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On appeal from: [2015] CSIH 11

The Supreme Court has, by a majority of three to two, dismissed an appeal, in a case that considered whether, on the liquidation of a company, a director who has failed to obtain and maintain insurance on behalf of the company as required by statute, incurred personal liability to an injured employee for loss arising from that failure.

The appellant was employed as an apprentice joiner by a company, of which the respondent was the sole director. The appellant was injured while using an electric saw, but the company’s employers’ liability policy excluded compensation for injuries resulting from this. This breached obligations under the Employers’ Liability (Compulsory Insurance) Act 1969, s 1(1). The company went into liquidation in 2009, and the appellant sought to have the respondent director held personally liable in damages.

Lord Carwarth gave the majority judgment, with which Lord Mance and Lord Reed agreed. Lord Toulson gave a dissenting judgment, with which Lady Hale agreed in a separate dissent.

The majority held that the corporate veil could only be pierced to impose liability on individuals through whom the company acts if it was expressly or impliedly provided for by statute. While statute provide for the criminal liability of directors in these situations, this was not sufficient to render the director civilly liable also. The wording did not permit this reading.

Lord Toulson favoured a functional approach to legislative interpretation. The object of the statute was employee protection. Even on a formalist approach, the common had shown that legislative breaches were actionable by the employees who suffered as a result. The judge should fill in gaps where legislation was silent on civil liability.

Lady Hale agreed, finding that the imposition of criminal liability in the 1969 clearly meant that Parliament also intended to impose civil liability, where employees could not recover due to its employer’s conduct

For judgment, please download: [2016] UKSC 38
For Court’s press summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII

To watch the hearing, please visit: Supreme Court website (12 April 2016 morning session), (12 April 2016 afternoon session).