Dr Nicholas Bevan

Dr Nicholas Bevan

Thursday, 10 November 2016


Nicholas Bevan
Solicitor and consultant on EU law and motor insurance
07968 427134

This is a copy of the paper I delivered to the APIL Accidents Abroad Conference held at the Law Society on 3 November 2016 


We are likely to witness some significant reforms to the European law requirement on motor insurance.  Specifically:
  • ·         On 8 June 2016 the European Commission has announced its intention to amend the Directive 2009/103[1] (the Directive) by the end of this year to curb the impact of the Court of Justice’s ruling in Damijan Vnuk v Zavarovalnica Triglav d.d., [2014] (Case C-162/13).  However, it this is likely to be postponed for at least a year.
  • ·         The Commission also plans to undertake a wide-ranging compliance assessment of all the member states as part of a regulatory review of this directive.  This could lead to a completely revised 7th Directive in about two years’ time.
  •       The Court of Justice of the European Union (JJEU) will shortly provide a second preliminary ruling in Farrell v Whitty and others, this time from the Irish Supreme Court (Case C-356/05) on whether Article 1 of the Third Directive (90/232/EEC) on motor insurance, which extended the Article 3 insurance obligation to ‘cover liability for personal injuries to all passengers, other than the driver, arising out of the use of a vehicle’ (now incorporated in the Directive as Article 12) is capable of direct effect against its Article 10 compensating body (the Irish Motor Insurers Bureau).  This has important implications for domestic and accidents abroad throughout the EEA.

1.Curtailing Vnuk

The Vnuk ruling

On 4 September 2014 the CJEU delivered a controversial ruling in Damijan Vnuk v Zavarovalnica Triglav d.d., [2014] (Case C-162/13) that took most motor claims specialists and many European governments by surprise. 
The facts of the case involved a Slovenian farmworker who was injured when he was knocked off a ladder by a reversing tractor and trailer, whilst he was stacking bales of hay into a barn loft. 
This was clearly an employer’s liability case but could it conceivably also be a motor liability claim?  The tractor was not transporting anyone; merely delivering the next consignment of bales to the loading point.  It was in effect being used a piece of agricultural machinery.  The farmyard was off road and on private land.  

Yet the farmworker pursued his claim against the tractor’s motor insurers.  The claim failed at first instance. It held that the duty to insure did not extend to the use of a motorised machinery.  He appealed and ultimately the Slovenian Supreme Court referred the case to the Court of Justice of the European Union to determine whether the duty to insure ‘the use of vehicles’ within the meaning of Article 3(1) of the First Directive on motor insurance (72/166/EEC) covered the accident circumstances.

A number of member states intervened in the proceedings, including the UK, and they argued that the compulsory insurance requirement should not apply.
Because there were different emphasises discernible from the different language editions of the Directive, the CJEU was obliged to consider the underlying objectives of the directive.  It ruled that the objective of protecting accident victims was of equal importance to the dual aim of freeing the movement of persons and goods within the EU / EEA with a view to achieving the internal market[2]
As to the case before it, the Court ruled that the accident circumstances were capable of falling within the scope of insurance cover required under the directives.  It referred the case back to the Slovenian courts to make the necessary factual findings 
On the specific issue as to whether a reversing trailer propelled by a tractor was required to be covered by the article 3 insurance ‘use of vehicles’ requirement, it ruled that it was.  Motor vehicle use covers ‘any use of a vehicle that is consistent with the normal function of that vehicle’ [59]
The Court also ruled that ‘the fact that a tractor, possibly with a trailer attached, may, in certain circumstances, by used as an agricultural machine has no effect on the finding that such a vehicle corresponds to the concept of 'vehicle' in Article 1(1) of the First Directive[3].’

Although the Court’s characteristically elliptical phraseology in its judgment did not expressly rule that the geographic scope of the duty to insure extended to private property, such as the farm yard where Mr Vnuk was injured, this is the inescapable conclusion to be drawn from the Court’s judgment.  It appears to have subsumed considerations as to the location of the accident within a broader concept that any motor vehicle use must be covered by insurance.  This is clear from its concluding paragraph where it ruled that ‘the concept of 'use of vehicles' in that article [viz article 3] covers any use of a vehicle that is consistent with the normal function of that vehicle. That concept may therefore cover the manoeuvre of a tractor in the courtyard of a farm in order to bring the trailer attached to that tractor into a barn, as in the case in the main proceedings, which is a matter for the referring court to determine.’

The implications of Vnuk

When Article 3 of the Directive is read in the light of the underlying principles that feature in the consistent line of Court of Justice judgments from Bernaldez in 1996[4] to Vnuk[5] in 2014 the third party protection required by the Directive is capable of being distilled into the following colligate propositions: 
  1. The civil liability cover provided to third party victims must be good for:
    1. Any motor vehicle conforming with the article 1 definition[6]
    2. Any use consistent with the normal function of the vehicle[7]
    3. Anywhere on land[8]
  2. The user’s duty to insure and the insurer’s scope of cover are coextensive[9]
  3. Member states have no discretion to introduce new restrictions, exclusions or limitations[10].
  4. Only one exclusion of cover is permitted: this applies to a passenger who voluntarily enters the vehicle knowing that it has been stolen[11].
It is also clear from the CJEU judgments in Churchill[12]  and Csonka[13] that the Directive requires the compensatory protection to be provided at the anterior stage, namely within the insurance policy.  The Article 10 compensating body responsible for compensating victims of uninsured and unidentified vehicles (which in the UK is the Motor Insurers’ Bureau) is a’ last resort’; not a catch-all for insufficiently insured vehicles. 

The fall-out from Vnuk

Vnuk’s effect was to expose at least six member states implementation of the geographic scope of the Article 3 insurance requirement as clearly non-compliant, with a number of other jurisdictions (whose implementation was drafted in less specific terms) being at risk of being non-compliant.
The United Kingdom is one of those jurisdictions that whose transposition is clearly defective.  Part VI of the Road Traffic Act 1988, that implements the Article 3 insurance requirement, contains numerous provisions that are inconsistent with the broad scope of both a literal interpretation of Article 3, let alone the additional gloss provided by the CJEU’s interpretation in Vnuk. 
The Vnuk judgment was particularly unwelcome news for the Department for Transport.  By this time, the United Kingdom’s transposition was already the subject of investigation by the Commission following an extensive infringement complaint that cited over forty separate instances of noncompliance spanning the Road Traffic Act 1988, the EC Rights Against Insurers Regulations 2002 and both Motor Insurers’ Bureau agreements.  The Vnuk judgment not only validated a number of the complaints but it went further in extending the scope of the protective purpose beyond normal traffic scenarios into agricultural and potentially industrial machine use.
This resulted in the ABI, MIB and the Department for Transport joining a vociferous international lobby to persuade the Commission to curtail the effect of Vnuk.

Reform proposals

On 8 June the European Commission issued an inception impact assessment roadmap[14] that announced that it was considering whether to take urgent steps to amend the Directive to limit some of the implications of the Vnuk ruling.  It also announced its plans to undertake a wide-ranging re-evaluation of the Directive.

The EC communiqué set out four different options, including taking no action on Vnuk, and there appeared to be a consensus within the Commission and European Council at that time to sanction an urgent amendment of Articles 1 and 3 of the Directive.  The most likely outcome at that time was that the Directive would be revised to:
  • reduce the scope of the Article 3 insurance requirement so that its applies only to accidents caused by motor vehicles when used in traffic.  This would require a new Article 1 definition of what is meant by ‘traffic’.  This is likely to encompass the use of a vehicle for the transport of persons or goods, whether stationary or in motion.
  • Introduce a new restriction that would restrict the insurance requirement to places where the public has access under national law. 
It was intended that this amendment should be rushed through so it becomes effective late in 2016 or early in 2017.  The change would not have retrospective effect.  

The same communiqué also proposes, as an option, that member states might set up a compensatory guarantee fund to specifically cover purely agricultural, construction, industrial, motor sports or fairground use of uninsured motor vehicles and of the directive specifying that certain types of vehicles (e.g. tractors, cranes, forklifts, motor sports vehicles in regular traffic, or vehicles with a maximum speed below a defined limit) are excluded from the Article 3 requirement, presumably as an alternative to member states exercising their rights to derogate under Article 5.2.

The effect of the first two revisions (bullet pointed above) and which seemed at the time to be most likely to be approved, would be to bring the Road Traffic Act 1988 closer into line with the Directive from the date it comes into effect but not before.  Accordingly, whilst the exclusion of private property implicit in section 143 RTA (the duty to insure), section 145 (the cover required) and section 192 (the definition of road) are currently inconsistent with the unrevised European law as presently formulated and interpreted by Vnuk, this may be set to change. 

However, these reforms will not cure the numerous additional inconsistencies in the UK transposition of the Directive. Take for example the definition of ‘motor vehicle and trailer’ in section 185.  This restricts compulsory third party cover to motor vehicles intended or adapted for use on roads.  This clearly conflicts with the protective purpose and the wide ambit of the Article 3 insurance requirement.

However, following Lord Hill’s resignation as EU Commissioner for Financial Stability, Financial Services and Capital Markets Union, the Commission has recently determined on a different path. 
The Commission’s latest thinking is that a full impact assessment of each of the four options listed in the roadmap is now necessary.  This will involve a process of consultation, evaluation and regulatory scrutiny that could take up to a year to conclude. 

So it seems that whilst the 8th June road map is still applicable, all bets are off as to what changes will be made.  It is conceivable that the Commission could opt to remove completely from the scope of the Directive certain categories of off-road vehciles.

2. Plans for a seventh directive

The Commission ‘road map’ of 8 June also announced its intention to undertake a far-reaching review of every member state’s compliance and a full review of the Directives itself.  This was triggered by a wide ranging infringement complaint levelled against the United Kingdom in the autumn of 2013 following the Secretary of State’s refusal to respond from numerous calls for extensive reform of third party provision for accident victims to bring the statutory and extra-statutory implementation of the Directive into line with its minimum standards of protection.  The Commissioner then responsible, Baron Hill, decided that it would be unfair to limit the enquiry just to the UK’s transposition and so the complaint has resulted in a much wider enquiry and reform project.
The Commissions regularity fitness and performance programme (aka ‘REFIT’) will consider every member state’s compliance and will review the regulatory fitness of the Directive itself.
It is likely to result in a seventh directive on motor insurance being approved in 2019 / 2020.
The Commission has given no indication as to what its recommendations are likely to be.  It will publish a separate Inception Impact Assessment for this project.  However it seems plausible that we will see a new 7th Directive on motor insurance: one 
  • ·         that removes the anomalies that arose from the way in which the Directive comprises five preceding directives that sometimes used inconsistent terminology as well as being influenced by the interpretive gloss given by the Court of Justice from (Case C-129/94) Bernaldez in 1996 through to Vnuk in 2014.
  • ·         the incorporation of the Green card scheme for domestic accidents involving foreign EU registered vehicles,
  • ·         possibly also some provision for insurer insolvency – following: (Case C 409/11) Csonka from 2013
  • ·         possibly also better clarification of the insurance requirement and the circumscribed role of the compensating body, post (Case C-442/10) Churchill in 2011 and (Case C 409/11) Csonka in 2013
  • ·         possibly a clearer statement of the free-standing nature of the insurance cover required for third party victims, which seems clear from recital 15 which states) ‘It is in the interest of victims that the effects of certain exclusion clauses be limited to the relationship between the insurer and the person responsible for the accident.’  Whereas, in the UK the limitations attributable to the common law third party rule[15] have only be abrogated to the limited extent provided for in sections 148 and 151 of the Road Traffic Act 1988.

It is interesting to note that the Commission does not anticipate that there will be any need to revise the Article 3 insurance requirement to address the arrival on our roads of semi and fully automated vehicles over next decade or so.  The reason being that Article 3 already encompasses product liability.  This should come as something of a shock to the Department for Transport as section 145 of the 1988 Act only covers the personal liability of the user.

 3. MIB as an emanation of the state

In June 2006 Mr Justice Flaux J ruled in Byrne v Motor Insurers Bureau and another [2007] EWHC 1268 (QB) that the European directives on motor insurance were not capable of direct effect against the MIB (the UK’s Article 10 compensating body for victims of uninsured and unidentified vehicles) as it is merely a private contractor and thus not capable of being an emanation of the state.  In this he was influenced by the weighty authority of Hobhouse LJ’s obiter comments in Mighell v Reading and Another; Evans v Motor Insurers' Bureau; White v White and Another (1998) Times, 12 [1999] 1 LLR 30, a view endorsed by his colleagues. 

In my 3rd June 2016 New Law Journal article, Putting wrongs to rights (Pt2), I had the temerity to contend that this decision was made per incuriam on the basis that the judge was neither fully informed of the relevant facts nor of the relevant law and so consequently he asked the wrong questions and misapplied the Court of Justice’s guidance[16] on the question of whether Article 10, that defines the role of the compensating body, is capable of having direct effect against the MIB.
One fact that the learned judge appears not to have been appraised of was the Irish High Court’s referral of an almost identical issue to the CJEU in Elaine Farrell v Alan Whitty and MIB [2007] Others (Case C-356/05). In that case, the Advocate General Stix-Hackl opined that because[17] of ‘the Irish Motor Insurance Bureau[18] special public function, there is reason to consider it to be an emanation of the State’.  Furthermore he expressed the view that the predecessor provision under consideration (which is now Article 10 of the Directive) is capable of direct effect.  This was also the view of the European Commission in that case.  None of this is mentioned in Flaux Js judgment in Byrne.  As it transpired, the CJEU declined to make the factual determination but when case was referred back to Birmingham J in Farrell v Whitty and Others [2008] IEHC 124 he ruled that it was an emanation of the state and bound by the direct effect of the earlier directive’s provisions. 

This discrepancy between the UK and Irish authorities on this point caused Waller LJ to observe in Mcall v Pouton & MIB [2008] EWCA Civ 1263: ‘It is difficult to think that a body such as the MIB or its equivalent should be an emanation of the state in one member country and not in another. This furthermore gives cause for concern as to whether the guidance is so clear that it needs no further input from the ECJ.’  He referred the same issue to the CJEU but the case was promptly settled.
This same issue has been revisited by the Irish Supreme Court, once more in Farrell v Whitty 1997/10802P (Appeal number: 145/2008), this time as part of a titanic struggle between the Irish state and the MIBI over who pays for the Irish governments legislative failings.  Instead of asking the CJEU to make a factual determination, the Irish Supreme Court seeks clarification of the CJEU’s so called ‘tripartite test’ in Foster and Others v British Gas plc (Case C-188/89).  The referral is made in the following terms:
‘Questions posed
23. The Supreme Court therefore asks the assistance of the Court of Justice of the European Union by referring the following questions:
1. Is the test in Foster and Others v British Gas plc (Case C-188/89) as set out at para. 20 on the question of what is an emanation of a member state to be read on the basis that the elements of the test are to be applied
(a) conjunctively, or
(b) disjunctively?
2. To the extent that separate matters referred to in Foster and Others v British Gas plc (Case C-188/89) may, alternatively, be considered to be factors which should properly be taken into account in reaching an overall assessment, is there a fundamental principle underlying the separate factors identified in that decision which a court should apply in reasoning an assessment as to whether a specified body is an emanation of the State?
3. Is it sufficient that a broad measure of responsibility has been transferred to a body by a member state for the ostensible purpose of meeting obligations under European law for that body to be an emanation of the member state or is it necessary, in addition, that such a body additionally have (a) special powers or (b) operate under direct control or supervision of the member state?’

I am optimistic, for the reasons set out in my New Law Journal article[19], that the CJEU will clarify the flexible and nuanced nature of the Foster guidance and refer back to the basic principles underscoring state liability set out in Ursula Becker v Finanzamt Münster-Innenstadt [1982] CJEU (Case 8/81) and so clear the way for the Irish Supreme Court to uphold Birmingham J’s first instance finding.  The CJEU is likely to hold that the tripartite test in Foster is to be applied cumulatively but that it is not fatal if one of the criteria are missing provided there is good reason to fix the body with direct effect having regard to the governing rules on state liability for faiing to implement a directive.
The implications of Article 10 having direct effect against the Article 10 compensating body are far reaching.  In this jurisdiction, the MIB will face liability for product liability claims that are not covered by section 145 of the Road Traffic Act 1988 and also for accidents on private property and / or featuring unusual off road vehicles, none of which are caught by the compulsory third party requirement.  It will also make legal challenges of unlawful exclusions and restrictions of liability in the MIB agreements that much easier to challenge[20]

What applies to the UK Article 10 compensating body will also apply with equal force to any other EEA compensating body.  This should make it easier to challenge the idiosyncratic approach of many EEA states implementation of the Directive, when considering the local applicable law under Rome II.

On a final related note, the Commission has recently set up an Intelligent Transport Systems working group to consider the implications of automated driver systems and driverless vehicles.

[1] The European legislation is set out in Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability
[2] Hitherto, the social aim of providing compensatory protection was widely considered to be subordinate to the wider objective of encouraging free movement within the European Community, now European Union
[3] Article 1 of the sixth Directive 2009/103
[4] Ruiz Bernaldez [1996] CJEU (Case C-129/94)
[5] Damijan Vnuk v Zavarovalnica Triglav d.d. [2014] CJEU (Case C-162/13)
[6] The Article 1 definition of "Vehicle" means any motor vehicle intended for travel on land and propelled by mechanical power, but not running on rails, and any trailer, whether or not coupled”.
[7] Vnuk, paras 56 and 59
[8] Vnuk, para 59
[9] This is the implication of Bernaldez, Katja Candolin and Others. v Vahinkovakuutusosakeyhtiö Pohjola and Others [2005] CJEU (Case C-537/03) , and Farrell v Whitty 2007 CJEU (Case C-356/05)and it is subject only to the single exception permitted by Article 13.1 of the Directive.  However, Ward LJ took a very different view in EUI Ltd v Bristol Alliance Ltd Partnership [2012] EWCA Civ 1267 and it is one that is impossible to reconcile with Vnuk
[10] See Mr Justice Jay’s analysis in Delaney v Secretary of State for Transport 2014 EWHC 1785 para 108 in the context of the MIB Uninsured Drivers’ Agreement.  The same principles apply to primary or secondary legislation implementing the Directive.  This issue of legislative discretion is also important in the context of state liability under Francovich principles, as to which see Clyde LJ’s guidance on what constitutes a serious breach in R v Secretary of State for Transport Ex p. Factortame (No.5) (1999) [1999] 4 All ER 906
[11] See Benaldez paras 18 to 21 (the opinion of Advocate General Lenz of 25 January 1996, paras 25 to 30, provides a helpful analysis of the rationale) and Candolin paras 17 to 23
[12] Churchill v Benjamin Wilkinson and Tracy Evans 2011 Case C-442/10
[13] Gábor Csonka v Magyar Állam [2014] CJEU (Case C 409/11
[15] Note Harman LJ memorable comment: ‘one cannot pick out the plums and leave the duff behind’ in Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363, 376  A view apparently shared by Ward LJ in EUI v Bristol Alliance Partnership [2012] EWCA Civ 1267
[16] Foster and others v British Gas plc [1990] CJEU Case C-188/89
[17] On 5 October 2016
[18] Founded on near identical terms and context to the UK’s MIB
[19] Referred to above.
[20] In White v White & MIB [2001] UKHL 9 the House of Lords ruled that as the MIB agreements are private law contacts they are not subject to a Marleasing style purposive construction.  This was relied on by Flaux J in Byrne, supra, without reference to the CJEU’s judgment in Bernhard Pfeiffer et al v Deutsches Rotes Kreuz, Kreisverband Walshut eV: (Case C-397/01 to C-403/01); [2004] ECR 1-8835 that clearly brings any national rule or law implementing a directive within the scope of the rule