England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENI 98/0023/1

(MR JUSTICE MORLAND )

Royal Courts of Justice

Strand

London WC2

Wednesday 24 June 1998

B e f o r e:

THE MASTER OF THE ROLLS

(LORD WOOLF)

LORD JUSTICE MILLET

LORD JUSTICE PILL

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ROBERT SHARP

A person suing under a disability by his

Brother and Next Friend THOMAS SHARP

Plaintiff/Appellant

- v -

MICHAEL JOHN PEREIRA

First Defendant/Respondent

and

MOTOR INSURERS' BUREAU

Second Defendant/Respondent

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(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR T CROWLEY QC and MR J HOWARD (Instructed by Instructed by Messrs Liddell Zurbrugge, London WC1R 4BW) appeared on behalf of the Appellant

MR T R LAMB QC and MR C CORY-WRIGHT (Instructed by Messrs Edward Lewis & Co, London WC2)) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court)

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©Crown Copyright

JUDGMENT

LORD WOOLF, MR: This is an appeal from a judgment of Morland J, which at first sight seems to be of no great significance since it only concerns a question as to whether or not an interim payment can be made. However, in my judgment, it involves a point of some significance.

The courts have always been concerned about the reputation of the insurance industry in this country. If a case comes before the court which indicates that the insurance industry has not met the standards that it should adopt, the courts should make that clear. The insurance industry to which I refer is represented in this case by the Motor Insurers' Bureau. The Motor Insurers' Bureau represents a number of insurance companies under an agreement, which was made some years ago between the Secretary of State and the Bureau, now the Uninsured Drivers Agreement 1988, to cover the difficult situation which arises where, for one reason or another, an insurer is in a position to say that an insurance policy cannot be relied upon by a driver of a motor vehicle, or where there is no insurer of a driver of a motor vehicle.

From the public's point of view, it is extremely important that where a driver is uninsured there should be some way where, if the person who is injured is entitled to damages, they should be able to obtain those damages. The agreement which was entered into between the motor insurance industry and the Secretary of State was designed to achieve that purpose.

The agreement in its present form was entered into before the court acquired the power to make interim payments. The ability of the court to make interim payments in appropriate cases is important. It enables the court, where for example there is no issue as to liability or where there is already a judgment obtained in the plaintiff's favour, to make an award of damages. Damages which are often sorely needed by the individual plaintiff because of his or her circumstances pending the final assessment of damages. This is one such case.

The Motor Insurers' Bureau wished to take a technical point in relation to this case, to which I will refer hereafter, but I have heard in the course of this hearing nothing which would justify the Motor Insurers' Bureau not having made an ex gratia payment, and everything to indicate that an ex gratia payment should have been paid.

Mr Lamb, who I apprehend was instructed in this case at a very late stage, having taken instructions, was not able to put anything before the court which, in my judgment, would justify the non-payment of an ex gratia interim payment. Furthermore, it is right to say that, although Morland J came to a decision which was in favour of the Motor Insurer's Bureau's interpretation of a rule to which I will turn, it has to be noted that he suggested that an ex gratia payment should be made. Apparently that suggestion has been ignored. Morland J also suggested that the case should be disposed of speedily as an alternative to an ex gratia payment being made. Unfortunately, because of the circumstances of the plaintiff, both sides were agreed that the final assessment of damages was not possible in this case. The consequence is that, Morland J having given his judgment on 15 December 1997, we are in a position in June 1998 where no payment has been made to the plaintiff. That in itself is a situation with which the motor insurance industry should not be happy and one which should be of considerable concern to the Motor Insurers' Bureau.

Having made those preliminary remarks, I turn to the issue on this appeal. The issue is whether the court has jurisdiction to make an interim payment order for damages against a defendant which liability will be met out of the resources of the Motor Insurers' Bureau rather than the resources of an individual insurer. The background facts can be stated very shortly.

On 25 June 1993 the plaintiff, who is now aged 34, sustained severe injuries when he was knocked down by a Volkswagen van driven by the first defendant. The first defendant was uninsured. On 1 May 1996 the Master made an order by consent joining the Motor Insurers' Bureau as second defendant in the action, the purpose being to protect the Bureau's position in the event of any claim being made against it by the plaintiff pursuant to the Uninsured Driver's Agreement. That is the agreement to which I have referred between the Secretary of State and the Motor Insurers' Bureau.

On 9 December 1996 (I emphasise, one year prior to Morland J's judgment) after hearing an issue on liability only, Curtis J entered judgment for the plaintiff against the first defendant, subject to a reduction of one third in respect of the plaintiff's contributory negligence. That judgment disposed of the question of liability. It also made it clear, in the context of this case, that in due course, unless the first defendant came in to resources, which was an extremely unlikely event, the Motor Insurers' Bureau would be the body responsible for meeting this claim.

On 29 October 1997, the plaintiff issued a summons seeking an interim payment in order to finance a programme of rehabilitation. That programme would enable the plaintiff to make the progress, which it must have been in his interests and everybody else's interest should take place as soon as possible. The summons was adjourned to the judge in chambers because the Motor Insurers' Bureau wished a point of principle to be clarified as to the correct application of the rules of the Supreme Court to which I will refer.

If there was an issue as to the correct interpretation of the rules, it was perfectly proper for that matter to be resolved by the courts. In the final analysis the courts are the only institution which can give final rulings as to interpretation, not only to the rules of court but other legal documents.

Nothing I say in this judgment is meant in any way to inhibit the appropriateness of the Motor Insurers' Bureau, or any other insurance company, coming to the courts to obtain clarification of the law.

However, if the Motor Insurers' Bureau, in particular, wishes to obtain clarification of the law, it should not lose sight of the fact that, in a case such as this, there is a human being involved and his needs require to be considered. One is not only looking at it from an entirely commercial point of view. Unfortunately, in this case that did not happen as far as this court is aware.

The Motor Insurers' Bureau now concedes that if a court has power to order an interim payment against the first defendant, it would not be unreasonable to make an order of £50,000. As I understand it, that position has never been in dispute. If the Motor Insurers' Bureau wished for a point to be clarified, it would be perfectly appropriate for the Bureau to have made an ex gratia payment of, say, £45,000 pending the resolution of the matter, or even £25,000. But not to make any payment whatsoever is something that this court finds surprising.

The issue of principle turns on the proper interpretation of Order 29 rule 11(2)(a), as amended. I turn to Order 29 rule 11(2)(a) as in the context of the rule as it was originally drafted. It is desirable, in order to understand how it was originally drafted, to read the rule as a whole. It reads:

"Order for interim payment in respect of damages.

11 - (1) If, on the hearing of an application under rule 10 in an action for damages, the Court is satisfied-

(a) that the defendant against whom the order is sought (in this paragraph referred to as 'the respondent') has admitted liability for the plaintiff's damages, or

(b) that the plaintiff has obtained judgment against the respondent for damages to be assessed; or

(c) that, if the action proceeded to trial, the plaintiff would obtain judgment for substantial damages against the respondent or, where there are two or more defendants, against any of them,

the Court may, if it thinks fit and subject to paragraph (2), order the respondent to make an interim payment of such amount as it thinks just, not exceeding a reasonable proportion of the damages which in the opinion of the Court are likely to be recovered by the plaintiff after taking into account any relevant contributory negligence and any set-off, cross-claim or counterclaim on which the respondent may be entitled to rely.

(2) No order shall be made under paragraph (1), in an action for personal injuries if it appears to the Court that the defendant is not a person falling within one of the following categories, namely-

(a) a person who is insured in respect of the plaintiff's claim;

(b) a public authority; or

(c) a person whose means and resources are such as to enable him to make the interim payment."

Subsequently that rule was amended so that Order 11 rule 2(a) read:

"A person who is insured in respect of the plaintiff's claim or whose liability will be met by an insurer under section 151 of the Road Traffic 1988 or an insurer concerned under the Motor Insurers' Bureau Agreement."

Order 29 rule 11 was made under the power contained in section 32 of the Supreme Court Act 1981, which is in these terms:

"(1) As regards proceedings pending in the High Court, provision may be made by rules of court, in such circumstances as may be prescribed, to make an order requiring a party to the proceedings to make an interim payment of such amount as may be specified in the order, with provision for the payment to be made to such other party to the proceedings as may be so specified or, if the order so provides, by paying it into court.

.....

(5) In this section 'interim payment', in relation to a party to any proceedings, means a payment on account of any damages, debt or other sum (excluding any costs) which that party may be held liable to pay to or for the benefit of another party to the proceedings if a final judgment or order of the court in the proceedings is given or made in favour of that other party."

The amendment to Order 29 rule 11 came about as a result of a judgment given by Schiemann J (as he then was) in the case of Powney v Coxage reported in The Times 8 March 1988. In that case Schiemann J had before him a dispute as to whether, when the Motor Insurers' Bureau had been joined as a defendant to an action, it was possible to obtain an interim payment under the unamended form of the rules. Schiemann J decided that it was not possible for such an interim payment to be made in those circumstances. As the rules were then framed, it is not suggested that Schiemann J's judgment was wrong in any respect. However it is clear beyond peradventure that the amendment which was made to the rules of the Supreme Court was intended to overcome the difficulty created by the rules in the unamended form. It is clear beyond doubt in the material placed before this court during argument, that the mischief which the Rules Committee was seeking to overcome was the fact that a person who was a defendant who was uninsured would still be able to meet an order for interim payment if the case was one where liability was ultimately going to be met by the Motor Insurers' Bureau, but the unamended rules did not permit the court to make a payment in those circumstances.

It is now apparent that the language used in amending the rule was not ideally designed to meet that purpose. It is not as clear as it should have been. The explanation for this may have been that the Rules Committee were not aware of the precise manner in which the Motor Insurers' Bureau operated in relation to the members of the Bureau.

The Motor Insurers' Bureau decided to obtain a judgment which would resolve the proper meaning of the amendment. Prior to the amendment being introduced, the Lord Chancellor's department had issued a consultative document in relation to the proposed amendment but that did not come to the attention of the Motor Insurers' Bureau. It was only after the amendment had been made that they became aware of its contents, according to correspondence which has been placed before us, as a result of inquiries from legal practitioners. The wording having been drawn to the attention of the Motor Insurers' Bureau, they drew their concerns to the attention of the Lord Chancellor's department who were willing to cooperate with the Motor Insurers' Bureau in obtaining a further amendment to the rule to clarify the position. As I understand the correspondence which has been placed before the court, initially the Motor Insurers' Bureau would not have been adverse to an amendment which had the effect of making the position such that, whenever the Motor Insurers' Bureau were involved, an interim payment would have been able to have been made. However, subsequently in the correspondence, the Motor Insurers' Bureau, on further consideration, thought a more refined approach to that would be preferable. However, the rule has remained in its present amended form.

I would mention one further matter. Initially the amendment was in a marginally different form from its present form. Instead of referring to "an insurer concerned" it referred to "as insurer concerned". That was only for a matter of a month before a subsequent statutory instrument corrected the position. In order to resolve the issue before this court as to the construction of present rule, it is not necessary to refer to that episode in the history of the drafting of this rule.

When the matter was not resolved by agreement between the Motor Insurers' Bureau and the Lord Chancellor's department, two actions were used as test cases. Morland J's case was the second of those actions. There had been an earlier case where a judgment had been given in the case of Crisp v Marshall (unreported). In his judgment in that case, His Honour Judge David Smith, sitting as a Deputy High Court Judge, came to a conclusion in favour of the plaintiff. He concluded that an interim payment could be made in all cases where the Motor Insurers' Bureau insurance was involved. In giving his judgment he said:

"I have little doubt that the intention behind the change in the final part of the sub rule was to allow an application for an interim payment in all cases covered by the Uninsured Drivers Agreement of 1988...."

The judge continued:

"....a consultation paper issued by the Lord Chancellor's Department was shown to me. It states that the amendment is proposed for the purpose of reversing the decision in Powney v Coxage 'where it was held that the MIB was not a person who is insured in respect of the plaintiff's claim'. There would seem to me to be little point in changing the rules to cover a situation where there is a policy (but not a valid policy) but to make no change in respect of those cases, such as the present case, where there is no policy but the MIB is eventually going to meet the liability from the central fund. If that had been the intention I have little doubt that the new rule would have made that fact plain."

I would respectfully agree with the judge that that is the obvious intention of the amended rule. When the amended rule is examined, it is clear that it is enabling an interim payment to be made not only against a person who is insured but a situation where there is a statutory liability on the insurer under section 151 of the Road Traffic Act 1988, or where there is no insurance applicable, so that the arrangement contained in the Motor Insurers' Bureau agreement applies.

Morland J took a different view. He did so on the basis of the material which was placed before him and in the light of the submissions which were made by the parties. Unfortunately, when the matter came before Morland J, the parties, including the Motor Insurers' Bureau, were under a misunderstanding as to the situation. Because of that, the judge, in the course of his judgment, said as follows, referring to the amended rule:

"In my judgment, 'insurer concerned' is a term of art and means what it is defined as in the Domestic Regulations Agreement between the MIB and insurers. Therefore I would hold, if there was no authority to the contrary, that that means, unattractive though it may be, that the MIB's contention is correct."

The contention at that time was that "insurer concerned", being a term of art, referred only to those situations where there was an insurance policy, but for some reason that policy could be avoided as against the insured. In that situation an internal arrangement between the Motor Insurers' Bureau and their members meant that any claim was not a responsibility to be met out of the central fund of the Bureau, but from the resources that of the "insurer concerned".

In my judgment, there is no valid reason why an interim payment should be made in one situation and not in the other. I do not believe it is conceivable that the Rules Committee in amending the rules intended to make any such distinction. What is now clear is that the words "insurer concerned" are not, and have not been for a substantial period of time, a term of art as Morland J thought and was submitted before him.

In the skeleton argument prepared on behalf of the plaintiff on this appeal, the history of the relationship between the members and the Bureau is set out. The original agreement was made between the Bureau and its constituent members. It is 1 July 1947. It is correct to say that the term "insurer concerned" was used and defined in that agreement. It was also used and defined in the next agreement made on 24 September 1974. However, ten years ago on 17 September 1988, a new agreement was entered into which does not contain any reference to "insurer concerned". The distinction between the two situations was redefined and an insurer concerned referred to as a domestic regulations insurer. (The Domestic Regulations Agreement ("DRA") is the agreement between the members of the Bureau and the Bureau). The correspondence to which I have referred makes it clear that not only is the term "insurer concerned" not in popular use, it is now no longer part of the appropriate language within the insurance industry itself.

The position of the Motor Insurers' Bureau under its agreement with the Secretary of State is well established and well understood by the courts. The courts have from time to time recognised and acknowledged the interests of the Motor Insurers' Bureau under that agreement. However, relations between the members with the Bureau and among themselves seems to me not to be a matter of direct concern of the courts. If, as has happened in this case, the Motor Insurers' Bureau becomes a party to proceedings to protect its position, having done so it does not behove the Bureau to seek to rely in the course of those proceedings on internal arrangements it has with its members. In addition there arises the question, was Morland J correct in coming to the conclusion that he did?

I have already referred to his reasons for coming to that conclusion. He thought the words "insurer concerned" were words of art. That is clearly not the case. The argument advanced in this case on behalf of the plaintiff is straight-forward. Mr Crowley submits that, whichever category of case it is, there will always be an insurer involved. There will be an insurer involved as there is in this case where there was no insurance, as agent of the Motor Insurers' Bureau. There will also be cases where there will be an insurer concerned because, under the internal arrangements between the Motor Insurers' Bureau and its members, the case is one where a particular insurer is responsible for the liability, again under the DRA. In both cases there will therefore be someone who, in using the words "insurer concerned" literally, will be regarded as falling within the final words of the amended Order 29 rule 11(2)(a). It is not right to regard the Motor Insurers' Bureau as being an insurer in the ordinary sense of that word, so, using the words which open subparagraph (a), it is difficult to give them a literal interpretation if they are to have the effect which I would give them.

Nonetheless, this is a situation where the intent of the Rules Committee was as I have already indicated. There is no reason to distinguish between the two situations: one, where the Motor Insurers' Bureau will be directly responsible for meeting a claim, and the other where a particular insurer will be responsible under the agreement to meet the claim. The amended wording of the subparagraph is not to be construed in a technical manner. That is underlined by the fact that technically there is no "Motor Insurers' Bureau Agreement". The title which is given to the agreement which was made between the Secretary of State and the Bureau is the Uninsured Drivers Agreement.

The Rules Committee made their intent clear in the language they used but they did not express it helpfully. In future it should be read as applying to both situations: (1) where the liability will be met by the Bureau, and, (2), where the liability will be met by an insurance company because that insurance company was originally the insurer in relation to the driver concerned.

There remains one further matter with which I should deal. That is the consequence of an interim payment being made being made against a defendant who is uninsured but whose liability will be met by the Motor Insurers' Bureau. The agreement was made with the Secretary of State prior to the introduction of the ability to make interim payments. Not surprisingly, therefore, it does not refer to such payments. However, the obligation which the Motor Insurer's Bureau took under the agreement is under clause 5 in these terms:

"(1) IF a judgment is obtained against any judgment debtor the Domestic Regulations Insurer will satisfy the original judgment creditor if and to the extent that the judgment has not within seven days of the execution date been satisfied by the judgment debtor."

There is then a reference to section 144 of the Road Traffic Act 1988 (as amended by the Road Traffic Act 1991) and a provision in clause 7 in these terms:

"IF a judgment is obtained against any judgment debtor and remains unsatisfied, MIB will after the expiry of seven days from the execution date itself satisfy the same."

Clause 7 is in broad and unrestricted terms. There are situations where a distinction can be drawn between a judgment and an order. Technically an interim payment is perhaps more an order than a judgment. However, so far as the agreement between the Secretary of State and the Motor Insurers' Bureau is concerned, it is certainly a judgment within clause 7. The situation as I see it is that, if the court decides to make an interim payment order which is not met by the judgment debtor within the period of seven days, the obligation will be on the Bureau under its agreement with the Secretary of State to meet that judgment. The Motor Insurers' Bureau will not be a party to the judgment. However the Motor Insurers' Bureau do not take any point on the absence of any contractual nexus between the Bureau and the judgment debtor. Where a judgment is given to which the agreement between the Secretary of State and the Bureau applies, that agreement will be met by the Bureau in accordance with the terms of the agreement.

In this case, I would allow the appeal from the decision of Morland J. I would make an order for the payment of an interim nature under Order 29 rule 11 in the sum of £50,000 to the plaintiff against the first defendant only. That judgment will be an obligation against the first defendant only but will be one which I would expect that the Bureau will honour under the terms of the agreement to which I have referred.

Before leaving this case I should say that there are situations where quite properly the Motor Insurers' Bureau can say that under the terms of their agreement they are under no obligation to make a payment. An example would be where they had not been notified of a claim. Nothing I have said in this judgment should be regarded as preventing the Motor Insurers' Bureau raising points which are perfectly appropriate to take. In a case where the Motor Insurers' Bureau wish to raise any point of that sort, I would anticipate that it is unlikely that the courts would order an interim payment since the clear purpose of Order 29 rule 11(2) is to ensure that interim payments are not ordered against a defendant who is not in a position to meet them. It would be purposeless to make an order if that was the situation. The discretion of the court as to whether an interim payment should be made enables the court to take the legitimate interests of the Bureau fully into account.

LORD JUSTICE MILLETT: I agree that Order 29 rule 11(2)(a) of the rules of the Supreme Court, as amended in 1996, should be given the effect stated by my Lord, though I am not sure that I reach that conclusion by exactly the same route as he does.

The purpose of rule 11(2) is self-evident. If the case is otherwise one which merits an order for interim payment, such an order should nevertheless not be made where it would occasion hardship to the defendant. Accordingly the rule restricts the power of the court to make an order for interim payment to three cases: (a) where the defendant's liability would be covered by insurance; (b) where the defendant is a public authority; and (c) where the defendant is a person whose means and resources are such as to enable him to make the interim payment.

In its original form, none of these three cases included the case of the uninsured driver whose liability would be met as a result of the arrangements entered into between the Motor Insurers' Bureau and the Secretary of State. This appeared from the case of Powney v Coxage reported in the Times 8 March 1988. A defendant is not a person who is insured in respect of a plaintiff's claim; nor is he a person whose means and resources are such as to enable him to make an interim payment merely because the Motor Insurers' Bureau is obliged to meet any satisfied judgment which the plaintiff may obtain against him. Nevertheless, where arrangements are in place which would lead to the ultimate liability of the Motor Insurers' Bureau to meet the unsatisfied judgment, it is clear that there should be no obstacle to prevent an interim payment being ordered. No financial hardship would be caused to the defendant; it is not he who will be making the interim payment.

Accordingly in 1996, rule 11(2)(a) was amended in order to reverse the decision of Powney v Coxage . The following words were added:

"....or an insurer concerned under the Motor Insurers' Bureau Agreement."

If those words are construed literally they draw a surprising distinction between two categories of case. One is where the claim will be met by a member of the Motor Insurers' Bureau as a Domestic Regulations Insurer, formerly known as "an insurer concerned", under the Bureau's own domestic regulations. The other is where the claim will be met by the Bureau itself out of its central funds. The first case is clearly and expressly covered. The second is not covered by the literal wording of the rule. No conceivable ground for any such distinction has been put forward.

In correspondence with the Lord Chancellor's Department the Bureau accepted that it was desirable that the victim of an uninsured motorist should be able to obtain an interim payment in the same way as the victim of an insured motorist. It was not immediately apparent why an interim payment should be available where the Bureau was represented by insurers and not where the Bureau would be making the payment out of its central funds. The Bureau explained to the Lord Chancellor's Department that the distinction was not only illogical but unworkable. The Domestic Regulations are open to a number of constructions and while perhaps few cases may be disputed, cases arise in which the Domestic Regulations Insurer denies that it has that status and a dispute arises between the insurer and the Bureau. The Bureau told the Department that it was obviously undesirable that a plaintiff should be kept waiting while the insurance industry resolved its own internal affairs.

Given the fact that there is no discernible purpose in confining the concluding words of the amended paragraph (a) to the case where the defendant's liability will be met by a member of the Bureau, and that the distinction between such a case and the case where the liability will be met by the Bureau itself out of its own central funds is unworkable, I am satisfied that the rule, if possible, should be given a construction which treats the two situations in the same way.

I would do so by treating the case where the Bureau is the party liable to pay out of its own funds as an a fortiori case. The Bureau has made an agreement with the Secretary of State to pay the damages, albeit by an agreement with the Secretary of State to which the plaintiff is not a party. The Domestic Regulations Insurer, by contrast, has not undertaken any such obligation to the Secretary of State. Its liability, if any, arises at second remove under the Bureau's own internal regulations. Accordingly, it appears to me that the explicit extension of paragraph (a) to the Domestic Regulations Insurer should be construed as including an implicit reference to the Motor Insurers' Bureau itself. That is an obvious casus omissus, being an omission which is easily supplied.

I agree with my Lord that an order for interim payment is a judgment within the meaning of the Uninsured Drivers Agreement between the Bureau and the Secretary of State. Accordingly I agree that this appeal should be allowed and with the order which my Lord proposes.

LORD JUSTICE PILL: I agree that the appeal should be allowed for the reasons given by my Lord the Master of the Rolls.

Order: Appeal allowed with costs here and below. Costs orders against second defendant. First Defendant to pay the plaintiff the sum of £50,000 by way of interim payment to be paid into the Court of Protection within 21 days. Legal Aid Taxation of the Plaintiff's costs of the appeal. Respondent's application for leave to appeal to the House of Lords refused. (Does not form part of approved judgment)