England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
MR JUSTICE FLAUX
HQ06X00793

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/05/2008

Lord Justice Carnwath :

Introduction

1. These two appeals are brought by the Motor Insurers Bureau ("the MIB") and the Secretary of State for Transport. The decision appealed is that of the Hon Mr Justice Flaux dated 5 June 2007, answering a series of preliminary questions relating to the "Untraced Drivers Agreement", made in 1972 between the Department of Transport and the MIB. The issues before us are, in short, whether the limitation provisions of the agreement comply with EU law, and, if not, whether the Secretary of State is liable in damages under the so-called Francovich principle (Francovich v. Italian Republic [1991] ECR I-5357). The relevant EU law is found in Article 1(4) of Directive 84/5/EEC of 30 December 1983 ("the Second Directive") on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles (OJ 1984 L 8, p. 17).
2. The underlying dispute concerns a potential claim for compensation by the Claimant, Ben Byrne, following a hit-and-run incident in about June 1993. The facts concerning the alleged incident are not admitted, but for the preliminary questions Flaux J was invited to assume as follows. The Claimant was born on 13 July 1989. In about June 1993, when he was three years old, he was crossing the road near his home with his father when a car pulled out of a side road too fast and ran into him causing injury. The car did not stop and the driver was never traced. Ben Byrne sustained injuries, which required hospital treatment. At the time his parents did not obtain legal advice and were thus unaware of the existence of the MIB scheme.
3. The parents appear to have first become aware of the possibility of claiming compensation from the MIB in October 2001, and submitted a claim on Ben's behalf. However, it was rejected by the MIB because it was made outside the three-year time limit set by Clause 1(1)(f) of the Untraced Drivers Agreement 1972. The Agreement, unlike the Limitation Act 1980, contained no provision suspending the limitation period during the claimant's minority. In March 2006 Ben, by now aged 16, began proceedings against the MIB and the Secretary of State for Transport. It was claimed that the Untraced Drivers Agreement 1972, interpreted in accordance with the Community law, conferred a right to make an application to the MIB within time limits no less favourable than those contained in the Limitation Act 1980. In the alternative, he claimed against the Secretary of State for breach of statutory duty in failing properly to implement Article 1(4) of the Second Directive.
4. By his Order of 28 June 2007, Flaux J made two declarations in favour of the Claimant, which are in issue before us:

i) Declaration (1) that on the true construction of the Second Directive and/or by virtue of the Community principle of equivalence, the MIB procedure should be subject to a limitation period no less favourable than that which applies to the commencement of actions in the Courts in respect of claims brought by minors for personal injury in tort against a traced driver ("the limitation issue");

ii) Declaration (4) that the UK was in "sufficiently serious breach" of its obligations under European Community law to give rise in principle to liability in damages for failure to ensure conformity with the Directive in that respect ("the liability issue").

5. The judge himself gave permission to appeal on both issues.

Domestic law

The MIB regime

6. The MIB was established in 1946 as a private company limited by guarantee for the purpose of entering into agreements with the government to compensate victims of negligent uninsured motorists. Every insurer, underwriting compulsory motor insurance, is obliged, by virtue of the Road Traffic Act 1988, to be a member of the MIB and to contribute to its funding. Originally, the MIB provided protection for victims of uninsured drivers pursuant to the "Uninsured Drivers Agreement" with the Secretary of State. The MIB honoured judgments obtained against uninsured drivers, which the claimants would not be able to enforce. It also protected victims of untraced drivers on an ex gratia basis, until the first formal Untraced Drivers Agreement made in 1969.
7. On November 1972, just before the accession of the United Kingdom to the European Economic Community (as it then was), the previous agreements were replaced by the Uninsured Drivers Agreement 1972 and the Untraced Drivers Agreement 1972. Liability under the former was parasitic on court proceedings. A claimant, who obtained judgment against an uninsured driver, could submit a claim to the MIB. Thus the claim would be subject to the ordinary rules governing court proceedings, including the statutory limitation regime.
8. The Untraced Drivers Agreement adopts a different mechanism, not dependent on court proceedings. A claim can be made to the MIB for a payment in respect of the death of or bodily injury to any person caused by or arising out of the use of a motor vehicle on a road in Great Britain, where the applicant is unable to trace any person responsible for the death or injury (Clause 1). The application must be made within three years from the date of the event giving rise to the injury (Clause 1(1)(f)). In the 1972 Agreement there was no provision for extension.
9. The amount of the MIB award is to be assessed in the same way as a court would have assessed the damages in successful proceedings against the untraced driver (Clause 3). The MIB must cause any application under the Agreement to be investigated and decide whether to make an award (Clause 7). The applicant has a right of appeal to an arbitrator against any decision of the MIB (Clause 11). The arbitrator is selected from a panel of Queen's Counsel appointed by the Lord Chancellor (Clause 18). The arbitrator decides whether the MIB should make an award under the Agreement and, if so, the amount (Clause 16). The arbitrator decides the appeal on the documents submitted to him, although he may ask the MIB to make further investigation and the applicant may submit comments on the findings of such investigation (Clause 17).
10. The 1972 Agreement was superseded by the Untraced Drivers Agreement 1996, which applied in respect of accidents occurring on or after 1 July 1996, and therefore does not apply to Ben's case. That, in turn, was replaced by the current Untraced Drivers Agreement 2003, which applies in respect of accidents on or after 14 February 2003. The 2003 Agreement continues to have a limit of three years for claims for personal injury; but, unlike the 1972 Agreement, it provides for an extension of time, subject to a longstop of 15 years, for cases where the applicant could not reasonably have been expected to become aware of the existence of bodily injury (Clause 4(3)).

The Limitation Act 1980

11. Under the Limitation Act 1980 the period applicable to personal injury claims is three years from the date on which the cause of action accrued (s.11(4)(a)). However, that period is suspended under section 28 when the injured person is under a disability, until that person ceases to be under a disability. By section 38(2) this extends to minors.
12. It is common ground that, had the negligent driver been traced but uninsured, Ben could have brought an action within three years of attaining his majority (that is, up to 2011), and, if successful could have made a claim against the MIB under the Uninsured Drivers Agreement. However, the possibility of a claim under the Untraced Drivers Agreement was barred by 1996 (that is, three years from the date of the accident).

Community law

The First and Second Directives

13. The First Directive (Directive 72/166/EEC of 24 April 1972) required Member States to take appropriate measures to ensure that civil liability in respect of the use of motor vehicles was covered by insurance.
14. The Second Directive added detail to the insurance obligation, and also provided for the establishment of bodies to take responsibility for meeting liabilities of unidentified drivers. To give the context I shall set out the relevant parts of Article 1 in full:

"1. The insurance referred to in Article 3(1) of Directive 72/166/EEC shall cover compulsorily both damage to property and personal injuries.

2. Without prejudice to any higher guarantees which Member States may lay down, each Member State shall require that the amounts for which such insurance is compulsory are at least:

- in the case of personal injury, ECU 350 000 where there is only one victim; where more than one victim is involved in a single claim, this amount shall be multiplied by the number of victims,

- in the case of damage to property ECU 100 000 per claim, whatever the number of victims.

Member States may, in place of the above minimum amounts, provide for a minimum amount of ECU 500 000 for personal injury where more than one victim is involved in a single claim or, in the case of personal injury and damage to property, a minimum overall amount of ECU 600 000 per claim whatever the number of victims or the nature of the damage.

...

4. Each Member State shall set up or authorise a body with the task of providing compensation, at least up to the limits of the insurance obligation[,] for damage to property or personal injuries caused by an unidentified vehicle or a vehicle for which the insurance obligation provided for in paragraph 1 has not been satisfied. This provision shall be without prejudice to the right of the Member States to regard compensation by that body as subsidiary or non-subsidiary and the right to make provision for the settlement of claims between that body and the person or persons responsible for the accident and other insurers or social security bodies required to compensate the victim in respect of the same accident.

The victim may in any case apply directly to the body which, on the basis of information provided at its request by the victim, shall be obliged to give him a reasoned reply regarding the payment of any compensation.

However, Member States may exclude the payment of compensation by that body in respect of persons who voluntarily entered the vehicle which caused the damage or injury when the body can prove that they knew it was uninsured. Member States may limit or exclude the payment of compensation by that body in the event of damage to property by an unidentified vehicle.

They may also authorise, in the case of damage to property caused by an uninsured vehicle, an excess of not more than ECU 500 for which the victim may be responsible.

Furthermore, each Member State shall apply its laws, regulations and administrative provisions to the payment of compensation by this body, without prejudice to any other practice which is more favourable to the victim."

(I have emphasized the parts most directly material to the present case. I have also added the missing comma in the first paragraph of 1(4), in accordance with its natural reading, which is confirmed by the French text of the judgment.)

Evans v Secretary of State

15. The 1972 Untraced Drivers Agreement was subject to detailed consideration by the European Court of Justice in Evans v Secretary of State and Motor Insurers Bureau [2003] Case C-63/01: Evans…[2003] 1-14447. The principal issue in that case was whether the MIB agreement was defective in failing to provide for payment of legal costs and interest on the award. However, the Court was also faced with more general questions as to the conformity of the MIB procedure with the obligations of the Directive, and as to the consequence of non-compliance. The judgment can be seen therefore as a template for consideration of the closely related issues arising in the present appeal.
16. The Court itself summarised the questions as follows:

"20. The questions referred to the Court, which it is appropriate to consider together, raise a number of problems concerning the nature of the body which the Member States are required to establish in order to implement the Second Directive (fourth question), the remedies which must be available to victims of damage or injury caused by unidentified vehicles or vehicles for which the insurance obligation has not been satisfied (hereinafter insufficiently insured vehicles) (third and fourth questions), the need to provide for interest to be payable on sums paid to victims by the abovementioned body (first question), the need to provide for reimbursement of costs incurred by victims pursuing claims for compensation (second question) and the possible liability of the Member State concerned for failure to transpose the Second Directive correctly (fifth question)." (emphasis added)

17. In a section headed "Preliminary Observations" (paras 21-28), the court made some general comments on the effect of the Second Directive. Since they have played an important part in the arguments before us, I will set them out in full:

"21. It is appropriate, first, to consider the nature of the system established by the Second Directive for the benefit of the victims of damage or injury caused by unidentified or insufficiently insured vehicles.

22. In contrast to victims of damage or injury caused by an identified vehicle, victims injured by an unidentified vehicle are normally unable to enforce their claims in legal proceedings for compensation because of the impossibility of identifying the person against whom proceedings should be brought.

23. In the case of an insufficiently insured vehicle, even if the victim is able to identify the person against whom legal proceedings should be brought, such proceedings are often liable to be fruitless because the defendant does not have the requisite financial resources to comply with the judgment given against him, or even to pay the costs incurred in the proceedings.

24. It is against that background that the first subparagraph of Article 1(4) of the Second Directive provides that each Member State is to set up or authorise a body with the task of providing compensation, at least up to the limits of the insurance obligation for damage to property or personal injuries caused by an unidentified or insufficiently insured vehicle.

25. The insurance obligation laid down in Article 3(1) of the First Directive covers civil liability in respect of the use of vehicles, at least on the basis of the minimum amounts of cover set by the Community legislature.

26. As regards the extent of the insurance obligation, the fifth recital in the preamble to the Second Directive indicates that the amounts of compulsory insurance cover must in any event guarantee victims adequate compensation.

27. It is thus clear that the Community legislature's intention was to entitle victims of damage or injury caused by unidentified or insufficiently insured vehicles to protection equivalent to, and as effective as, that available to persons injured by identified and insured vehicles.

28. It must nevertheless be emphasised that, to meet the requirements of the Second Directive, the body responsible for awarding compensation does not necessarily have to be placed, as far as civil liability is concerned, on the same footing as a defendant such as the driver of an identified and sufficiently insured vehicle."

18. The argument between the parties in the present case can be encapsulated by reference to paragraph 27, which indicates that the MIB system must provide protection "equivalent to" that provided in respect of identified and insured drivers under the court system. The Appellants say that the words "It is thus…" connote a direct connection with the three immediately preceding paragraphs, which are concerned only with the amount of compensation. The Respondents say that such a reading is too narrow. Paragraph 27 means what it says. It is in effect a summation of the whole preceding passage, including paragraph 22 which heralds a direct contrast with "victims of damage or injury caused by an identified vehicle".
19. Before returning to that question, it is useful to see how the ECJ developed those preliminary observations in dealing with the questions before it. Its answers to the question on compliance can be summarised:

i) It was immaterial that the MIB was established by agreement rather than by statute, provided that the agreement had the effect of obliging the body to provide victims with the compensation guaranteed to them by the Second Directive and that victims might apply directly to that body (para 37);

ii) Under the heading "The remedies available to victims", the court reaffirmed the principles of equivalence and effectiveness:

"It is settled case-law that in the absence of Community rules governing the matter it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, provided, however, that such rules are not less favourable than those governing similar domestic actions (the principle of equivalence) and do not render virtually impossible or excessively difficult the exercise of rights conferred by Community law (the principle of effectiveness)…" (para 45)

iii) Under the same heading, the judgment dealt in terms with the latter principle of effectiveness. It noted that, notwithstanding the lack of an oral hearing or any right to appeal to a court, the procedure gave the victim "the advantages of speed and economy of legal costs":

"The United Kingdom Government claimed, without being contradicted, that the bulk of the costs incurred in relation to applications for compensation and gathering of relevant evidence are borne by the MIB, which makes contact with all the witnesses to the accident to obtain statements from them and endeavours to obtain all necessary medical or other expert evidence."

Accordingly, the procedural arrangements did not

"… render it practically impossible or excessively difficult to exercise the right to compensation conferred on victims of damage or injury caused by unidentified or insufficiently insured vehicles by the Second Directive…" (para 53-4)

iv) In what appears to be its comment on the other principle of "equivalence", the Court said:

"55. In view of the objective pursued by the Second Directive which, as stated in paragraphs 21 to 28 of this judgment, is to provide a simple mechanism for compensating victims, it further appears that the cumulative effect of the possibilities of review available under the procedure established in the United Kingdom and also the practical advantages associated with that procedure confer on victims of damage or injury caused by unidentified or insufficiently insured vehicles a level of protection corresponding to that provided for by that directive…"

v) Under "Payment of interest", it noted Mr Evans' argument that the "principle of equal treatment" was not fulfilled in the United Kingdom, because, in contrast to victims of identified and insured vehicles, victims of untraced vehicles do not obtain compensation that includes interest (para 59). It observed that the Second Directive contained no provision concerning interest on sums awarded by way of compensation, but, on the other hand, that to achieve "restitution", compensation for loss could not leave out of account "factors, such as the effluxion of time, which may in fact reduce its value". In the absence of Community rules, it was for Member States to decide on the rules to be applied to such issues, for example, by choosing between awarding interest or "paying compensation in the form of aggregate sums which take account of the effluxion of time" (paras 65-70).

vi) Under the heading "Reimbursement of costs" it observed that there was no specific provision in the Second Directive, and that this was a "procedural matter" in relation to which:

"… it is for the domestic legal system of each Member State to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, in conformity with the principles of equivalence and effectiveness."

It was for the national court to verify whether, under the procedural arrangements adopted in the United Kingdom, those principles are complied with:

"In particular, it should assess whether, in view of the less advantageous position in which victims find themselves vis-à-vis the MIB and the conditions under which such victims are able to submit their comments on matters that may be used against them, it appears reasonable, or indeed necessary, for them to be given legal assistance." (paras 76-78)

20. Finally, under the heading "Possible liability of the Member State", the Court noted the three conditions established by previous cases (referring to Francovich and Others [1991] ECR I-5357, para 35; Brasserie du Pêcheur and Factortame [1996] ECR I-1029, para 31, and Haim [2000] ECR I-5123, para 26):

"the rule of law infringed must be intended to confer rights on individuals; the breach must be sufficiently serious; and there must be a direct causal link between the breach of the obligation incumbent on the State and the loss or damage sustained by the injured parties."

If the compensation system set up in the United Kingdom were found to be "subject to one or more defects of transposition", it would be incumbent on the national court to determine "whether or not those defects have adversely affected Mr Evans", and if so whether the non-fulfilment of the United Kingdom's obligation to transpose the Second Directive is "sufficiently serious":

"86. In that connection, all the factors which characterise the situation must be taken into account. Those factors include, in particular, the clarity and precision of the rule infringed, whether the infringement or the damage caused was intentional or involuntary, whether any error of law was excusable or inexcusable, and the fact that the position taken by a Community institution may have contributed towards the adoption or maintenance of national measures or practices contrary to Community law (see Haim, cited above, paragraph 43).

87. Those criteria must in principle be applied by the national courts in accordance with the guidelines laid down by the Court (see, in particular, Brasserie du Pêcheur and Factortame, cited above, paragraphs 55 to 58)."

21. I would draw the following points from that review:

i) It is for national courts to determine whether the MIB arrangements satisfied the principles of effectiveness and equivalence. In making that assessment the court should look at -

"the cumulative effect of the possibilities of review available under the procedure established in the United Kingdom and also the practical advantages associated with that procedure…" (see paragraph 19 sub-para (iv) above)

ii) The appropriate comparison for the purposes of the principle of equivalence is the system of remedies available for insured drivers. In that respect, I agree with Mr Paines that paragraph 27 should read as meaning what it says. If it is seen in the context of the whole passage (rather than simply of the immediately preceding paragraphs), and against the background of the ordinary understanding of the principle of equivalence in Community law, there is no reason to adopt a more restrictive meaning. Further, if the judgment is read against the background of the Advocate General's Opinion, it seems clear that the Court was rejecting the UK's argument (see e.g. para 24) that comparison with the regime for insured drivers was not relevant. By implication, I think that this must also be the comparison to which paragraph 55 (see above) was intended to refer ("a level of protection corresponding to that provided for by that directive").

iii) The fact that the MIB procedure, looked at as a whole, met the requirements of effectiveness and equivalence was not a sufficient answer to the specific complaints in respect of interest and costs. They were looked at as distinct items in that overall context. The former was treated as a substantive matter (one aspect of adequate "restitution"), but one for which a statutory right to interest was not the only remedy. The latter, by contrast, was a procedural matter for which the Member State was responsible, subject again to the principles of effectiveness and equivalence. By the same token, in the present case, even if the limitation rules are regarded as "procedural", that does not remove the need to examine them as distinct matters against the same criteria.

iv) In the event of non-compliance being established, the liability of the State is to be judged by the national courts in accordance with the principles established by cases such as Brasserie du Pêcheur and Factortame.

The principle of "equivalence" in the present case

22. As the Court acknowledged in Evans (para 19(ii) above), the principle of "equivalence" is well-established in Community law. It raises two sub-questions: (i) is there a "similar domestic action"? (ii) are the rules applicable to the Community right "not less favourable"? There may, on analysis, be found to be no similar domestic action, in which case the principle has no application.
23. The judgment of Flaux J (para 14ff) contains an extended discussion of the arguments of the parties and of the relevant Community and domestic case-law. It is unnecessary to repeat it. As the judge observed, there is relatively little guidance in the decisions of the ECJ as to how the principle is to be applied in practice. He noted Mr Paine's reliance on the speech of Lord Slynn in Preston v Wolverhampton Healthcare NHS Trust (No 2) [2001] 2 AC 455, rejecting an argument that a claim for breach of a contract of employment in failing to pay into a pension scheme was not sufficiently similar to a claim for infringement of Article 119 of the EC Treaty.
24. By contrast the Secretary of State and the MIB relied on Buxton LJ's summary of the relevant case-law in Matra Communications v Home Office [1999] 1 WLR 1646 at 1658-9:

"Two principles can be drawn from this part of the judgment [of the European Court in Palmisani v INPS [1997] ECR I-4025]. First, the principle of "equivalence" really does mean what it says. The domestic court, in applying the principle, must look not merely for a domestic action that is similar to the claim asserting Community rights, but for one that is in juristic structure very close to the Community claim. It does that, in the words of the Court of Justice in Case C-326/96, Levez, [1999] IRLR 36 at paragraph 43, by considering "the purpose and the essential characteristics of allegedly similar domestic actions". That approach was demonstrated in Palmisani by the rejection of a claim for specific payments, as opposed to compensation, as a relevant comparison. It was also demonstrated by the need to find in the domestic law not merely a cause of action for reparation, but one for reparation for conduct of a public authority in the exercise of its powers…"

They argued that a claim in tort in court proceedings was very different "in juristic structure" from the claim under MIB procedure. One was a claim to enforce a liability in tort against an insured driver, the other to enforce the contractual liability of the MIB under its agreement with the Secretary of State.

25. The judge accepted Mr Paines' arguments: first, that "the Community interest reflected in the two Directives" would not be adequately achieved unless the protection under the MIB agreement was equivalent to that obtainable against an insured driver in tort (para 27); and, second, that in any event paragraph 27 of the ECJ judgment in Evans was "a ruling by that Court" that the protection provided by the national scheme must be equivalent to and as effective as the protection available under the national legal system to victims of insured drivers (para 28).
26. As I have already indicated, I agree with the judge that paragraph 27 of the judgment in Evans is clear as to the appropriate comparison. Mr Paines sought to extract the same result from a consideration of the Directive viewed on its own. However, I found this part of his argument (with respect) both artificial and redundant. The Directive can only be construed in the context of the established principles of Community law, one of which is that of equivalence.
27. Similarly, I find it unnecessary to analyse the application of the principle in other contexts. I would only comment that Buxton LJ's summary in Matra Communications does not seem to me to have been overtaken by the House of Lords decision in Preston. Although there was unanimity in the result, the speeches reflect a difference of views on the appropriateness of the suggested comparator. A more cautious view was taken by the majority, who agreed with Lord Clyde rather than Lord Slynn on this issue. On the other hand, I do not think it is helpful to argue in the present case that the claim against the MIB has a different "juristic structure" to a claim in tort. That fact is simply the consequence of the way in which the UK has chosen to fulfil its Community law obligation. It cannot be used to define the nature of the obligation.

Less favourable treatment

28. Clause 1(1)(f) of the Untraced Drivers Agreement precludes any application made more than three years after the accident. By contrast, a claim in tort in court proceedings against an insured driver could have been brought by the Claimant at any time prior to his 21^st birthday in 2010, by virtue of section 28 of the Limitation Act 1980. The same would have applied to a claim against an identified but uninsured driver whose liability was covered by the Uninsured Drivers Agreement. Once that is accepted as the appropriate comparison, the conclusion seems unavoidable that the Untraced Drivers Agreement gives less favourable treatment.
29. Like the judge (para 36), I am unpersuaded that it makes any material difference that there are other procedural advantages to the MIB scheme. I can accept that, as a general proposition, the competing procedures need to be looked as a whole. The test is equivalence, not identicality; not every procedural difference is significant. However, we are here concerned with a special limitation regime established by Parliament for the benefit of minors and others under a disability, within the meaning of section 28. (The Law Commission in 2001 recommended no change to this special rule, even where there is a representative adult who could commence proceedings earlier: Law Com No 270 Limitation of Actions (paras 3.115-7)). That group is clearly and distinctly disadvantaged by the failure of the MIB scheme to provide equivalent protection, in a way that can drastically affect their substantive rights, as this case shows. I agree with the judge's comment on the claimed procedural advantages of the MIB scheme (para 36):

"… that quick, cheap and easy procedure (even assuming that is a correct characterisation of the procedure) can hardly be used to justify the much shorter time limit under Clause 1 (1) (f) than under the Limitation Act if, as a consequence of Clause 1 (1) (f), it is said by the Defendants that the Claimant cannot even begin to invoke the procedure."

30. The only arguable point to the contrary is that under the scheme the burden of investigation lies on the MIB (rather than on the Claimant as in court litigation), and that this burden would be aggravated by undue delay in lodging a claim. However, there is no evidence that this factor on its own is sufficient to impede the effective operation of the scheme, so as to justify removing the advantages given to minors under the court system.
31. It follows that I agree with the judge in answering the first preliminary issue in the affirmative. As he held (para 37), in order to meet its intended role as implementing the Second Directive, the MIB agreement should be subject to a limitation period no less favourable than that which applies to the commencement of court proceedings by a minor under section 28 of the Limitation Act.

Francovich damages

32. It is clear from the case-law of the Court (see para 20 above) that three conditions must be satisfied for a Member State to be required to make reparation for loss and damage caused to individuals as a result of breaches of Community law for which the State can be held responsible:

i) the rule of law infringed must have been intended to confer rights on individuals;

ii) the breach must be sufficiently serious; and

iii) there must be a direct causal link between the breach of the obligation resting on the State and the loss or damage sustained by the injured parties.

33. There is no serious dispute, as I understand it, that (i) is satisfied. The Second Directive is clearly intended to confer rights on individual claimants, who are unable otherwise to obtain civil compensation. The issue at this stage is under (ii): whether the United Kingdom's failure (as I have found) to comply with the Second Directive is "sufficiently serious" to expose it to a claim for damages. We are not concerned with issues of causation or other factual issues arising under (iii).
34. Before the judge there was apparently no issue as to the relevant case-law, or the applicable criteria. He recorded it as "common ground" that the Claimant must satisfy him that the United Kingdom "has manifestly and gravely disregarded the limits on its discretion" (applying the words used by the ECJ in Brasserie du Pêcheur [1999] Q.B. 404, 499F). He noted also the relevant factors referred to by the Court in that case (para 56):

"The factors which the competent court may take into consideration include the clarity and precision of the rule breached; the measure of discretion left by the rule to a national or Community authorities; whether the infringement and the damage caused was intentional or involuntary; whether any error of law was excusable or inexcusable; the fact that the position taken by a Community institution may have contributed towards the omission, and the adoption or retention of national measures or practices contrary to Community law."

35. He also referred to Lord Slynn's summary of the effect of subsequent cases in R v Secretary of State Ex parte Factortame (No. 5) [2000] 1 AC 524, 541D-F:

"More recent cases show the working out of these rules. Thus in Reg. v. H.M. Treasury, Ex parte British Telecommunications Plc. (Case C-392/93) [1996] QB 615 the Court held that where the interpretation adopted by the United Kingdom was arguable on the basis of an imprecisely worded article of the relevant directive and where there was no case law to give guidance the state was not liable in damages. In Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Hedley Lomas (Ireland) Ltd. (Case C-5/94) [1997] QB 139 where there was no or very little room for discretion in granting a licence that could in itself be a sufficiently serious breach. In Dillenkofer v. Federal Republic of Germany (Case C-178/94) [1997] QB 259 it was held that a failure to implement a directive, where no or little question of legislative choice was involved, the mere infringement may constitute a sufficiently serious breach. In Denkavit Internationaal B.V. v. Bundesamt für Finanzen (Cases C-283/94) [1996] ECR I-5063 the Court held that other member states, after discussion with the Council had adopted the same interpretation of the Directive as Germany and as there was no relevant case law of the Court it was held that the breach was not sufficiently serious."

36. In this court, Mr Paines appeared to resile from his agreement in the court below, putting more emphasis on cases such as Dillenkofer, in which culpability as such has not been an essential condition for liability. At one stage, he went as far as to suggest that once non-compliance was established, the burden passed to the State to show why liability should not follow. However, that line of argument is not reflected in the Community case-law. On the contrary, as has been seen, Evans itself makes clear that liability in this context is to be decided in accordance with the well-established principles of Francovich and Brasserie du Pêcheur.
37. I agree, however, that the application of those principles varies with the context, as Lord Slynn's summary illustrates. An important consideration is the degree of discretion left to the Member State. In that respect Brasserie du Pêcheur and Dillenkofer can be seen as opposite ends of a spectrum. In Dillenkofer there was little doubt what the Directive required. The German Government had simply delayed implementation, with the result that direct loss was suffered by those who would have enjoyed its protection in the interim. In those circumstances, it was held that mere infringement was "sufficiently serious" to found liability. Although in theory this was an application of the Brasserie du Pêcheur principles, use of such apparently opprobrious terms as "manifest disregard" may distort the inquiry. Culpability may be relevant; but state liability does not necessarily depend on a successful witch-hunt.
38. The principal factors relevant to establishing liability were summarised in Evans (para 19(vii) above):

"…the clarity and precision of the rule infringed, whether the infringement or the damage caused was intentional or involuntary, whether any error of law was excusable or inexcusable, and the fact that the position taken by a Community institution may have contributed towards the adoption or maintenance of national measures or practices contrary to Community law."

39. In terms of "precision" this case in my view is closer to the Dillenkofer end of the spectrum. On the view I have taken of the effect of the Directive, there was little room for discretion. It was incumbent on the State to implement the requirements of the Directive for untraced drivers in a way which achieved equivalence with the regime for identified drivers. That obligation included the need to match the special limitation rules provided by Parliament for those under a disability. Nor is it suggested that any Community institution actively contributed to the breach. In terms of "clarity", however, the cases are perhaps less comparable. In comparison with Dillenkofer, the requirement appears less clearly from the Directive itself. It has had to be arrived at by a process of interpretation of the Directive against the background of general principles of Community law. I would accept that, at least until the decision of the ECJ in Evans, there was room for two views. Furthermore there is no suggestion that the breach was intentional. Good faith is not in issue.
40. As to whether it was "excusable" there were two competing themes in the evidence and submissions before the judge:

i) The Secretary of State relied on the absence of any objection on this point when the Department was consulting prior to implementation of the Directive in the 1980s; and that, 18 years after the date for transposition of the Directive, this was the first case in which it has been suggested that the United Kingdom failed to transpose the Directive correctly in this respect. This consideration was reinforced by the contents of a report, commissioned by the Department from the British Institute of International and Comparative Law, on how other Member States have dealt with this issue. This showed a wide disparity as to limitation periods in general, and several other States (including France, Greece and Luxembourg) in which there is a significant difference between the limitation rules applying to liability of untraced drivers as compared to insured drivers.

ii) The Claimant, on the other hand, pointed to evidence that in 1987, when the United Kingdom was seeking to implement the Second Directive by introducing compensation for property damage caused by uninsured drivers, the Department of Transport appeared to have been alive to the point that a three year time limit for such claims (as requested by the MIB) would be contrary to Article 1(4) of the Second Directive. It had apparently overlooked the potential significance of the same point in relation to the limit in the Untraced Drivers Agreement. This, Mr Paines argued, was "not some excusable misunderstanding as to the law or as to what compliance with the Directive required, but an inexcusable lack of thoroughness" (judgment para 69).

41. The evidence as to the Department's state of mind in 1987 is limited. Some correspondence between the Department and the MIB in September 1987 is exhibited to the witness statement of Mr Roberts, a witness for the Department, but neither he, nor apparently anyone else now contactable, is able to give direct evidence about it. The highpoint is a letter from the Department dated 16 September 1987, in response to the MIB's request, in which the writer states: "Article 1.4 appears to preclude the proposed three year limitation for property damage claims". However, we know nothing of the status of the author within the Department, nor of the background of this comment. The reply from the MIB noted that the Irish Government had accepted a limitation period of 12 months for property damage claims. As to the sequel, all we know is what we can infer from the fact that no specific limitation period appeared in the agreement in its final form.
42. The judge was clearly impressed by this evidence. He rejected Mr Crow's attempt to disparage the phrase "inexcusable lack of thoroughness" as no more than "the use of a pejorative adjective", and his submission that whatever view was taken of this episode it made no difference to the seriousness of any breach. He also agreed with Mr Paines that the failure was "compounded" by the failure to check the whole agreement in 2003 following the decision of the ECJ in Evans in 2003 (para 72). He said:

"It is inherently unlikely, in view of what was said in the Department's letter of 16 September 1987 about the proposed three year time limit being precluded by Article 1 (4) of the Second Directive, that the Department could or would have taken a different view in relation to the existing time limit in the Untraced Drivers Agreement, which might be said to be an a fortiori case. Even if a different view had been taken, it would surely have been documented. I consider that the most likely explanation is that no-one in the Department checked the existing Untraced Drivers Agreement for compliance with the Directive. Contrary to Mr Crow's submission, it is my view that, in the context of the obligations of the Member State to ensure compliance with a Council Directive, that was an extremely serious breach. Of course it is not being suggested that the United Kingdom acted in bad faith or intentionally inflicted damage… but as Mr Paines pointed out, the fact that a Member State acted in good faith is not an answer if the lack of thoroughness, although inadvertent, is a sufficiently serious breach." (paras 73-4)

43. For my part, I would be reluctant to hold that the State's liability under the Francovich principles can hang from such a slender evidentiary thread as the 1987 letter. That so little direct evidence remains is hardly surprising, after twenty years without any reason to think that the subject-matter was likely to become a live issue. As Mr Crow points out, it would be unfortunate if so much were to depend on the document-storage policies of the various Member States. Furthermore, whatever view was taken by the Department's lawyers in 1987, there were apparently other views at play, as the Irish Government's position shows. Furthermore, since the issue was specifically related to the time-limits for property claims, it is less surprising that it did not immediately trigger a general review of all the limitation issues in both agreements. For my part, I would think it unfair to categorise this as "inexcusable lack of thoroughness" without fuller evidence of all the circumstances.
44. I attach more importance to objectively discernible factors, most importantly the ECJ judgment in Evans in 2003. That was an authoritative statement of the legal context in which the Untraced Drivers Agreement had to be considered. Although it was specifically concerned with the issues of interest and costs, the questions formulated by the domestic court enabled the ECJ to carry out a comprehensive review of the legality of the agreement. The judgment might have been expected to trigger a more active response from the Department. On its face, paragraph 27 of the judgment was an unambiguous statement of the need to ensure equivalence with the system for insured drivers. Although we have heard arguments about its context and scope, it was at the very least a warning of the need to revisit this issue. Had that been done, it would have signalled at the very least a serious risk of the Agreement being found non-compliant in this respect. In the light of that judgment directed specifically to the UK position, the fact that other governments were also in error does not seem to me material. It should also have been clear that failure to remedy the defect would cause serious prejudice to a significant group of potential claimants. Had the warning been heeded, there is a reasonable likelihood that it would have resulted in an amendment to the agreement, and that this would have come in time to help the present Claimant.
45. The "sufficiently serious" criterion laid down by the ECJ for Francovich liability is not a hard-edged test. It requires a value judgment by the national court, taking account of the various factors summarised by the court in Evans. In the present case the important points to my mind are three-fold: the relative precision of the requirement, following Evans; the serious consequences of failure to comply; and the clear warning given in Evans of the need to make the comparison. In my view, in agreement with the judge, though with a slightly different emphasis, I conclude that liability in principle is established.

Conclusions

46. For these reasons, I would dismiss the appeal and uphold the declarations made by the judge.

Lord Justice Keene :

47. I agree.

Lord Justice Waller :

48. I also agree.