Campbell v Gordon (Scotland) [2016] UKSC 38

An apprentice joiner injured by a circular saw sought to hold a company director personally liable for the company's failure to maintain adequate employers' liability insurance under the 1969 Act. The Supreme Court held by majority that no civil liability attached to the director.

Facts

The appellant, Mr Campbell, was employed as an apprentice joiner by a company of which the second respondent, Mr Gordon, was the sole director. On 28 June 2006, Mr Campbell suffered injury while working with an electric circular saw. The company held an employers’ liability insurance policy, but it excluded claims arising from the use of woodworking machinery powered by electricity, and thus excluded Mr Campbell’s claim. The company’s failure to maintain appropriate insurance constituted a breach of section 1(1) of the Employers’ Liability (Compulsory Insurance) Act 1969. The company went into liquidation in 2009, and Mr Gordon himself became bankrupt. Mr Campbell sought to hold Mr Gordon personally liable in damages for the company’s failure to provide adequate insurance cover.

The Lord Ordinary upheld the claim, but the Inner House dismissed it by a majority. The Inner House majority reached the same conclusion as the English Court of Appeal in Richardson v Pitt-Stanley [1995] QB 123.

Issues

The sole issue was whether civil liability attaches to a director of a company for the company’s breach of its statutory obligation under section 1 of the 1969 Act to insure against employers’ liability, given the terms of section 5 which deems a consenting, conniving or neglectful director to be guilty of the criminal offence committed by the company.

Arguments

Appellant

Mr Smith QC relied on the principle stated by Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173 that civil liability attaches where a statutory obligation is imposed for the benefit of a particular class of individuals. He submitted the duty was imposed for the benefit of employees, the context being identical to that of the Factories Acts, and the case indistinguishable from Monk v Warbey [1935] 1 KB 75. He further relied on Lord Drummond Young’s dissenting opinion criticising Richardson.

Respondent

Mr Dunlop QC submitted that the statutory formula in section 5, imposing criminal liability on directors via a ‘deeming’ provision using the words ‘consent’, ‘connivance’ and ‘neglect’, was a well-established drafting device used in over 900 statutory provisions exclusively in the context of criminal liability, with no precedent for inferring civil liability from such wording.

Judgment

Majority (Lord Carnwath, with Lord Mance and Lord Reed)

The appeal was dismissed. Lord Carnwath accepted (without deciding) that Lord Diplock’s formulation remained a reliable guide for statutory duties imposed for the benefit of employees, and that section 1 of the 1969 Act was imposed for employees’ benefit. However, this was insufficient. 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 basis for imposing indirect liability on a person for breach of an obligation imposed on someone else, and no basis for looking through the corporate veil unless expressly or impliedly justified by the statute.

The 1969 Act imposes direct responsibility only on the employer. Parliament recognised that a director may bear some responsibility for failure to insure, but dealt with it not by imposing direct responsibility equivalent to the company’s, but by a specific and closely defined criminal penalty linked to the company’s criminal liability. The contrast with Monk v Warbey, where the statute expressly imposed direct responsibility on both the user and any person causing or permitting use, pointed against Mr Campbell’s argument.

Lord Carnwath’s view was reinforced by the statutory background: the ‘consent, connivance or neglect’ formula appears in over 900 statutory provisions, always in the context of criminal liability, with no reported authority treating it as giving rise to civil liability. 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 the actual language.

Dissent (Lord Toulson and Lady Hale)

Lord Toulson preferred a functional rather than formalistic approach to interpreting the deeming provision. The substance and effect of section 5 is to place on relevant officers a legal obligation not to cause or permit the company to be uninsured, backed by a penal sanction. Imposing criminal responsibility for a specified omission carries with it a legal obligation not to so act. On a formalist approach, the director is deemed to be guilty as a principal of failing to insure, not as an accessory.

Lord Toulson relied on the well-established line of authority including Groves v Lord Wimborne [1898] 2 QB 402, Butler (or Black) v Fife Coal Co Ltd [1912] AC 149, and Lord Diplock’s statement in Lonrho. The ‘trilogy’ of cases relied on below (Parkhurst, X v Bedfordshire, Morrison Sports) did not change the law and concerned legislation far removed from employee protection.

Lady Hale emphasised that Parliament in 1969 legislated in the knowledge of the established law that statutory duties imposed on employers for the benefit of employees give rise to civil as well as criminal liability, absent a clear contrary intent. There can be no difference in substance between imposing criminal liability for failing to do something and imposing a duty to do it. Failure to insure means the employee is denied the very thing the legislation was intended to provide.

Implications

The decision confirms that the 1969 Act does not give rise to civil liability on the part of a director or other officer of a corporate employer for the company’s failure to maintain compulsory employers’ liability insurance. The director’s only statutory exposure is criminal liability under section 5 where the offence is committed with the director’s consent, connivance, or neglect.

The decision affirms that piercing the corporate veil to impose civil liability for breach of a statutory obligation imposed on the company requires express or implied statutory justification. The mere fact that an obligation is imposed for the benefit of a particular class (such as employees) is not enough; the obligation must bind in law the person sought to be made liable.

The judgment has significant practical implications for injured employees of insolvent corporate employers who lack adequate insurance: such employees cannot recover from the directors personally under the 1969 Act, and must look elsewhere (such as to claims against insurance brokers) for redress. The decision also has wider importance for the interpretation of the widely-used ‘consent, connivance or neglect’ statutory formula, which the majority treated as a deliberately chosen criminal liability device not apt to generate civil liability by implication.

The majority expressly declined to engage with the question whether Lord Diplock’s formulation in Lonrho remains good law in light of more recent authorities, and also left open whether section 5 gives rise to civil liability on the employer company itself. These issues remain unresolved.

Verdict: Appeal dismissed (by a majority of 3 to 2). The Supreme Court held that no civil liability attaches to a director under sections 1 and 5 of the Employers’ Liability (Compulsory Insurance) Act 1969 for the company’s failure to maintain adequate employers’ liability insurance.

Source: Campbell v Gordon (Scotland) [2016] UKSC 38