mcgregor_douglas_0In the Scottish case of Campbell v Gordon [2016] UKSC 38, the Supreme Court was asked to consider the question of whether an individual director of a company can be found personally liable to pay civil damages to an injured employee where the company has failed to put in place adequate employers’ liability insurance cover. By a 3:2 majority, the court found that the Employers’ Liability (Compulsory Insurance) Act 1969 cannot be interpreted so as to allow an injured party to make a claim against a director under the Act. The decision means that debate about the merits of the English Court of Appeal decision in Richardson v Pitt-Stanley [1995] QB 123 have been put to bed once and for all.

The background

Mr Campbell was injured by an electric circular saw while employed by Peter Gordon Joiners Ltd as an apprentice joiner. Mr Gordon was the sole director of that company. The company’s employers’ liability insurance excluded injury arising from the use of woodworking machinery and the company itself then went into liquidation.  Mr Campbell therefore sought to hold Mr Gordon personally liable in damages for the company’s breach of the 1969 Act.

Mr Campbell was successful at first instance in the Outer House of the Court of Session but the Inner House overturned that decision by a 2:1 majority. Mr Campbell appealed to the Supreme Court.

The relevant statutory provisions together with a summary of the approaches adopted in the lower courts can be found in Case Preview: Campbell v Gordon.

The majority decision

Lord Carnwath, (with whom Lord Mance and Lord Reed agree) gives the majority judgment dismissing Mr Campbell’s appeal. The judgment confirms that the director of a company has no liability to pay damages to an employee in respect of a breach by the company of its statutory obligation to insure against the risk of injury. Civil liability under statute for a breach of the obligation to insure imposed by the Employers’ Liability (Compulsory Insurance) Act 1969, s.1 does not attach to the director even where he is deemed guilty of the same criminal offence as the company under s.5 of the Act as a result of the breach being “committed with the consent or connivance of, or facilitated by any neglect on the part of” the director.

Mr Campbell had accepted that the general rule is that there will be no civil liability if a statute itself imposes a criminal penalty for failure to comply. However, he relied on the well-established exception to that rule where the statute imposes an obligation for the benefit or protection of a particular class of individuals (per Lord Diplock in Lonrho v Shell Petroleum Co Ltd (No 2) [1982] AC 173.)

There was discussion in the Inner House and before the Supreme Court as to whether Lord Diplock’s views still represented the modern law. In the event, the majority in the Supreme Court felt it unnecessary to deal with the issue. Lord Carnwath was content to proceed on the assumption both that “Lord Diplock’s words remain a reliable guide at least in relation to statutory duties imposed for the benefit of employees” and also that the 1969 Act was itself  imposed for the benefit of a particular class of individuals, the employees.

These assumptions were of no assistance to the appellant however. The primary difficulty identified by the Supreme Court was that the 1969 Act imposes the obligation to insure on the company and not on the director. They adopted a very straightforward approach: the wording used in the statute was clear. As Lord Carnwath puts it:

“The essential starting point for Lord Diplock’s formulation is an obligation created by statute, binding in law on the person sought to be made liable. There is no suggestion in that or any other authority that a person can be made indirectly liable for breach of an obligation imposed by statute on someone else. It is no different where the obligation is imposed on a company. There is no basis in the case law for looking through the corporate veil to the directors or other individuals through whom the company acts. That can only be done if expressly or impliedly justified by the statute.”

Research by the respondent and by the court’s own legal assistants suggested that the formula used in the 1969 Act (consent, connivance, neglect) has been used in numerous other statutory provisions without there being any previous suggestion that such provisions might be treated as giving rise to civil liability on the part of individuals. Lord Carnwath was satisfied that this tended to support his view that the language of s.5 was deliberately chosen and was intended to mean what it said.

Dismissing the appeal Lord Carnwath concludes:

“Where Parliament has used such a well-established formula, it is particularly difficult to infer an intention to impose by implication a more general liability of which there is no hint in its actual language.”

The minority dissent

Lord Toulson and Lady Hale both issued strong dissenting judgments taking issue with the approach adopted by the majority.

Lord Toulson saw s.5 as a “concise means of extending statutory responsibility for seeing that the company is properly insured to the company’s appropriate officer(s), backed by a penal sanction.”  While the majority in the Supreme Court focused on the form of the language used in the statute, Lord Toulson preferred to look at the “function and substantive effect of the deeming provision” in s.5 and agreed with the views expressed in the Inner House by Lord Drummond Young that the formalist approach of the majority was “excessively conceptual” and did not reflect the basic objectives of the statute.

“In this case the legislation was plainly intended for the protection of employees and I do not consider that the form of the language employed by the drafter takes the case in relation to Mr Gordon outside Lord Diplock’s first exception.”

Lady Hale agreed, adding that in her view it was “absolutely plain that Parliament did intend there to be such civil liability.”

Both Lord Toulson and Lady Hale robustly defend Lord Diplock’s analysis in Lonhro and, in doing so, firmly reject any suggestion that subsequent cases have changed the law. Lord Toulson describes the Inner House’s view that the Lonhro decision does not reflect the modern law as a “startling” proposition while for Lady Hale the Inner House is simply “quite wrong”.

They would both have allowed the appeal.