Missing A Penalty – Directors' Duties And Employers' Liability Insurance

• Jurisdiction: United Kingdom
• Date: 26 July 2016

What can an employee do when he is injured at work, but his employer goes into liquidation? If his employer had insurance, the answer is simple - he can make a claim, and the insurance policy will respond. But what if there was no insurance in place?

The Case

Campbell (Appellant) v Gordon (Respondent) (Scotland) [2016] UKSC 38

The Issue

Companies have long been under a duty to have appropriate employer's liability insurance in place, as set out in section 1(1) of the Employers' Liability (Compulsory Insurance) Act 1969. Failure to do so can result in a criminal penalty for the directors of the company.

The question the Supreme Court had to consider here was whether Parliament had also intended that such a failure should result in civil liability for the directors.

The Facts

On 28 June 2006, Mr Campbell was working with an electric circular saw when he suffered an injury. While the company had employer's liability insurance, there was a specific exclusion for claims arising from the use of "woodworking machinery" powered by electricity.

That put the company in breach of section 1(1) of the 1969 Act. The company itself went into liquidation in 2009. Given the circumstances, Mr Campbell sought to bring a claim against Mr Gordon as director of the company, for his failure to provide adequate insurance cover.

Before the Inner House of the Court of Session, his claim was dismissed, which led to the appeal to the Supreme Court.

The key provision for consideration was section 5 of the 1969 Act which imposed a criminal penalty on directors for failure to have adequate cover in place. There was no mention made of any civil liability for such a failure.

Mr Campbell accepted that simply because a statute imposed a criminal penalty for failure to comply, this did not automatically mean there would also be civil liability. However, there were exceptions, and he relied on the words of Lord Diplock in Lonrho v Shell Petroleum Co Ltd (No 2) [1982] AC 1173: "where upon the true construction of the Act it is apparent that the obligation or prohibition was imposed for the benefit of a particular class of individuals."

Mr Campbell submitted that these words were directly applicable here. The duty imposed by the 1969 Act was for the protection of employees such as him. A functional, rather than formalistic, approach towards the statute was required - what was its purpose? The answer here was that its purpose was to protect employees, and therefore the court...