England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
MR JUSTICE DAVIS

		Royal Courts of Justice Strand, London, WC2A 2LL
		18th December 2003

Lord Justice Waller:

1. This is an appeal from a decision of Davis J given on 4^th March 2003. He had to consider the extent of the obligation of the Financial Services Compensation Scheme (the Scheme) under sections 6(4) and (5) of the Policyholders Protection Act 1975 (the 1975 Act). These subsections deal with the extent of the indemnity provided by the Scheme to policyholders where an insurance company has become insolvent and where the policyholder has taken out "compulsory" insurance.
2. Under the policy which the respondents (Geologistics) had with Independent Insurance Company Limited (Independent) Geologistics had cover for Employers' liability i.e. insurance that they were "compulsorily" required to take out, and other cover which they were not so required. If Independent had not become insolvent, Geologistics would have recovered under the policy (1) damages payable by Geologistics as employer to an employee; (2) costs, payable by Geologistics to the employee, of any action brought by the employee; and (3) costs incurred in defending any claim.
3. Once Independent became insolvent there has never been any dispute that by virtue of Section 6(4) and (5) of the 1975 Act the Scheme was obliged to indemnify Geologistics for (1) any damages for which Geologistics had been found liable to pay to the employee; (2) any costs which Geologistics had been found liable to pay the employee. The dispute related to whether the Scheme was obliged to pay the costs which Geologistics were as at the time of Independent's liquidation bound to pay their solicitors Davis Arnold Cooper (DAC) for defending the claim.
4. The judge found that the Scheme was liable to pay the costs of defending the claim but he gave permission to appeal.
5. The judge set out in his judgment the relevant terms of the policy, and the relevant terms of both the 1975 Act and other legislation on which submissions turned, with comments and explanations which are not in issue. I append to this judgment a section from his judgment setting the background to the submissions made on the appeal [see schedule 1].
6. The judge was of the view that the object of the 1975 Act was to provide a degree of protection for policyholders, and that section 6 was to provide protection to corporate policyholders because they had been compelled to insure. Sir Sydney Kentridge QC, as Mr Phillips had done in the court below, challenged the judge's view as to the object of the 1975 Act, and in particular Section 6 of that Act. Reliance was placed on the long title and to the reference to the "Act ….protecting policyholders and others.." So it was submitted that the primary purpose of Section 6 was to protect the third parties who were intended to be the beneficiaries of the compulsory insurance referred to in that Section. Why, Sir Sydney submitted, should there be the exception to the general rule that corporate policyholders should not recover unless it was to protect the third parties in favour of whom compulsory insurance was required to be taken out?
7. The answer seems to me to be first that the Act as a whole is clearly by the provisions such as Section 8(2) concerned with protecting policy holders albeit in that context private policyholders, and only to the extent of 90%. The language of Section 8(2) and Section 6(4) is the same save for the fact that the indemnity is 100% and corporate policyholders are now included. Furthermore the fact that corporate bodies are included and the extent of the indemnity is increased to 100%, is consistent with the notion that, because insureds have been forced to take out insurance and pay premiums, therefore, if insurance companies become insolvent, all policyholders ought to be protected completely.
8. Obviously there is benefit to the third party victims as well; and that Parliament may also have had in mind. The critical point is that Sir Sydney wished to use the argument that the object was to protect third party victims so as to construe Section 6(4) and (5) as if their sole or at least primary purpose was to assist victims as opposed to indemnifying policyholders. In my view that is not a legitimate construction of the statute.
9. Sir Sydney also relied on the provisions of the 1975 Act other than Section 6 to show that the Scheme is funded by the insurance industry, and to show the scheme was not intended to provide a complete indemnity. In the context of insurance that is not compulsory, corporate policy holders get no rights against the scheme at all, and even private policyholders get only 90%. So, submitted Sir Sydney, it should be a matter of no surprise that a corporate or indeed a private policyholder should bear the risk of paying their own costs of defending a claim where the insurance company has become insolvent.
10. Mr Edelman also sought to place Section 6 in the context of the whole Act. He submitted that the intention of Parliament can be divined from first looking at Section 8(2), seeing as I have already indicated the same language being used in Section 6(4). Then he pointed out that Section 6 (5) is followed by Section 6(6). He submitted that what Parliament must have had in mind was the providing of a complete indemnity where the policy was a policy "required" by one of the statutes, and a complete indemnity covering anything that would normally have been covered by such a policy. That, he submitted, is what Section 6(5) is designed to achieve and that is apparent and confirmed, he submitted, by Section 6(6) which provides for recovery by private policyholders and only to the extent of 90% for aspects which would not be covered by a "compulsory" policy if that was the only type of insurance covered.
11. The correct approach to the construction of Section 6(4) and (5) to which the above submissions go is clearly important, and I confess to being inclined to Mr Edelman's submission, but the language of the subsections must be the starting point. For convenience I repeat sections (4) and (5) of subsection 6:

"(4) Subject to sections 9, 13 and 14 below and the following provisions of this section, it shall be the duty of the Board [the Scheme] to secure that a sum equal to the full amount of any liability of a company in liquidation towards a policyholder or securityholder under the terms of any policy or security to which this section applies is paid to the policyholder or securityholder as soon as is reasonably practicable after the beginning of the liquidation.

(5) Subsection (4) above does not apply by reference to any liability of a company in liquidation under the terms of a policy to which this section applies arising otherwise than in respect of a liability of the policyholder which is a liability subject to compulsory insurance."

12. Subsection (5) is certainly capable of a very narrow construction. That construction, which was essentially that put forward by Sir Sydney, involves saying that the liability of the insurance company to which subsection (4) would apply on its natural language, is to be construed as not encompassing any liability other than an established liability of a policy holder which he is obliged to have compulsorily insured. Sir Sydney sought to support this narrow construction by reference to certain authorities. He argued that the authority relied on by the judge dealing with the words "in respect of" advocated too wide an interpretation of those words and that other authorities demonstrated that a narrower construction was apposite.
13. There was cited to the judge, the decision of Boreham J in the case of Paterson v Chadwick [1974] 1 WLR 890. As the judge said, that was a decision on the ambit of the phrase "in respect of" as used in section 32 of the Administration of Justice Act 1970, a very different statutory context to the present. In the course of his judgment, Boreham J referred to some observations of Mann CJ in the Australian case of Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110, itself a decision on an Australian statute, the Farmers Protection Act 1940. At page 893 of the report, Boreham J said this, having referred to the fact that certain authorities had been cited to him, including the Reilly case:

"I refer to [that case] for this reason: that it is the one case in which reference was made and an explanation attempted -- an explanation rather than a definition -- of the words 'in respect of', again in the particular context in which Mann CJ found them.

It is right that one should say this. This was a decision given under the Farmers Protection Act 1940, by section 5 of which farmers were protected from process or proceedings 'in respect of' a debt unless a notice had been served upon the farmer in question. In the decision, Mann CJ was faced with the contention that they were ejectment proceedings, that they were not proceedings in respect of a debt, but in respect of failure to deliver up possession. In the course of giving his judgment, Mann CJ attempts this explanation of the words 'in respect of', at page 111:

"The words "in respect of" are difficult of definition, but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the order refers."

I think it unnecessary for me to go any further. Those words of Mann CJ provide helpful guidance at any rate as to the ordinary meaning of the words 'in respect of' and I accept that guidance".

14. Boreham J went on to express the view that, in the light of the arguments of counsel before him, nothing was said to induce him to take the view that anything except the ordinary and natural meaning of those words should be applied in construing section 32(1) of the Act of 1970. He went on to say this:

"In my judgment, the words 'in respect of' convey some connection or relation between the plaintiff's claim and the personal injuries that she sustained, that is, a claim against her ex-solicitors."

15. The authorities to which Sir Sydney directed our attention were British and Commonwealth Holdings Plc v Barclays Bank Plc and others [1996] 1 WLR 1, and Rodan International Ltd v Commercial Union Insurance Company Plc [1999] LLR 495. In the first Aldous LJ found the authorities which had placed a more restrictive meaning on "in respect of" in their statutory context more persuasive in relation to the statute with which he was dealing, than the broader interpretation preferred by Mann CJ in the Victorian case, followed by Boreham J in Paterson v Chadwick.
16. In the second Hobhouse LJ was concerned with wording in an insurance policy, and the proper construction of "in respect of an occurrence". He said "The phrase "in respect of" carries with it a requirement that the liability relate to the identified occurrence. It is not sufficient that it should simply have had some connection with the Occurrence."[see page 500]. That, submitted Sir Sydney, supported a narrow construction on the words "in respect of" in Section 6(5).
17. I do not get much assistance from the authorities. They simply demonstrate that the proper construction of the words will depend on their context.
18. I come back therefore to the wording of subsection (4) and (5) of section 6. If the narrow construction advocated by Sir Sydney were adopted in relation to section 6(5), that construction would have the following consequences; first there would be covered the damages for which Geologistics have been found liable in this case because those are damages for breach of an employer's duty to an employee, and the liability has been established; second unless the costs which Geologistics have been ordered to pay their employee whether in relation to the unsuccessful defence of the claim or the unsuccessful appeal are something in relation to which Geologistics were required "compulsorily" to carry insurance, those costs would be irrecoverable; third if the employee had in some interlocutory proceeding recovered an order for costs, but had then abandoned their action conceding there was no liability, those costs would not be recoverable (even in this instance if there was a requirement to compulsorily insure against the same); fourth costs of defending this claim against the claimant although recoverable under the terms of the policy if Independent had remained solvent, would not be recoverable unless there was a requirement to compulsorily insure against the same; fifth costs of defending any claim successfully, incurred with the approval of Independent and recoverable under the policy if Independent remained solvent, would be irrecoverable.
19. Mr Phillips before the judge conceded that the costs which Geologistics have been ordered to pay in favour of the employee were recoverable. He it seems accepted "after some prompting", that that was not because Geologistics were required to take out compulsory insurance in respect of the same. He was thus not putting the matter on the basis of the narrow construction advocated by Sir Sydney. He accepted that Section 6(5) allowed for recovery in respect of a liability of the policyholder beyond that which was required to be compulsorily insured, but he sought to place a narrower interpretation on the effect of section 6(5) than those representing Geologistics, an interpretation to which I will return.
20. Sir Sydney sought to persuade us that an obligation to pay the claimant's costs was something against which Geologistics were required to insure. He referred us to Section 1 of the 1969 Act quoted above and then took us to the Employers' Liability (Compulsory Insurance) Regulations 1998 passed by virtue of the 1969 Act. Regulation 3 of those regulations provides as follows:

"Limit of amount of compulsory insurance (1) Subject to paragraph (2) below, the amount for which an employer is required by the 1969 Act to insure and maintain insurance in respect of relevant employees under one or more policies of insurance shall be, or shall in aggregate be not less than £5 million in respect of –

(a) a claim relating to any one or more of those employees arising out of any one occurrence; and

(b) any costs and expenses incurred in relation to any such claim.

(1) Where an employer is a company with one or more subsidiaries, the requirements of paragraph (1) above shall be taken to apply to that company with any subsidiaries together, as if they were a single employer."

21. Sir Sydney argued that the words "any costs and expenses incurred in relation to any such claim" referred only to the claimant's costs and expenses and that thus Section 1 of the 1969 Act taken with regulation 3 demonstrated that the claimant's costs were required to be the subject of insurance.
22. In my view first Regulation 3 is simply fixing a limit and providing for what may be taken into account in fixing that limit. Second the words relied on seem to me to include both defence costs and claimants' costs. If anything the use of words "any costs", points to the fact that Employers' Liability policies almost invariably provide for the recovery of both claimant's and defence costs. Third in any event it is Section 1 of the 1969 Act which governs what must be the subject of insurance. That Section deals with liability for bodily injury or disease sustained by employees. Sir Sydney suggested that even on the words of Section 1 itself liability should be construed as including liability for the claimant's costs, but I can see no way in which that can be right.
23. In any event it seems to me that the narrow construction placed on Section 6(5) by Sir Sydney is inconsistent with there being the two subsections. If Section 6 (4) and (5) were intended to provide an indemnity against only that which was required to be the subject of compulsory insurance, Section 6(4) could have so provided without the need for Section 6(5). That alone supports the view that the words "otherwise than in respect of a liability of the policyholder which is a liability subject to compulsory insurance", must be intended to produce the result that what the policyholder can recover under section 6(4) goes beyond the liability which must be compulsorily insured. What is contemplated is therefore that under a policy which is required to be taken out, the policyholder will be entitled to recover against the insurance company some indemnity beyond that for which statute compels insurance, but by virtue of Section 6(5) that right to indemnity must still be "in respect of" "the liability subject to compulsory insurance".
24. It is at this stage that it is helpful to look at the liability under the policy. The policyholder as appears from the terms already quoted, was covered under various sections of the policy. Some of the cover related to compulsory insurance such as Employers' Liability but some did not. Under the general policy extensions the policyholder had some further entitlements in relation to costs. For convenience I repeat those provisions.

"(1) Claimant's Costs and Expenses

The company will provide indemnity against legal liability for all costs and expenses recoverable by any claimant in connection to any claim to which the indemnity expressed in sections 1, 2 or 3 applies.

(2) Defence Costs and Expenses

The company will provide indemnity in respect of all costs incurred with the company's written consent of legal representation at any…..

(a) proceedings in any court in respect of any act or omission causing or relating to the occurrence

and

(b) other costs and expenses incurred with the company's written consent in relation to any matter which may be the subject of indemnity under sections 1, 2 or 3."

25. The policyholder thus has an indemnity covering costs recovered by any claimant "in connection with" any claim to which the indemnity applied. If the insurance company became insolvent the question under section 6(5) would be whether those costs were incurred "in respect of" the liability the subject of compulsory insurance. The answer to my mind is "yes" because the words "liability subject to compulsory insurance" are descriptive of the type of liability covered by the policy and not intended to describe an actual established liability, and in "respect of" is in its context intended to mean or at least include "in connection" with.
26. What then of defence costs? Under the policy the policyholder would be entitled to recover costs incurred with the insurance company's written consent for legal representation in any proceedings at an inquest or inquiry or in court or other costs incurred "in relation to" any matter the subject of indemnity. If the costs have been incurred "in relation to" any matter which may be the subject of indemnity covering the employer's liability with the consent of the insurers, the question if the insurance company becomes insolvent, is whether those costs have been incurred "in respect of a liability of the policyholder which is a liability subject to compulsory insurance". If a "liability subject to compulsory insurance" is descriptive and "in respect of" means "in connection with" or "in relation to", the answer has to be the same as in the case of the claimant's costs.
27. Sir Sydney, on the basis that the narrow construction advocated by him might be rejected, referred us to Mr Phillips' skeleton argument for the way in which even if the narrow construction were rejected, the Scheme suggested that the claimant's costs were recoverable though the defence costs were not. They say putting it in summary form:- 1. The liability for the claimant's costs was a liability to the same person as was receiving the damages; the liability for DAC's costs are not; 2 .the liability to pay costs to the claimant went hand in hand with the liability to pay damages; the liability for DAC's costs arise even if no damages were awarded, and could be recovered from Geologistics; 3. The liability to pay costs to the claimant arose from there having been a liability to pay damages; the liability to pay DAC arose from there having been a claim which DAC were instructed to defend. Reliance was also placed on the statutory purpose and it being more consistent with that purpose to indemnify the liability to the victim than to indemnify a liability to DAC.
28. The points made do not in my view face up to the interpretation of the language of Section 6(5). In Section 6 (5) the words are descriptive of the type of insurance. "In respect of" has to mean "in connection with", and that is the reason why a claimant's costs are recoverable. Once the narrow construction is rejected, and "in connection with" becomes the route to the claimant's costs being recovered, I do not see how defence costs "in connection with" or "in relation to" fall into some different or irrecoverable category. Certainly the object or purpose of the statute relied on does not require a strained construction to be placed on Section 6(5) to achieve that result.
29. What then it may be said is section 6(5) concerned with? The answer is clear. Many policies as indeed the very policy with which this appeal is concerned, cover matters for which insurance is not compulsory. One could have claims falling both under a section relating to compulsory insurance and a section of the policy concerned with non-compulsory insurance. Clearly the Scheme was not intended by section 6(4) to cover matters which were not the subject of compulsory insurance nor any costs incurred in respect of the same. Section 6(5) is intended to make that position clear and no more.
30. Essentially therefore for the reasons given by the judge I would dismiss this appeal.

Lord Justice Latham

31. I agree.

Lord Justice Thorpe

32. I also agree.
Order: Appeal dismissed with costs; application for permission to appeal to House of Lords refused. (Order does not form part of the approved judgment) Schedule 1 Extract from the judgment of Davies J in Financial Services Compensation Scheme v Geologistics given on 4^th March 2003.

….. The Policy in question taken out by the claimant with Independent was a composite policy. Thus it did not cover solely employers' liability but extended to various other areas of liability as well. The Policy, which I gather was Independent's standard form of policy in this context, is entitled on the cover sheet "Business Liability". It provided on page 3 that Independent would indemnify the insured within the terms, exceptions and conditions of the Policy against the events set out in the operative sections and occurring in connection with the business for the relevant period of insurance. There then followed several pages of general policy definitions, exceptions and conditions. General policy conditions 7 and 8 on page 7 of the Policy read as follows:

"(7) Claims (Action by the Insured)

The insured or his legal personal representatives shall give notice in writing to the Company as soon as possible after any event which may give rise to liability under this Policy with full particulars of such event. Every claim notice letter or writ or process or other document served on the Insured shall be forwarded to the Company immediately on receipt. Notice in writing shall also be given immediately to the Company by the Insured of any impending prosecution inquest or fatal inquiry in connection with any such event.

8) Claims (Conduct and Control)

No admission offer promise payment or indemnity shall be made or given by or on behalf of the Insured without the written consent of the Company.

The Company shall be entitled if it so desires to take over and conduct in the name of the Insured the defence or settlement of any claim or to prosecute in the name of the Insured for its own benefit any claim for indemnity or damages or otherwise. The Company shall have full discretion in the conduct of any proceedings and in the settlement of any claim against the Insured and the Insured shall give all such information and assistance as the Company may require."

Section 1 of the Business Policy is entitled Employers' Liability. The cover is stated in these terms:

"In the event of Bodily Injury [which is the subject of a definition] caused to an Employee within the Territorial Limits arising out and in the course of employment by the Insured the Company would indemnify the Insured in respect of Compensation for such Bodily Injury arising out of such event".

Then, under the heading Section Exception, this is provided:

"The Company shall not provide indemnity against liability in respect of which compulsory insurance or security is required under the Road Traffic Act 1998 . . ."

and I need not read the following words.

Then under the heading Section Extensions, this is provided:

"These Extensions are subject otherwise to the Terms Exceptions and Conditions of this Policy.

(1) Work Overseas.

The indemnity provided by this Section shall extend to apply in respect of liability for Bodily Injury caused to an Employee whilst temporarily engaged in work outside the Territorial Limits".

Then there are certain provisos to that and certain other paragraphs in this section.

Section 2 is entitled Public Liability. The cover there provided is this:

"In the event of accidental

(1) bodily Injury to any person

(2) damage to Property

(3) obstruction trespass nuisance or interference with any right of way air light or water or other easement

(4) wrongful arrest wrongful detention false imprisonment or malicious prosecution

occurring within the Territorial Limits the Company will indemnify the Insured in respect of Compensation arising out of such event."

There are then set out various provisions relating to limit of liability and section exceptions. One of the section exceptions is in respect of bodily injury to any employee arising out of and in the course of employment by the insured in the business. That, of course, is the subject of cover in Section 1 of the Policy. Another section exception relates to matters caused by or arising from any product supplied. That is the subject of cover contained in Section 3 of the Policy.

Section 3 indeed is entitled Products Liability. The cover there provided is:

"In the event of accidental

(1) Bodily Injury to any person

(2) Damage to Property

caused anywhere in the world by any Product Supplied the Company will indemnify the Insured in respect of Compensation arising out of such event."

After those sections, there is then a series of "General Policy Extensions", so-called. Paragraphs 1 and 2 of the General Policy Extensions provide as follows:

"(1) Claimants' Costs and Expenses

The Company will provide indemnity against legal liability for all costs and expenses recoverable by any claimant in connection with any claim to which the indemnity expressed in Sections 1, 2 or 3 applies.

(2) Defence Costs and Expenses

The Company will provide indemnity in respect of all

(a) costs incurred with the Company's written consent of legal representation at any

(i) coroner's inquest or other inquiry in respect of any death

(ii) proceedings in any court in respect of any act or omission causing or relating to any occurrence

(b) other costs and expenses incurred with the Company's written consent in relation to any matter which may be the subject of indemnity under Sections 1, 2 or 3."

It is not necessary to recite any other of the General Policy Extensions.

The claim brought by Mr Froggatt was defended by the claimant, DAC acting on its behalf. As was contemplated by the General Policy Conditions and as is the invariable practice in such cases, the defence in substance was conducted by the solicitors in close liaison with Independent, albeit of course DAC was acting on behalf of the claimant. It is accepted, on the facts of this particular case and on the wording of this particular Business Policy, that the claimant had a liability to pay DAC's legal costs and that such liability fell within the ambit of this particular Policy.

In due course, liability to Mr Froggatt was admitted. Quantum, however, was not. There was a trial at the Manchester County Court and in the event judgment was given in favour of Mr Froggatt on 7th February 2001 for damages in the sum of £110,650.87, including interest, with costs. It would appear that that award was very much higher than had been anticipated. The claimant accordingly appealed. Independent quite soon thereafter was placed in provisional liquidation, as I have mentioned. The appeal thereafter was pursued with the consent of Independent, by its provisional liquidators. In the event, the appeal was dismissed with costs by judgment of the Court of Appeal given on 17th April 2002.

The costs of DAC in acting in the proceedings up until 17th June 2001 -- that is, the date of the provisional liquidation -- are put at £15,710.55. The costs of DAC in acting after that date amounted, so I was told, to £8,984.81. I was told that the provisional liquidators have discharged the latter costs. As to DAC's costs of the pre-liquidation period, the claimant itself has, I was told, discharged those costs.

The claimant considered that those costs for which it was liable fell within the ambit of the Policy. That, as I have said, is not disputed in this particular case. The claimant further considered that, Independent having been placed in insolvent liquidation, the claimant was entitled to recover these costs from the Financial Services Compensation Scheme (which I will call "the Scheme") under the provisions of the Policyholders Protection Act 1975, as amended. The claimant requested payment from the Scheme accordingly, and correspondence ensued. By a reasoned decision letter of 25th July 2002 the Scheme denied that it had any legal obligation to pay such legal costs incurred by the claimant through DAC in its unsuccessful conduct of the defence of the proceedings prior to 17th June 2001. The claimant was aggrieved by such decision and commenced these proceedings, by way of claim form for judicial review, issued on 22nd August 2002. By its claim form the claimant seeks declaratory relief as to its claimed entitlement to be paid such costs by the Scheme and also seeks an order for payment.

Three points should be mentioned at this stage.

(1) First, the Scheme accepts, and has never disputed, that it is liable to pay the amount of damages awarded to Mr Froggatt, together with the awarded interest, and, further, that it is liable to pay Mr Froggatt's costs of the litigation. Those it has paid.

(2) Second, the present claim is for, and only is for, the asserted amount of legal costs incurred by the claimant in the period up to the date of the liquidation on 17th June 2001. Mr Edelman QC (who, with Mr Wynter, appeared for the claimant) told me that there may be questions as to whether the provisional liquidators are entitled to recover from the Scheme the legal costs thus far paid in respect of the conduct of the litigation on behalf of the claimant after 17th June 2001. But that matter forms no part of the proceedings before me and, accordingly, I confine myself to the question of the liability for the pre-liquidation legal costs of the claimant in defending, unsuccessfully, the proceedings brought by Mr Froggatt.

(3) Third, this case may have wider implications with regard to costs incurred by others who had taken out insurance of similar kind with Independent, who have unsuccessfully defended other proceedings brought by other claimants using the services of DAC or Berrymans Lace Mawer or Davies Lavery (or some other firm). Indeed, it may be that this case has implications in the context of a future liquidation of some other insurance company.

Statutory Background

I turn then to the statutory background. By virtue of the Employers' Liability (Compulsory Insurance) Act 1969 ("the 1969 Act"), insurance against liability for employees, broadly speaking, is made mandatory. As the title to that Act states, it is:

"An Act to require employers to insure against their liability for personal injury to their employees; and for purposes connected with the matter aforesaid."

Section 5 of the 1969 Act provides for criminal sanctions in the event of failure to insure in accordance with the Act.

Section 1 of the 1969 Act provides, in the relevant respects, as follows:

"(1) Except as otherwise provided by this Act, every employer carrying on any business in Great Britain shall insure, and maintain insurance, under one or more approved policies with an authorised insurer or insurers against liability for bodily injury or disease sustained by his employees, and arising out of and in the course of their employment in Great Britain in that business, but except in so far as regulations otherwise provide not including injury or disease suffered or contracted outside Great Britain."

I would add that the phrase "approved policy" is given a particular definition, as is the phrase "authorised insurer" given a particular definition by (3). It is not disputed that the Business Policy in this case was an approved policy and that Independent was an authorised insurer.

It follows, of course, that the claimant was required by statute to insure against liability for bodily injury or disease sustained by its employees in accordance with section 1 of the 1969 Act. It can be seen that the Business Policy which the claimant in fact took out provided significantly more extensive cover than that required by the 1969 Act itself. Indeed, even in the section of the cover relating to employers' liability, the claimant obtained cover more extensive than that required by section 1 of the 1969 Act; for example, in that the cover provided under the Business Policy extended to liability for injury caused to an employee whilst temporarily working outside Great Britain.

A few years after the introduction of the 1969 Act, and in the wake of some highly publicised collapses of certain insurance companies, the Policyholders Protection Act 1975 was passed. The long title to that Act reads as follows:

"An Act to make provision for indemnifying (in whole or in part) or otherwise assisting or protecting policyholders and others who have been or may be prejudiced in consequence of the inability of authorised insurance companies carrying on business in the United Kingdom to meet their liabilities under policies issued or securities given by them and for imposing levies on the insurance industry for the purpose; to authorise the disclosure of certain documents and information to persons appointed by the Secretary of State to advise him on the exercise of his powers appointed by the Secretary of State to advise him on the exercise of his powers under the Insurance Companies Act 1974; and for purposes connected with the matters aforesaid."

That is followed by section 1. Section 1(2) states this:

"The function of the Board [that is to say the Policyholders Protection Board, now the Scheme] shall be:

(a) to take the measures provided for by section 6 to 16 below for the purpose of indemnifying (in whole or in part) or otherwise assisting or protecting policyholders and others who have been or may be prejudiced in consequence of the inability of insurance companies carrying on business in the United Kingdom to meet their liabilities under policies issued or securities given by them."

It is not necessary to read more of that section.

It is in my judgment clear from those provisions, including the long title, what the policy behind the 1975 Act essentially was. It was to provide a degree of financial protection to those policyholders exposed by the collapse of insurance companies (which are, after all, meant to be authorised and regulated).

Mr Edelman and Mr Rory Phillips QC (who, with Mr Fordham, appeared for the Scheme) were content that I should look, for the purposes of assessing the purpose behind the 1975 Act, at extracts from Hansard with regard to the Parliamentary debate on the Bill. I am inclined to agree with Mr Phillips that these extracts add little, if anything, to matters for present purposes. At all events, the statements of Lord Beswick, the Minister of State, Department of Industry, in the House of Lords, and of Mr Peter Shore MP, President of the Board of Trade, in the House of Commons, in effect simply confirm what is evident from the Act itself as to its purpose.

Of central relevance to the present claim are subsequent sections of the 1975 Act (as amended) and in particular section 6. Section 5(4) of the Act had provided, amongst other things, a definition by reference to the phrase "a company in liquidation" which unquestionably extends to Independent in the light of its provisional liquidation. There then follow sections 6, 7 and 8:

"6. Compulsory insurance policies and securities

(1) This section applies to any policy which satisfies the requirements of any of the following, that is to say -

(a) section 1(4A)(d) of the Riding Establishments Act 1964 or any corresponding enactment for the time being in force in Northern Ireland;

(b) section 1 of the Employers' Liability (Compulsory Insurance) Act 1969 or Article 5 of the Employers' Liability (Defective Equipment and Compulsory Insurance) (Northern Ireland) Order 1972; or

(c) [Part VI of the Road Traffic Act 1988] or (Part VIII of the Road Traffic (Northern Ireland) Order 1981];

and to any policy evidencing a contract of insurance effected for the purposes of section 19 of the Nuclear Installations Act 1965.

(2) This section applies to any security in respect of third-party risks given by an authorised insurance company which satisfies the requirements of [Part VI of the Road Traffic Act 1988] or [Part VIII of the Road Traffic (Northern Ireland) Order 1981].

(3) In this section "a liability subject to compulsory insurance" means any liability required under any of the enactments mentioned in subsection (1) above to be covered by insurance or (as the case may be) by insurance or by some other provision for securing its discharge.

(4) Subject to sections 9, 13 and 14 below and the following provisions of this section, it shall be the duty of the Board to secure that a sum equal to the full amount of any liability of a company in liquidation towards any policyholder or security holder under the terms of any policy or security to which this section applies is paid to the policyholder or security holder as soon as reasonably practicable after the beginning of the liquidation.

(5) Subsection (4) above does not apply by reference to any liability of a company in liquidation under the terms of a policy to which this section applies arising otherwise than in respect of a liability of the policyholder which is a liability subject to compulsory insurance.

(6) Subject to sections 9, 13 and 14 and subsection (8) below, it shall be the duty of the Board to secure that a sum equal to ninety per cent of the amount of any liability of a company in liquidation towards a private policyholder under the terms of any policy to which this section applies, being a liability arising otherwise than in respect of a liability of the policyholder which is a liability subject to compulsory insurance, is paid to the policyholder as soon as reasonably practicable after the beginning of the liquidation.

(7) In subsection (6) above "private policyholder" means a policyholder who is either -

an individual; or

a partnership or other unincorporated body of persons all of whom are individuals.

(8) The duty of the Board under subsection (4) or (6) above shall not apply -

(a) in the case of any policy, unless it was a United Kingdom policy at the beginning of the liquidation; or

(b) in the case of any security in respect of third-party risks, unless it would have been a United Kingdom policy at the beginning of the liquidation if it had been an insurance policy and the contract governing the security had been a contract of insurance.

(9) References hereafter in this Act to policies which were United Kingdom policies at any time and to policyholders in respect of such policies shall be construed as including references to --

(a) securities to which this section applies which would have been United Kingdom policies at the time in question if they had been insurance policies and the contracts governing the securities had been contacts of insurance; or

(b) security holders in respect of such securities.

(10) Third-party rights against insurance companies in road traffic cases

Without prejudice to section 6 above, but subject to sections 9, 13 and 14 below, it shall be the duty of the Board to secure that a sum equal to the full amount of any liability of a company in liquidation in respect of a sum payable to a person entitled to a benefit of a judgment under -

(a) section 149 of the Road Traffic Act 1972 [or section 151 of the Road Traffic Act 1988] (duty of insurers to satisfy judgment against persons insured or secured against third-party risks); or

(b) [Article 98 of the Road Traffic (Northern Ireland) Order 1981] (court orders for recovery from insurers of sums due under unsatisfied judgments against persons insured or secured by them);

is paid to that person as soon as reasonably practicable after the beginning of the liquidation.

(11) General policies other than compulsory insurance policies

(1) This section applies to any general policy other than a policy to which section 6 above applies.

(2) Subject to sections 9, 13 and 14 below, it shall be the duty of the Board to secure that a sum equal to ninety per cent of the amount of any liability of a company in liquidation towards a private policyholder under the terms of any policy to which this section applies which was a United Kingdom policy at the beginning of the liquidation is paid to the policyholder as soon as reasonably practicable after the beginning of the liquidation.

(3) In subsection (2) above "private policyholder" has the same meaning as in section 6(6) above.

(4) In this Act "general policy" means any policy evidencing a contract the effecting of which constituted the carrying on of general business of any class, [other than class 5, 6, 7, 11 or 12, not being a contract of reinsurance].

I should also make reference to section 15 of the 1975 Act:

"15 Interim payments to policyholders of companies in liquidation, etc.

(1) An authorised insurance company, not being a company in liquidation, is a company in provisional liquidation for the purposes of this section if a provisional liquidator has been appointed in respect of the company under [section [135 of the Insolvency Act 1986]] or [Article 115 of the Insolvency (Northern Ireland) Order 1989], provided that the petition for the winding up of the company which led to his appointment was presented after 29th October 1974.

(2) A policyholder is eligible for assistance under this section –

(a) if he is a policyholder in respect of a general policy or a long term policy of a company in liquidation which was a United Kingdom policy at the beginning of the liquidation; or

(b) if he is a policyholder in respect of a general policy or a long term policy of a company in provisional liquidation which was a United Kingdom policy at the time when the provisional liquidator was appointed.

(3) In any case where it appears to the Board to be desirable to do so, the Board may –

(a) make payments to or on behalf of policyholders who are eligible for assistance under this section, on such terms (including any terms requiring repayment, in whole or in part) and on such conditions as the Board think fit; or

(b) secure that payments are made to or on behalf of any such policyholders by the liquidator or the provisional liquidator by giving him an indemnity covering any such payments or any class or description of such payments."

It thus appears from section 15 that discretionary powers are available to the Scheme in the prescribed circumstances in the context of insurance companies in provisional liquidation. However, nothing turns on that in the circumstances of the case before me.

I might add that the word "policy holder" is defined by section 32(2) of the 1975 Act by reference to the definition contained in section 96 of the Insurance Companies Act 1982, with a further refinement added by subsection 2(z)(a) by amendment taking effect from 15th April 2000.

One obvious feature of the 1975 Act, as appears from the sections above cited, is the distinction it draws between private policy holders -- that is to say, broadly speaking, individuals -- and other policy holders. The overall reach of the 1975 Act is, for the most part, directed at individual policyholders, as is illustrated by section 8 itself. That distinction also appears in section 6.

In section 6(4), a protection is given in wide terms to the generality of policy holders, albeit, as subsection (4) is careful expressly to state, subject to the provisions there identified. One of those provisions is subsection (5). That clearly operates to delimit the prima facie width of subsection (4) by providing that it does not apply "by reference to any liability of a company in liquidation under the terms of a policy to which this section applies arising otherwise than in respect of a liability of the policyholder which is a liability subject to compulsory insurance". If that delimitation applies, then subsection (6) takes effect in the case of a private policyholder. The drafting technique of first setting out a wide provision and then qualifying it by a limiting provision was and is in fact quite a common one and I do not myself think -- contrary perhaps to some of the submissions of Mr Edelman -- that any very great significance attaches to the use of such technique in this statute.

My attention was drawn not only to the provisions of the 1969 Act, which of course is one of the statutes expressly referred to in section 6(1) of the 1975 Act, but also to the other statutes there specifically mentioned. Thus, in the relevant respects, the Riding Establishments Act 1964, as amended by the Riding Establishments Act 1970, provides as follows:

"1. Licensing of riding establishments.

(1) No person shall keep a riding establishment except under the authority of a licence granted in accordance with the provisions of this Act."

The grant of a licence is made subject to conditions. For present purposes, the particular provision of relevance is that contained in subsection (4A)(d):

"the licence holder shall hold a current insurance policy which insures him against liability for any injury sustained by those who hire a horse from him for riding and those who use a horse in the course of receiving from him, in return for payment, instruction in riding and arising out of the hire or use of a horse as aforesaid and which also insures such persons in respect of any liability which may be incurred by them in respect of injury to any person caused by, or arising out of, the hire or use of a horse as aforesaid."

It may perhaps be noted that under subsection (4A) of that particular Act, the use is variously of the words "for" or "in respect of" without any very obvious differentiation.

Then I was referred to the Nuclear Installations Act 1965. That provides for a licence to be obtained in respect of a nuclear site. Section 7 of that Act sets out the duties of the licensee of a licensed site, such duties, amongst other things, requiring the licensee to secure that no occurrence involving nuclear matter, as mentioned in that section, causes injury to any person or damage to any property, and so on. In section 19 of that Act it is provided that, where a nuclear site licence has been granted in respect of any site, the licensee must make such provision (either by insurance or by some other means) as the Minister with the consent of the Treasury may approve.

Then I was referred to the Road Traffic legislation and in particular to the provisions of section 145 of the Road Traffic Act 1972 (which was itself in the relevant respects replaced by section 145 of the Road Traffic Act 1988, which latter statute was a consolidating statute, albeit with amendments) and to the provisions of section 149 of that Act. These read as follows in the relevant respects:

"145(1) In order to comply with the requirements of this Part of this Act, a policy of insurance must satisfy the following conditions.

(2) The policy must be issued by an authorised insurer, that is to say, a person or body of persons carrying on motor vehicle insurance business in Great Britain.

(3) Subject to subsection (4) below, the policy --

(a) must insure such person, persons or classes of persons as may be specified in the policy in respect of any liability which may be incurred by him or them in respect of the death of or bodily injury to any person caused by, or arising out of, the use of the vehicle on a road; and

(b) must also insure him or them in respect of any liability which may be incurred by him or them under the provisions of this Part of this Act relating to payment for emergency treatment.

(4) The policy shall not, by virtue of subsection (3)(a) above, be required to cover --

liability in respect of the death, arising out of and in the course of his employment, of a person in the employment of a person insured by the policy or of bodily injury sustained by such a person arising out of and in the course of his employment; or

any contractual liability.

…..

149(1) If, after a certificate of insurance or certificate of security has been delivered under section 147 of this Act to the person by whom a policy has been effected or to whom a security has been given, judgment in respect of any such liability as is required to be covered by a policy of insurance under section 145 of this Act (being a liability covered by the terms of the policy or security to which the certificate relates) is obtained against any person who is insured by the policy or whose liability is covered by the security, as the case may be, then, notwithstanding that the insurer may be entitled to avoid or cancel, or may have avoided or cancelled, the policy or security, he shall, subject to the provisions of this section, pay to the persons entitled to the benefit of the judgment any sum payable thereunder in respect of the liability, including any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments.

(2) No sum shall be payable by an insurer under the foregoing provisions of this section --

(a) in respect of any judgment, unless before or within seven days after the commencement of the proceedings in which the judgment was given, the insurer had notice of the bringing of the proceedings; or

(b) in respect of any judgment, so long as execution thereon is stayed pending an appeal; or

(c) in connection with any liability, if before the happening of the event which was the cause of the death or bodily injury giving rise to the liability, the policy or security was cancelled by mutual consent or by virtue of any provision contained therein, and either --

(i) before the happening of the said event the certificate was surrendered to the insurer, or the person to whom the certificate was delivered made a statutory declaration stating that the certificate had been lost or destroyed, or

(ii) after the happening of the said event, but before the expiration of a period of fourteen days from the taking of effect of the cancellation of the policy or security, the certificate was surrendered to the insurer, or the person to whom it was delivered made such a statutory declaration as aforesaid; or

(iii) either before or after the happening of the said event, but within the said period of fourteen days, the insurer has commenced proceedings under this Act in respect of the failure to surrender the certificate."

One can here see repeated use of the phrase "in respect of", with the phrase "in connection with" also used without any clear differentiation. Reference should also, in this context, be made to section 151(5) of the Road Traffic Act 1988, which supersedes, with altered wording, section 149 of the Road Traffic Act 1972.

It is plain, I think, from each of these four statutes that the underlying policy of Parliament was to provide a degree of protection to third party victims. That is the purpose of that legislation in those respects. …..