England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		26/07/2017

Mr Justice Turner :

THE LEGAL BACKGROUND

1. On 27 January 1927, Mr Walter Chaplin obtained a judgment against the Harrington Motor Company in the sum of just over £541 in respect of damages and costs arising from a claim for compensation for injuries which he had sustained when he was knocked down in the street by a car being driven negligently by one their employees. Fortunately for Mr Chaplin, the company was insured against such claims under a policy issued by the Universal Automobile Insurance Company Ltd. However, his luck changed for the worse when Harrington went into liquidation and the insurers paid over the sums due under the policy to the liquidator. Mr Chaplin argued that this money should go to him. The Court of Appeal disagreed and held that the money should be distributed between all of the creditors of the insolvent company. In all likelihood, Mr Chaplin ended up getting very little indeed. The Court took no pleasure in this outcome but felt obliged by authority to deprive Mr Chaplin of most of his damages. Atkins L.J. observed^[1]:

"In this case I am of the opinion that the applicant has a real grievance, and if it were possible to decide for him I should very willingly do so. But it appears to me that the general rules of law which govern cases of insurance and indemnity have been laid down in such terms that it is impossible to make an exception in the particular class of cases of which this forms one, and I am bound to say that I myself should be well satisfied if, by the decision of a higher tribunal or by legislation, the general rule of law were altered so as to cover this particular case. Any member of the public would thoroughly appreciate the position."

2. And so the stage was set for the passing of the Third Party (Rights Against Insurers) Act 1930 the purpose of which was to mitigate the harsh consequences of the strict application of the common law to such cases. The broad effect of the 1930 Act was to transfer the rights of the insured under the policy to the person to whom the liability was incurred.
3. In some respects, however, the 1930 Act failed to provide a panacea for victims of insolvent tortfeasors as the Post Office was to discover to its cost in 1967. A contractor had damaged a Post Office cable but before any proceedings had been commenced the contractor went into compulsory liquidation. The Post Office purported to bring a claim directly against the contractor's insurers. The Court of Appeal, however, concluded that a victim could only sue the tortfeasor's insurers when the right to do so under the policy had accrued. The Post Office could not circumvent the proper process by suing the insurers before the insured's rights had been formally established whether by judgment, declaration or otherwise. Lord Denning MR held^[2]:

"In these circumstances I think the right to sue for these moneys does not arise until the liability of the wrongdoer is established and the amount ascertained. How is this to be done? If there is an unascertained claim for damages in tort, it cannot be proved in the bankruptcy; nor in the liquidation of the company. But nevertheless the injured person can bring an action against the wrongdoer. In the case of a company, he must get the leave of the court. No doubt leave would automatically be given. The insurance company can fight that action in the name of the wrongdoer. In that way liability can be established and the loss ascertained. Then the injured person can go against the insurance company."

4. The Court of Appeal in the Post Office case clearly assumed that the effect of its decision would simply be to add somewhat to the procedural burden facing the party suffering loss without ultimately affecting his substantive claim. In this it was proved to be wrong. The leave of the court to proceed, which Lord Denning was so confident would be given in the case of a company in liquidation, was simply not available in the case of any company which had been dissolved and had thus ceased to exist as a legal entity. As the House of Lords ruled in Bradley v Eagle Star Insurance Co [1989] 2 W.L.R. 568, the insurer would remain safe behind the impervious procedural barrier provided by the corporate carcass of a defunct insured. This problem was particularly acute in the field of industrial disease litigation in which many years were liable to pass between exposure to the relevant harmful agent and the manifestation of a pathology. Such long periods of latency gave rise to a correspondingly greater risk that within the relevant time period the tortfeasor company would cease to exist.
5. The practical impact of Bradley has since been ameliorated by statute. Most recently, by the operation of section 1030 of the Companies Act 2006 an application can be made to restore a company to the register at any time for the purpose of bringing an action in respect of personal injuries or death and within six years in any other case.
6. A more fundamental change has now been introduced upon the coming into force of the Third Parties (Rights Against Insurers) Act 2010 which, in respect of claims to which it applies, removes entirely the need for a struck off company to be revived.
7. This central issue arising in this case relates to the extent to which the 2010 Act applies retrospectively to cover claims to which the remedies of the claimant would previously have been covered only by the less attractive 1930 regime. However, before starting upon an analysis of the relevant transitional provisions it is necessary to set out, albeit briefly, the facts of this claim in order to illustrate how these provisions are to be taken to apply to any given set of circumstances.

THE FACTS

8. Between 1952 and 1982, Mr Redman worked for a company known latterly as ESJS1. On 5 November 2013, he died from lung cancer alleged to have been caused by exposure to asbestos during the course of his employment. Soon after, ESJS1 was the subject of a voluntary winding up on 30 January 2014 and was eventually dissolved on 30 June 2016.
9. The issue arises as to whether Mrs Redman, as his widow and administratrix, is entitled to circumvent the more stringent procedural requirements of the 1930 regime on the basis that the 2010 Act applies to her claim.
10. Mrs Redman brings her claim against the defendant under the 2010 Act and the defendant has applied to strike it out or, in the alternative, for summary judgment on the claim.
11. As it happens, the parties have recently co-operated to ensure that, as far as possible, the determination of the point at issue does not impact substantively upon the position of Mrs Redman and in this they are to be commended. The defendant had consented to the joinder of ESJS1, now restored to the register, out of time and, mindful of the fact that the resolution of the issue of statutory interpretation is one in which it has by far the greater interest, has agreed to indemnify her as to the costs of preparing for and the hearing of this application.
12. Notwithstanding, the extent to which this litigation has taken on the form of a "friendly action" and mindful of the fact that this is a first instance decision I am satisfied that the three conditions in Hutcheson v Popdog Ltd (Practice Note) [2012] 1 WLR 782 have been satisfied. As Lord Neuberger held:

"Both the cases and general principle seem to suggest that, save in exceptional circumstances, three requirements have to be satisfied before an appeal, which is academic as between the parties, may (and I mean 'may') be allowed to proceed: (i) the court is satisfied that the appeal would raise a point of some general importance; (ii) the respondent to the appeal agrees to it proceeding, or is at least completely indemnified on costs and is not otherwise inappropriately prejudiced; (iii) the court is satisfied that both sides of the argument will be fully and properly ventilated."

13. I am informed that a number of those acting on behalf of claimants generally are bringing or threatening to bring claims against insurers under the 2010 Act the success or otherwise of which will be determined by the proper interpretation of the transitional provisions of that statue and unless and until there is some authoritative decision on the issue there is likely to be an accumulation of such claims thereby giving rise to a strong risk of wasted time and costs. In the circumstances, I am entirely satisfied that it would be appropriate to exercise my discretion and adjudicate on the matter. Furthermore, the issue of the defendant's historic costs remains in issue which provides some further, albeit somewhat slender, justification for the resolution of the substantive dispute. For the record, I will state that I am entirely satisfied that both sides of the argument have been fully and properly ventilated before me.

THE 2016 ACT

14. Section 1 of the 2010 Act provides:

"Rights against insurer of insolvent person etc

This section applies if –

a relevant person incurs a liability against which that person is insured under a contract of insurance, or

a person who is subject to such a liability becomes a relevant person.

The rights of the relevant person under the contract against the insurer in respect of the liability are transferred to and vest in the person to whom the liability is or was incurred (the "third party").

The third party may bring proceedings to enforce the rights against the insurer without having established the relevant person's liability; but the third party may not enforce those rights without having established that liability.

For the purposes of this Act, a liability is established only if its existence and amount are established; and, for that purpose, "establish" means establish –

by virtue of a declaration under section 2….,

by a judgment or decree,

by an award in arbitral proceedings….,or

by an enforceable agreement."

15. Schedule 3 to the Act provides:

"TRANSITORY, TRANSITIONAL AND SAVING PROVISIONS

Despite its repeal by this Act, the Third Parties (Rights against Insurers) Act 1930 continues to apply in relation to –

cases where the event referred to in subsection (1) of section 1 of that Act and the incurring of the liability referred to in that subsection both happened before commencement day;

cases where the death of the deceased person referred to in subsection (2) of that section happened before that day.

In this Schedule "commencement day" means the day on which this Act comes into force."

16. By section 2 of the Third Parties (Rights Against Insurers) Act 2010 (Commencement) Order 2016/550, the 2010 Act came into force on 1 August 2016.

APPLYING THE LAW

17. The wording of schedule 3 makes it expressly clear that under section 1(1) where two conditions are fulfilled the 1930 Act continues to apply. The conditions are that before 1 August 2016:

i) The relevant person has incurred a liability against which that person is insured under a contract; and

ii) The person subject to such a liability has become a "relevant person"^[3].

18. In this case, there is no dispute that ESJS1 became a relevant person under section 6 of the 2010 Act when it was being wound up voluntarily. This occurred over two and a half years before the 2010 Act came into force.
19. Until relatively recently, it was argued on behalf of the claimant that ESJS1 had "not incurred a liability against which that person is insured under a contract" before the Act came into force. Indeed, that was the basis upon which those instructed by the claimant originally maintained their stance that a claim under the 2010 Act was justified.
20. However, such a proposition does not stand up even to the most casual scrutiny.
21. In the Post Office case, Lord Denning held with reference to the indistinguishably worded section 1 of the 1930 Act, at page 374:

"Under that section the injured person steps into the shoes of the wrongdoer. There are transferred to him the wrongdoer's "rights against the insurers under the contract." What are those rights? When do they arise? So far as the "liability" of the insured is concerned, there is no doubt that his liability to the injured person arises at the time of the accident, when negligence and damage coincide. But the "rights" of the insured person against the insurers do not arise at that time."

22. In Bradley, Lord Brandon described Lord Denning's reasoning in this passage as being "unassailably correct".
23. In the event, counsel for the claimant conceded both in his skeleton argument and in oral submissions before me that he was abandoning this line of argument altogether. In my view, this decision was not only right but inevitable. Liability is incurred when the cause of action is complete and not when the claimant's rights against the wrongdoer are thereafter crystallised whether by judgment or otherwise.
24. Having accepted that the wording of Schedule 3 to the 2010 Act inevitably leads to the conclusion that the provisions of the 1930 Act apply to Mrs Redman's claim, her counsel was then constrained to rely upon an interpretation of the schedule which not only bore no relation to the basis upon which this claim was purportedly brought under the 2010 Act but was entirely inconsistent with it.
25. His brave submission was that the proper interpretation of the transitional provisions is that the application of the 1930 Act does not preclude the retrospective but parallel operation of the 2010 Act to all claims which hitherto had fallen exclusively within the scope of the older legislation.
26. There are many powerful objections to this approach not the weakest of which is that it is wholly inconsistent with the wording of section 1 and Schedule 3 of the 2016 Act as set out above. Furthermore:

i) The purpose of transitional provisions is to identify the respective scope of application of earlier and later legislation. If the claimant's approach were correct, there would be no such transition because the 2016 regime would apply retrospectively and indiscriminately without reference to any point or circumstances of transition. I invited counsel for the claimant to identify any circumstances within the scope of his interpretation in which the 1930 regime would operate and not the 2010 regime. He was unable to do so.

ii) If Parliament had intended the 2010 regime retrospectively to apply to all third party claims against insurers then it would have taken a relatively straightforward drafting exercise to achieve this.

iii) If the provisions of the 2010 Act were to apply retrospectively but in parallel with the 1930 regime then one would expect that there would be some merit in affording the claimant a choice between the two. However, counsel for the claimant was unable when pressed on the topic to identify any circumstances in which it would benefit a claimant to elect to deploy the more procedurally unfavourable provisions of the 1930 Act.

27. The claimant points out that by interpreting the 2010 Act so as to be retrospective in application the court would be able to avoid the need to identify the date upon which damage was caused which may often be a challenging exercise in the context of some industrial disease claims. It is well recognised that identifying the point at which the process of the development of malignancy, for example, gives rise to damage can be medically and legally controversial. Nevertheless, such difficulties do not entitle the court to ride roughshod over the clear wording of the 2010 Act. To apply the interpretation favoured by the claimant would be tantamount to judicial legislation. In any event, the problems commonly found in industrial disease cases do not arise in the vast majority of more straightforward claims and, in most cases, there is likely to be no difficulty in establishing when liability accrued.

CONCLUSION

28. In summary:

i) A relevant person "incurs a liability" under section 1 of the Third Party (Rights Against Insurers) Act 2010 when the cause of action is complete and not when the claimant has established the right to compensation whether by a judgment or otherwise;

ii) The transitional provisions do not provide for the 2010 regime to be applied retrospectively so as to run in parallel with the 1930 regime. In any given circumstances, either the 1930 regime applies or it does not. Where it does continue to apply then the 2010 regime has no application.

29. It follows that the application to strike out the claim under the 2010 Act must succeed under CPR 3.4 on the basis that it discloses no reasonable grounds for bringing a claim.

Note 1   In Re Harrington Motor Company, Limited. Ex parte Chaplin [1928] Ch. 105 at page 117.    [Back]

Note 2   Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 Q.B. 363 at page 375    [Back]

Note 3   The term “relevant person” is deployed in the Act so as to refer to an individual or corporate body falling within any of the formal legal categorisations of insolvency therein listed.    [Back]