RoadPeace v Secretary of State for Transport and the Motor Insurers’ Bureau (intervening) EWHC 2725 (Admin) (07 November 2017)
On 7 November Mr Justice Ouseley finally delivered his long-awaited
judgment in RoadPeace’s wide-ranging legal challenge of the way the Department
for Transport (DfT) regulates compulsory third party motor insurance.
In October 2015 RoadPeace brought a judicial review of the
minister’s longstanding failure to bring the compensatory protection of motor
accident victims into line with the minimum standard mandated by six European directives
on motor insurance, culminating in the consolidating Motor Insurance Directive
2009/103/EC of 16 September 2009 (the Directive). It was compelled to bring this public law
action after the minister ignored its repeated calls for action.
The irony here is that the protective purpose of the first
European motor insurance directive of 1972 was inspired in large measure by the
same social policy objectives that induced the UK Parliament to impose
compulsory insurance, over eighty-six years ago, under the Road Traffic Act
1930.
Key points
RoadPeace’s courageous decision to challenge not only the
government but also a highly influential and multi-billion pound industry has
exposed the government’s failure to review its transposition of the Directive
over many years.
The High Court ruling confirms the United Kingdom’s statutory
provision for compulsory third party motor insurance falls below the basic EU
law standard that it is supposed to implement.
Unfortunately, the judgment fails to get to grips with the European law
that governs this standard. This in turn
has led to the court failing to confront a major cause of the present disparity
between the UK national law provision and the EU regulatory requirements it is
supposed to implement.
Primary findings of non-conformity
The following specific infringements were identified:
- Sections 145 and 192 of the Road Traffic Act 1988 wrongly restrict mandatory third-party motor cover to vehicle use in public spaces
- Sections 145 and 182 of the Road Traffic Act 1988 wrongly restrict the types of vehicles subject to the compulsory insurance to road vehicles
- Section 152(2) of the Road Traffic Act 1988 wrongly permits an insurer to invoke a misrepresentation or non-disclosure to avoid its statutory liability to compensate a third party
- Regulation 2 of the Rights Against Insurers Regulations wrongly limits the direct right of action against motor insurers to UK accidents
Collateral illegality
Correlative of the first two findings listed above is the
fact that both of the Motor Insurers’ Bureau (MIB)’s schemes for compensating
victims of uninsured and untraced drivers are also tainted by the same
illegality.
This is because each of these extra-statutory compensation schemes are restricted to incidents that are
subject to the compulsory insurance imposed by section 145 Road Traffic Act
1988. Accordingly, they inherit the same
statutory non-conformity with the Directive, in the way their scope:
- · unlawfully excludes liability for incidents on land that is not accessible to the public
- · unlawfully exclude liability for a wide range of exotic off-road vehicles
The MIB’s compensatory role is set out in four separate
private law agreements with the Secretary of State for Transport: two
consecutive regimes for the two schemes.
These are the Uninsured Drivers Agreement (UDA) 1999 and, for claims
postdating 1 August, the UDA 2015 and the Untraced Drivers Agreement (UtDA)
2003 and, for claims postdating 1 March 2017, the UtDA 2017.
Restricted declaratory findings
The judge has agreed to make declarations of
non-compatibility on the first three primary findings listed above, on terms
yet to be agreed. However, he has made no
such commitment concerning the remaining primary and collateral grounds; notwithstanding
their evident non-conformity with EU law.
Grounds dismissed
The judicial review also featured several additional grounds. These were sensibly grouped under two broad headings
that reflect two distinct issues that go to the adequacy of the UK’s
implementation of the Directive:
The first issue: Does
the UK have sufficient legislative discretion to allow motor insurers to
restrict or exclude their liability to third party claimants, beyond the single instance expressly sanctioned by the Directive?
The second issue: Do
the MIB agreements provide an adequate level of compensatory guarantee?
In both instances, the claimant’s contentions are dismissed. Unfortunately, the judgment is badly
deficient in the way it misconstrues well established European law authorities
and principles that led the judge into error.
I have agreed to provide a detailed critique of this
judgment in the Journal of Personal Injury Law. In the meantime, I offer following
observations.
Where the judge erred
1. On the UK’s legislative discretion
Part VI of the Road Traffic Act 1988, defines the scope and
extent of compulsory third party insurance in the UK. It is a curious mishmash of different
initiatives and amendments that have accrued over the past 86 years through the
simple expedient of bolting on new clauses to the original 1930 legislation, ‘without
any apparent belief in the mind of the legislature that the scion was
incompatible with the stock’ (per Lord Hailsham LC in Gardner v Moore and others [1984] 1 All ER 1100). Unfortunately, this has produced a chimera whose
legislative intention and meaning is often difficult to discern.
The UK authorities
There appear to be two schools of opinion on the thorny
issue as to whether, and if so to what extent, can motor insurers ring-fence
their statutory liability to compensate third-party claimants within their
policy terms. Ostensibly, the answer is
to be arrived at by construing Part VI of the Road Traffic Act 1988, which
prescribes the scope and extent of third party motor insurance in the UK.
The introduction of compulsory motor cover in 1930 created what
is now a multi-billion-pound captive market exclusively reserved to an
oligopoly of companies whom the DfT has authorised to operate in this jurisdiction.
There has always been a clear and obvious social policy objective behind
Parliament’s decision to compel third party cover. It is a simple one: ‘[it] is
designed to protect the innocent third party from the inability to pay of a
driver who incurs liability by causing him death or personal injuries’ again
per Lord Hailsham, in Gardner.
One group of authorities, represented by the judgments of Denning
MR and Diplock LJ’s in Hardy v MIB [1964]
2 All ER 742, Hailsham LC’s judgment in Gardner
and most recently Glouster LJ’s and Lloyd Jones LJ’s judgments in Cameron v Hussain [2017] EWCA Civ 366, attempts a holistic approach: one that
meets the Parliamentary aim of insuring that motor policies are fit for their
intended purpose of guaranteeing the compensatory entitlement of accident
victims.
Another group of authorities, exemplified by Ward LJ in EUI v Bristol Alliance Limited Partnership
[2012] EWCA Civ 1267 and most recently in Sahin
v Havard [2016] EWCA Civ 1202 preserve to a considerable degree the contractual
autonomy of motor insurers to exclude or restrict their liability to third
parties, save to the limited extent expressly precluded by sections 148 and 151
of the Road Traffic Act 1988. This
approach reflects the long standing practice that is almost universally
accepted in the UK which allows insurers to limit the scope of third party cover (e.g. to
social and domestic use or to a maximum mileage) and to exclude liability (e.g.
for deliberate damage or road rage) and to treat use made in contravention of
a policy restriction as being completely uninsured, unless the term's effect is one of the handful of exclusions expressly nullified by sections 148 and 151. Such claims are routinely assigned as MIB claims
under the less advantageous terms of the Uninsured Drivers Agreements.
I have consistently argued that the first school of UK
authorities is consistent with the comprehensive and absolute nature of the
compensatory guarantee mandated under EU law by the Directive. I am firmly of the view that the two
unanimous Court of Appeal rulings that represent the second, qualified compensatory
guarantee, are both bad law. I have
consistently contended here and elsewhere that they were arrived at per incuriam because they fail to apply
a consistent line of European Court of Justice (ECJ) rulings on this very point.
The EU law
The schism in judicial thinking in the UK would present the
ablest first instance judge with a tricky dilemma, were it not for two decisive
factors. First, the EU law principle of primacy
of EU law over national laws intended to implement EU law and secondly, the
unequivocal and absolute nature of the insurance requirement prescribed by
Article 3 of the Directive.
Article 3 stipulates, inter
alia that:
‘Each Member State shall, subject to Article 5, take all
appropriate measures to ensure that civil liability in respect of the use of
vehicles normally based in its territory is covered by insurance.’
ECJ rulings
The ECJ has ruled, time and again, that the twin legislative
aim of liberalising the free movement of people and vehicles within the EU and
of protecting accident victims means that:
‘Article 3(1) of the First Directive precludes a company
insuring against civil liability in respect of the use motor vehicles from
relying on statutory provisions or contractual clauses in order to refuse to
compensate those victims for an accident caused by the insured vehicle.’
This ruling represents a clear statement of EU law to
the effect that the insurance guarantee must be an autonomous one. It is also clearly and obviously one of
general application and this is borne out by the way it has been applied.
The rule was first propounded over twenty years ago in Bernaldez [1996] Case C-129/94 and applied to preclude a contractual exclusion of liability to indemnify an intoxicated driver. It has been applied repeatedly by the ECJ in various contexts ever since, such as: in Candolin [2005] Case C-537/03 against a statutory exclusion of liability to a passenger whose fault was amounted to a significant contributing factor in their loss or injury; in Farrell no. 1 [2006] Case 356/05 to preclude a statutory provision allowing an insurer to restrict the scope of third party cover to parts of a vehicle equipped with seating; in Churchill [2011] Case C442/10 to preclude the automatic disentitlement of a passenger victim who is also the a policyholder that knowingly permitted an unauthorised person to drive his vehicle, and most recently in Fidelidade-Compania [2017] Case C-287/16 to a statutory provision that purported to entitle an insurer to avoid liability to compensate a third party on the basis that the policy was void ab initio due to the policyholder deceiving the insurer at the inception of the policy. In each of these scenarios, the same passage was recited and applied.
The rule was first propounded over twenty years ago in Bernaldez [1996] Case C-129/94 and applied to preclude a contractual exclusion of liability to indemnify an intoxicated driver. It has been applied repeatedly by the ECJ in various contexts ever since, such as: in Candolin [2005] Case C-537/03 against a statutory exclusion of liability to a passenger whose fault was amounted to a significant contributing factor in their loss or injury; in Farrell no. 1 [2006] Case 356/05 to preclude a statutory provision allowing an insurer to restrict the scope of third party cover to parts of a vehicle equipped with seating; in Churchill [2011] Case C442/10 to preclude the automatic disentitlement of a passenger victim who is also the a policyholder that knowingly permitted an unauthorised person to drive his vehicle, and most recently in Fidelidade-Compania [2017] Case C-287/16 to a statutory provision that purported to entitle an insurer to avoid liability to compensate a third party on the basis that the policy was void ab initio due to the policyholder deceiving the insurer at the inception of the policy. In each of these scenarios, the same passage was recited and applied.
Furthermore, the ECJ ruling in Vnuk [2014] Case C-162/16 offers an obverse illustratio of the same
principle, this time set in negative terms concerning: ‘the objective of protection pursued by the
First to Third Directives [which are now consolidated in ‘the Directive’],
the view cannot be taken that the European Union legislature wished to exclude
from the protection granted by those directives injured parties to an accident
caused by a vehicle in the course of its use, if that use is consistent with
the normal function of that vehicle.’ In that case, even the use of tractor on
private property, inside a barn, and as a piece of agricultural machinery, was
subject to Article 3’s insurance requirement.
The Directive allows for only one instance where an insurer can
rely on a contractual provision to exclude liability to a third-party claimant. This is restricted to a passenger silly
enough to get into a vehicle that he or she knows has been stolen. This is set out in Article 13 of the
Directive. Furthermore, the ECJ has
repeatedly ruled this exception, forming a derogation from the autonomous
entitlement principle, must be construed strictly.
This reasoning is bolstered by what is now recital 15 of the
Directive (but which was introduced in the Second Motor Insurance Directive 84/5EEC). This explains that it is in the interest of
victims that the effects of certain exclusion clauses should be limited to the
relationship between the insurer and the person responsible for the accident.
EU law cover that is fit for purpose
Accordingly, the inescapable result of this consistent
teleological approach to interpreting the scope and extent of the insurance
requirement mandated by Article 3 is as follows:
- Every motor policy, once issued, consists of a free-standing guarantee to non-contracting third parties to satisfy their compensatory entitlement up to the minimum amounts set by the Directive and subject only to the single permitted passenger exclusion.
- This guarantee is inviolate. Whist the policyholder may face a contractual liability to the insurer for any misuse or other breach of policy, the third party’s entitlement is unaffected by any contractual limitation or exclusion not expressly provided for within the Directive.
Ouseley J’s error
The learned judge was confronted in this judicial review with
a UK regulatory regime, that allows motor insurers to routinely impose numerous
conditions to and qualifications in cover on their policyholders and to invoke
these against innocent third party claimants.
His reaction to these time-honoured practices was to attempt to reconcile
the irreconcilable.
The judgment attempts this feat by conceiving an
idiosyncratic approach to interpreting EU law.
However, it is one that has no basis in EU law. In doing so, Ouseley J adopts the unfortunate
line taken by Ward LJ, when confronted by the same long established
non-conformity with the Directive that arose in EUI v Bristol Alliance.
Ouseley J ruled that the ECJ’s statement of principle
concerning the autonomous nature of the guarantee (considered above in various
different contexts), is not intended to have a general application beyond the
specific facts of the cases where it has been applied in the past. This cautious,
precedent led, approach appears to conflate elements of stare decisis under our common law with the ECJ’s teleological
approach to interpretation of EU law.
These ECJ rulings give no hint that the protective and
autonomous guarantee principles espoused in these authorities are confined in
this fact-specific manner; in fact their application in a wide range of situations demonstrate a diametrically opposite
intention.
The sticking point seems to be Ouseley J’s empathy with the
incredulity previously expressed by Ward J in EUI v Bristol Alliance: that if this principle were to have a wide
and general application (as indeed it obviously should), ‘then the way the Road
Traffic Act combined with the MIB scheme has always operated is not compliant
with the Directives.’ That is precisely the
point made by this judicial review.
The only gloss given to Ouseley J’s eccentric and misinformed
approach is to justify the outcome by a
priori reasoning: ‘It would be
remarkable if, without spelling it out in so many words, the CJEU had decided
as far back as Bernaldez, the language
of which, in its usual way, it repeats
in subsequent cases, that any use which could be made of a motor vehicle
required compulsory insurance .’
As it happens, the the autonomous guarantee principle is nt aberrant
construction dreamt up by an overzealous ECJ. As Advocate General Mengozi’s
opinion in Csonka [2013] Case
C-409/11 explains, the holistic and autonomous nature of the insurance
requirement was clearly intended by the European Council and Parliament and it
was part of a concerted attempt to plug the gaps in compensatory protection
left by the First Motor Insurance Directive of 1972. This can be deduced from the way it abandoned
the first draft of the Second Motor Insurance Directive that expressly reserved
the right of insurers to exclude or restrict their liability to third party claimants
within their policy terms and by the insertion of what is now Recital 15
(mentioned above). These and other
factors led both the Advocate General to opine and the ECJ to rule first, that
the Article 10 compensating body is a last resort and second, that its role is confined
to two scenarios only: (i) where the vehicle responsible is unidentified and (ii)
where no policy exists at all.
The ECJ’s judgments, in Csonka and Churchill before that, leave
little room for any doubt. The compensatory
protection is required at the anterior stage of insurance mandated by Article 3 and is not to be deflected
as a mutualised liability of the Article 10 compensating body, which in the UK
is the MIB.
The European law requirement is both clear and fair
Properly construed, (that is to say interpreted correctly to give a
meaning that is consistent with the EU law it is supposed to implement ,Marleasing-style), Section 151 of the
Road Traffic Act 1988 ought to require every authorised motor insurer to satisfy any outstanding judgment in respect of an incident that is required to be covered
by motor insurance under Article 3 of the Directive, regardless of whatever terms
have been agreed between the contracting parties. This amounts to an autonomous regulatory
guarantee; not a quasi-contractual entitlement.
This construction is consistent with the UK
Parliament’s legislative intention, as Lloyd Jones LJ makes clear in the
following extract from Cameron v Hussain
[2017] EWCA Civ 366. At paragraph 88 he
says: ‘The intention of Parliament in enacting section 151 [which imposes a statutory duty on motor
insurers to satisfy judgments against their assured] was that a motor
insurer should compensate any parties injured by a vehicle it insures, even if
the insurer has no contractual liability to indemnify the driver of the insured
vehicle under the policy. The insurer is given a remedy against the tortfeasor
under section 151(8) but the risk as to whether that will be effective is
clearly intended to be borne by the insurer…’ [explanation added in parenthesis]
Therefore I believe that Ouseley J’s ruling on this
important issue is not only per incuriam
(on account of its misapplication of well-established EU law principles and
authorities) but it is also perverse in the way it undermines Parliament’s
legislative aim of protecting motor accident victims.
2 Specific issues with the MIB Agreements
During the course of this long running judicial review, in
which RoadPeace granted the DfT generous stays to allow them to consider their
position and to remedy the infringements, the government made a number of
important concessions, some of which were implemented within the MIB agreements.
For example, despite the DfT and MIB declaring publicly in
July 2015 that they had no intention of amending the Uninsured Drivers
Agreement 2015, this is precisely what they were forced to do after RoadPeace brought the judicial review. The UDA was amended by a supplementary
agreement that removed two unlawful exclusions of liability along with a
constructive knowledge provision because they all offended the equivalence of
the compensatory protection mandated by Article 10 of the Directive.
Further concessions where made and revisions introduced
under the new Untraced Drivers Agreement 2017, again introduced in response to
specific grounds raised in the judicial review.
These remaining issues largely concerned sufficiency of these concessions and to the fact that the revisions were not
given any retrospective effect. Ouseley
J found against the claimant on all these points for reasons that are far from
satisfactory. These will be covered in a
separate blog and in more detail within the Journal of Personal Injury Law.
Suffice it here to say that the learned judge concluded that
the following provisions did not breach the EU law requirement:
- The ‘significant injury’ threshold requirement for property damage under the UtDA 2017
- The lack the triple protective measures for children and mentally incapacitated claimants along the lines prescribed by Dunhill v Bergin [2014] UKSC 18 under the UtDA
- The lack of retrospectivity of the police reporting requirements, set as a condition precedent of any liability under the UtDA 2003
These are issues that will need to be fully argued in
individual cases.
An inconvenient truth
RoadPeace’s judicial review has revealed that our national
law provision in this area is so badly flawed that we cannot take its provisions
at face value.
The judge’s findings of non-conformity, in so far as they go, confirm what has been obvious for
several years. Extensive tracts of the Road Traffic Act 1988, the Direct Rights Against
Insurers Regulations 2002 and the MIB compensation schemes as well as the
Secretary of State’s regulation of the motor insurance industry are all
seriously deficient. Innocent victims
are being failed by this institutionalised illegality.
Ministerial neglect
The DfT was given explicit warnings in April 2013 from
various sources that our national law provision for compulsory third party
motor insurance failed to conform with the Directive. These warnings were made by a number of
informed respondents to its own February 2013 consultation on the MIB
Agreements. The minister chose to ignore that advice; necessitating this
judicial review.
