Out-Law News 2 min. read

Supreme Court: director of insolvent Scottish company not liable in damages for worker injury


The sole director of a now-insolvent company was not liable in damages for injury suffered by a former employee, despite failing to ensure that adequate employers' liability insurance was in place, the UK's highest court has ruled.

By a majority of three judges to two, the Supreme Court found that the wording of the relevant legislation was not enough to extend civil liability to the director, Peter Gordon, for breach of his company's statutory duty to obtain and maintain effective insurance. The company's employers' liability insurance policy had excluded claims arising from the use of electric woodworking machinery, including the electric circular saw with which apprentice joiner William Campbell had been injured.

Giving the judgment of the court, Lord Carnwath said that it was "not enough" for Campbell's case to succeed that the duty to have adequate insurance in place had been imposed for the benefit of employees.

"The essential starting point … is an obligation created by statute, binding in law on the person sought to be made liable," he said. "There is no suggestion in that or any other authority that a person can be made indirectly liable for breach of an obligation imposed by statute on someone else."

"It is no different where the obligation is imposed on a company. There is no basis in the case law for looking through the corporate veil to the directors or other individuals through whom the company acts. That can only be done if expressly or impliedly justified by the statute," he said.

In this case, parliament had dealt with the fact that a director or officer of a company may bear some responsibility for a failure to have adequate insurance in place by way of "a specific and closely defined criminal penalty, itself linked to the criminal liability of the company", Lord Carnwath said.

Commercial litigation expert Craig Connal QC of Pinsent Masons, the law firm behind Out-Law.com, said that although the Supreme Court was "one of the better places to do a 'hearts and minds' exercise" designed to achieve a result contrary to "black letter law", the approach had not been successful in this case.

"Indeed, Lord Carnwath was directly critical of such an approach," he said. "He accordingly adhered to what might be described as a traditional approach where the absence of any reference to civil liability, and the imposing of a specific criminal penalty, tended to point away from any inference that civil liability could still arise on the part of the director responsible failing to put the insurance in place - notwithstanding a trenchant response from the dissenting judges."

"Many may think that, the individual facts aside, the approach of the majority has much to commend it. Certainly, form the perspective of advisors, an approach which focusses on individual fairness as opposed to principle makes prediction and advice remarkably difficult," he said.

Had the company in this case had adequate insurance in place, Campbell would have had certain statutory rights against the provider of the employers' liability insurance notwithstanding liquidation of the company. However, Lord Carnwath said that the judgment of the court "depends not on general questions of fairness, but on the interpretation of a particular statutory scheme in its context".

"The fact that the company can only act through its officers tells one nothing about their potential liability to third parties for its acts or failures," he said.

However Lord Toulson and Lady Hale, dissenting, backed the views of Lord Drummond-Young, who had been similarly in the minority in the Court of Session. They said that a "formalist" approach to the wording of the legislation "[failed] to reflect the basic objectives" of the 1969 Employers' Liability (Compulsory Insurance) Act.

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