldez, at paragraphs 17-18 of its judgment, Article 1(4) was one of the measures by which the aim of protection of victims was developed and supplemented’.

He also referred to European case law to the effect that, Article 1(4), as a derogation from the basic compensatory requirement, must be strictly construed.  The underlying policy here is to avoid disparities across the European Union.  If member states were allowed a discretion to introduce their own additional exclusions this would undermine the legislative aim of the directives. 

He upheld Jay J’s ruling that clause 6.1(e)(iii) is incompatible with the European directives.

He also upheld Jay J’s finding that the breach was a serious one, given the lack of any 
appreciable discretion in the matter;sufficiently serious to give rise to Francovich damages.  Jay J had been right to concentrate on Ruiz Bernaldez as he did when determining whether the minister had been justified or not in sanctioning the additional exclusion of liability back in 1999.  Richards LJ explained why: ‘although the judgment of the Court in [(Case C-129/94) Ruiz Bernaldez [1996]] was concerned specifically with the obligation to provide insurance cover and not with the obligation under Article 1(4), the reasoning in it had a direct bearing on Article 1(4) and supported the judge's interpretation of the article.’

Leave to appeal to the Supreme Court has been refused.

The original claim
Sean Delaney’s claim arose out a road accident back in November 2006 in which he sustained a serious head injury.  It was common ground that he was a passenger in a car driven by Shane Pickett and that Pickett was entirely responsible for causing the accident.  The expensive Mercedes sports car in which Delaney and Pickett were travelling was insured with Tradex Insurance Services Ltd. 

Unfortunately the case was complicated by the discovery of substantial quantities of cannabis tucked away in the clothing of both the unconscious driver and his passenger.  The trial judge found that they were engaged in drug dealing at the time of the collision.  

It should be noted however, that Delaney and Pickett’s nefarious purpose merely provided the context for the accident, they were not intoxicated; bad driving practice was the sole cause of the accident.

His claim against Pickett and Tradewise failed at first instance.  His appeal in Delaney v Pickett [2011] EWCA Civ 1532 resulted in a Pyrrhic victory.  This is because although he able to succeed against driver, Pickett did not have the means with which to satisfy Delaney’s substantial claim. As to his insurer, the Court of Appeal held that as Tradewise had obtained a declaration under section 152 Road Traffic Act 1988 its policy was rendered void (on grounds of material non-disclosure).  This meant that Pickett was effectively an uninsured driver.  It then proceeded to apply a literal interpretation of clause 6(1)(e)(iii) of Uninsured Drivers Agreement 1999.  This clause purports to entitle the MIB to exclude any liability to compensate where the passenger knew or ought to have known that the vehicle was being used in the course of or furtherance of a crime. 

As I pointed out at the time, both in the New Law Journal (see Trial & Error, 20 April 2012) and the Journal of Personal Injury Law, (see my case comment on Delaney v Pickett in issue 1 of 2012) that decision was clearly wrong.  What is remarkable about it is that it does not seem to have occurred to anyone involved (neither the claimants solicitors, the learned QCs, the trial judge nor even to the three lords justices of appeal) to question whether clause 6 is compatible with the comprehensive cover principle required by the European directives on motor insurance.  So no attempt was made to apply a European law consistent interpretation of clause 6.  By the time they woke up to the significance of the European law it was too late to raise this before the Supreme Court.

The Francovich action
Matters were eventually put right in second action ably presented by Philip Moser QC and Eric Metcalfe of Monkton Chambers. 

This second action sought Francovich damages from the Secretary of State for Transport on the ground that he had been denied compensatory relief because the Minister had failed to fully implement the Motor Insurance Directives.  The gravamen of its case was that the crime exclusion in clause 6(1)(e)(iii) did not conform with the single permitted exclusion in article 1(4) of the Second European Directive on motor insurance (84/5/EEC).  This can only be invoked against ‘persons who voluntarily entered the vehicle which caused the damage or injury, when the body [i.e. the Compensating Body, which in the UK is the Motor Insurers Bureau] can prove that they knew the vehicle was uninsured’.

Mr Justice Jay found the Minister liable for a serious breach of the Directives.  The Directive’s meaning was held to be ‘close to being self-evident’ and the CJEU case law ‘unequivocal’.

He also held that the breach was neither inadvertent nor excusable and then continued: ‘the Defendant is guilty of a serious breach of Community law in circumstances where its room for manoeuvre under the Directives was closely circumscribed. It did not have a wide discretion.  Its obligations under the Directives, and their relevant confines, were quite clear, and - in the absence of knowing the actual reason for this policy decision - the best that may be said is that the Defendant decided to run the risk, which was significant, knowing of its existence.

Some differences of emphasis
This latest Court of Appeal decision upholds Jay J’s first instance decision in all material respects.  However a careful reading of this decision reveals a difference of emphasis in some of its reasoning.  For example when it considered the importance of the principle breached, which is part of the multifactorial test for determining the seriousness of an actionable breach of European law, as outlined by Lord Clyde in Factortame (No.5), it is not at all obvious that the Court of Appeal agreed with Jay J’s view that the Directive’s aim of protecting victims of road traffic accidents ‘was a principle of second-order importance’, given the significance Richards LJ attached to the explanation within Bernaldez of the protective purpose, (see above).  This was a point that I took issue with in my own commentary on the first instance decision: see A World Turned Upside Down, JPIL issue 3 of 2014.  We know now, from the CJEU’s ruling in Damijan Vnuk v Zavarovalnica Triglav C-162/13, that this protective purpose has been promoted to rank in top equal place in importance with the aim of liberating the movement of people and vehicles within the European Union, see my September 2014 blog: VNUK RULING: ROAD TRAFFIC ACT 1988 BREACHES EU LAW.

Another point of difference is the way the Court of Appeal considered the views expressed in Advocate General Lenz's Opinion to the Courtof Justice in Bernadez on the thorny issue of the proper scope of the role of the compensating body (the MIB). .  Jay J opined ‘that, although the scheme of the Second Directive is such that the insurer (if it exists) and not the national body should pay compensation, provided that the system as a whole ensures complete protection for victims there may be no objection in principle to the national body having an enhanced role. This is exactly the position which obtains in this jurisdiction on account of section 152(2) of the RTA 1988.’  This reflects the position of that the learned Ward LJ took in EUI v Bristol Alliance Partnership [2012] EWCA Civ1267, paragraph 65 and it is also one that I have previously criticised in robust terms.

However it would appear from the way Richards JL’s judgment reviews the relevant European case law, (Case C-129/94) Ruiz Bernaldez [1996], (Case C-537/03) Candolin [2005], (Case C-356/05) Farrell [2007] and (Case C-409/11) Csonka [2014], that he shares this writers’ view that the MIB’s role, when acting in its capacity as the UK’s compensating body, is strictly circumscribed.  In this context, it is restricted to providing compensation for damage or injury caused by unidentified or uninsured drivers.  This does not extend to the enhanced role of compensating victims where the vehicle had some insurance in place but where the insurer is able to evade liability to compensate the third party victim.  At paragraph 33 (vii) Richards LJ says as much: ‘Csonka shows that the obligation of that body to pay compensation is expressly limited by the terms of Article 1(4) to damage or injury "caused by an unidentified vehicle or a vehicle for which the insurance obligation provided for in paragraph 1 has not been satisfied"’.

The relevant excerpt of the CJEU’s judgment in Csonka he was referring to is as follows:
"29. The importance attached by the EU legislature to the protection of victims moved it to supplement those arrangements by requiring Member States, under art.1(4) of the Second Directive, to establish a body with the task of providing compensation, at least up to the limits laid down by EU law, for damage to property or personal injuries caused by an unidentified vehicle or a vehicle for which the insurance obligation under art.1(1) of the Second Directive, which refers to art.3(1) of the First Directive, has not been satisfied. In order to alleviate the financial burden to be borne by that body, Member States were free to exclude the payment of compensation by it in certain cases or to provide for excesses.

30. The payment of compensation by such a body was therefore considered to be a measure of last resort, envisaged only for cases in which the vehicle that caused the injury or damage is uninsured or unidentified or has not satisfied the insurance requirements referred to in art.3(1) of the First Directive ….

33. As regards the determination of the actual circumstances in which the insurance obligation laid down in art.3(1) of the First Directive may be regarded as not having been satisfied, it is significant – as the Advocate General stated in point 32 of his Opinion – that the EU legislature did not confine itself to providing that the body must pay compensation in the event of damage caused by a vehicle for which the insurance obligation had not been satisfied in general, but made it clear that that was to be the case only in relation to damage caused by a vehicle for which the insurance obligation provided for in art.3(1) of the First Directive has not been satisfied, that is to say, a vehicle in respect of which no insurance policy exists ….

34. It follows from the foregoing that … the payment of compensation by such a national body, as provided for under the First and Second Directives, cannot be regarded as the implementation of a guarantee scheme in respect of insurance against civil liability relating to the use of motor vehicles; rather, it is intended to take effect only in specific, clearly identified, sets of circumstances."          (Bold emphasis added)

This leaves no room for motor insurers to argue that they are entitled to deflect their statutory liability under section 151 Road Traffic Act 1988 and to treat insufficiently insured vehicles as being uninsured  claims to be handled under the terms of Uninsured Drivers Agreement 1999, save where expressly precluded from relying on a breach of policy term by the Road Traffic Act 1988.  

Accordingly the long establish convention whereby thousands of so called ‘article 75’ claims are treated as uninsured claims under the terms of the 1999 Agreement is manifestly inconsistent with European law.  Any scintilla of doubt was dispelled by the recent ruling in Damijan Vnuk, which confirmed in the clearest of possible terms that European law requires the protection afforded to third party victims through compulsory insurance to cover:
   ·        any type of motor vehicle,
   ·         any use made of it, provided its use is consistent with its normal function, and
   ·         to such use anywhere, whether on public or private property. 

This leaves little scope for the so called ‘article 75’ procedure.  With the single permitted exception under article 13 (which applies to a passenger whom the insurer can prove knew the vehicle was stolen when they entered it) any other breach of policy term or condition is irrelevant when it comes to deciding a third party victim’s proper entitlement to third party cover under a European law consistent interpretation of our national law. 

18 years of inaction
The Court of Appeal was crystal clear in stating that although Bernaldez was concerned with the insurance obligation under article 3 of the First Directive (72/166/EEC), as opposed to deciding the role of the compensating body under Article 1(4) of the Second Directive, it was sufficiently clear from the underlying principles upon which it relied that there was no room for member states to introduce or permit to exclusions of liability not expressly authorised by the Directives.  

This means that Bernaldez has a wide and general application that dates back to that judgment of 28 March 1996; nearly 19 years ago.  This principle applies with equal force to numerous statutory and extra statutory restrictions, limitations and exclusions of liability.

Writing on the wall
It is abundantly clear that not only will the Secretary of State need to take urgent steps to revise the geographic and technical scope of the duty to insure and the scope of third party cover, following the Damijan Vnuk ruling, but he will also have introduce extensive revisions to the statutory and extra statutory schemes he is responsible for.  This will involve extensive changes to Part VI of the Road Traffic Act 1988, the Rights Against Insurers Regulations 2002 and both the Uninsured Drivers Agreement 1999 and the Untraced Drivers Agreement 2003. 

The present muddle is as deplorable as it was avoidable.  The Minister was provided with chapter and verse on the imperative for extensive reform in February 2013 and again in response to his own consultation on the MIB Agreements which he simply ignored; later abandoning the whole process.  The minister is responsible for this shambles; are no excuses.

Caveat Negotiator
Civil servants also need to learn from their past mistakes.  It seems increasingly likely that successive ministers have been advised to adopt, in a more or less unaltered form, the Motor Insurance Bureau’s proposals for compensating victims of uninsured and untraced drivers.  One does not need to be a expert in literary criticism to discern the authorship of the present Agreements.  Whist the Motor Insurers Bureau professes to be a non profit making organisation, it is in reality an organ of the multi-billion pound motor insurance lobby, no more; no less.  Its board is comprised of senior executives from each of the insurance companies authorised to underwrite motor insurance and as its representative body it would be extraordinary if it were not sensitive to the commercial the businesses interests it represents when submitting its proposals to the Government. 

It is obvious that the minister passively agreed to the Motor Insurers Bureau’s proposal to insert a new crime exception to the Uninsured Drivers Agreement in 1999, without troubling to consider whether this complied with well established European law touching on this issue.  I touched on these issues and on the unconstitutional influence that  powerful motor insurers exert over the Legislature and the Executive in my New Law Journal article published in October 2014, Bad Law.

Lessons need to be learnt and defective law remedied.  

1 comment:

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