s3 EC Rights Against Insurers and s151 Road Traffic Act 1988 are distinct causes of action

Nemeti and others v Sabre Insurance Co. Ltd [2013] EWCA Civ 1555

The facts: The claimants were Romanian nationals, presumably resident in the UK, and who were injured on 27 December 2007 in Romania.  They were being driven by the insured vehicle owner’s son; apparently without the father’s knowledge or permission.  The driver was killed and the claimant passengers were injured.  The accident predated Rome II but it was common ground that Romanian law applied and, along with it, its non-extendable three year limitation period for bringing a claim.  

Their solicitors issued claims against the vehicle owner’s Romanian insurer under regulation 3 of the European Community (Rights Against Insurers) Regulations 2002, close to the expiry of the limitation date and in the mistaken belief that the son was covered by his father’s policy; he wasn’t. 

The original Claim Form gave brief details of the claims which were for ‘damages for personal injuries and losses’ arising from the accident and referred to the Respondents' ‘duty to indemnify their insured for negligent acts or omissions’ under regulation 3.

Only after the three year limitation had expired did the solicitors realise their error:  not only had the accident occurred outside the UK (see the comment above under Spedition) but also the driver was not covered by his father’s insurance policy[1]. 

As this was a UK action, the claimants sought to amend the proceedings by substituting the father’s insurers with estate of the son / driver as defendant and by removing the reference to regulation 3.

The insurers appealed against a first instance decision granting the amendment under CPR Rule 19 and section 35 of the Limitation Act 1980.

The issues:

• Did the court have the power to substitute a new party after the limitation period had expired (which was addressed by the court)
• Did a proper interpretation of the combined effect of articles 3, 13 and 18 of the Sixth Motor Insurance Directive, as interpreted by the Court of Justice, extend the direct right to embrace to a claim against an unauthorised driver of an otherwise insured vehicle[2] where the accident occurred abroad but within another EEA member state?  If so, did the UK national law provision fully transpose that Community law? If not, were the claimants entitled to damages against the Secretary of State under the Francovich principles? (These issues were not considered because the claimants proposed amendment sought to abandon the regulation 3 claim)

The decision: the defendant’s appeal was upheld and the amendment was refused.

The court made the following findings:

1. (Obiter) that the statutory right of action conferred by regulation 3 did not apply as (i) the tortfeasor was deemed to be uninsured and (ii) the accident occurred outside the UK.  So this was doomed to fail from the outset because these preconditions were not met.
2. That the statutory conditions precedent imposed for the relief conferred by CPR 19.1 and section 35 combined were not met:

The relevant parts of CPR Rule 19.5 provide as follows:

‘(2) The court may add or substitute a party only if - (a) the relevant limitation period was current when the proceedings were started; and (b) the addition or substitution is necessary.

(3) The addition or substitution of a party is necessary only if the court is satisfied that - . . .

(b) the claim cannot properly be carried on by or against the original party unless the new party is added or substituted as Claimant or Defendant . . . .’

Section 35 only conferres a discretion to substitute a party where that step is ‘necessary for the determination of the original action’[3].  

The proposed substitution, although featuring the same basic case facts, amounted to a completely different cause of action.  The claimant’s were seeking to abandon one claim by substituting it with another: 

Regulation 3 confers a direct right of action against an insured tortfeasor’s insurers.  It is effectively a claim for indemnity bestowed by statute.

Section 151 confers an indirect right of action (albeit against the same insurers) but it is one based on an entirely distinct civil law right of action against a different defendant (in this case the deceased tortfeasors’ estate).  Section 151 is premised on the claimant establishing a common law right of action against the tortfeasor.

What the claimants’ amendment sought was to replace one action with another: not to continue with it.

There was no discretion in section 35 ‘to do justice to the situation’. 

Section 35 is prescriptive in the way provides a statutory exception to a general rule.  In the words of Hallet LJ, who delivered the only reasoned judgment, the limitation rules that are designed ‘to ensure that defendants and their insurers are put on notice within a reasonable time so that an effective investigation of the claim can take place and that books can be closed after a reasonable time’.  The claimants were unable to satisfy the condition precedent for the exercise of the section 35 discretion.

Comment: This case is noteworthy for several reasons:

Firstly, it provides helpful clarification of the essential differences between the direct and indirect statutory remedies against motor insurers.

It also confirms that section 35 only permits an amendment outside the limitation period in certain specified circumstances and that the court will apply an objective and dispassionate approach to deciding whether those preconditions are met.

Thirdly, it appears to be the first instance that a senior appellate court has acknowledged, albeit obiter, that Regulation 3 does not appear to fully implement Community imposed direct right of action.  This issue was considered in the writer’s series of four articles published in the New Law Journal last year under ‘On the Right Road’.

This case also neatly illustrates the dangers inherent in failing to fully appreciate the primacy and extent of Community law in this area of practice, a phenomenon that seems to be widespread. 

The court also hinted at, but understandably decided to steer clear of, a host of unaddressed issues as to jurisdiction and applicable law that are raised by these cross border claims.  However, in this case the liability of the driver responsible was conceded.

The case serves as a cautionary tale against putting all ones eggs in one same basket.  Often it is safer to pursue both the civil law action against the responsible driver(s) and the direct right against the insurer concurrently; ‘belt and braces’ is often the wisest counsel even if this risks introduces further complications, such conflicts over jurisdiction for instance. 

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[1] Intriguingly, no one thought to apply a purposive interpretation of the scope of civil liability insurance cover required by what is now articles 3 and 13.1 (a) of the Sixth Motor Insurance Directive, nor was any mention made of the key CJEU ruling in Rafael Ruiz Bernáldez 1994 Case C-129/94.  Nor did anyone think to argue a purposive interpretation of Regulation 3 such as to extend the geographic scope of this national law provision so that it was in keeping with the wider geographic scope required by article 18 of the Sixth Motor Insurance Directive and article 11 of the Brussels I convention.  Arguably the latter exercise would have failed under the contra legem principle.

[2] See section 151 (3) Road Traffic Act 1988 which nullifies and exclusion based on unauthorised use in favour of a third party claimant.  See also article 2 of the Second Motor Insurance Directive (84/5/EEC) from which s 151 (3) is derived.

[3] See section 35 (5) (b) Limitation Act 1980.