Recovery of Medical Costs for Asbestos Diseases (Wales) Bill (Reference By The Counsel General For Wales) [2015] UKSC 3

The Welsh Assembly's Bill sought to require those liable for asbestos-related diseases, and their insurers, to reimburse the Welsh NHS for treatment costs. The Supreme Court held the Bill fell outside the Assembly's legislative competence and breached A1P1 of the ECHR.

Facts

The Counsel General for Wales referred to the Supreme Court the question whether the Recovery of Medical Costs for Asbestos Diseases (Wales) Bill fell within the legislative competence of the National Assembly for Wales under the Government of Wales Act 2006 (GOWA). The Bill imposed a novel statutory liability on persons making compensation payments (“compensators”) to victims of asbestos-related diseases to reimburse Welsh Ministers for the cost of NHS services provided to those victims. Section 14 further extended liability to the compensators’ liability insurers, overriding policy terms and applying to policies issued before the Bill’s commencement. Section 15 required Welsh Ministers to have regard to the desirability of applying equivalent sums to research, treatment or services relating to asbestos-related diseases. The Association of British Insurers intervened, challenging principally section 14.

Issues

Two issues fell for determination:

• Whether the Bill fell within the Assembly’s legislative competence under section 108(4) and (5) GOWA, by reference to paragraph 9 of Part 1 of Schedule 7 (“Organisation and funding of national health service”).
• Whether, if it did, the Bill was incompatible with Article 1 of Protocol 1 (A1P1) to the ECHR and thus outside competence under section 108(6).

Arguments

Counsel General for Wales

It was argued that “funding” in paragraph 9 went beyond the mere allocation of resources and encompassed the raising of monies for the NHS, including the imposition of charges on compensators. Section 14 was justified under section 108(5) as incidental or consequential to section 2. On A1P1, it was submitted that the legislature’s judgment of the public interest should be respected unless manifestly without reasonable foundation, and that the Bill pursued legitimate economic and social policy aims warranted by the financial pressures on the Welsh NHS.

Interveners (Association of British Insurers)

It was submitted that paragraph 9 conferred no power to raise charges, particularly not by imposing novel statutory liabilities on third parties such as compensators and their insurers. Section 14 retrospectively rewrote insurance contracts, imposing uncovenanted liabilities on insurers in respect of policies underwritten decades earlier. This deprived insurers of their possessions contrary to A1P1, without special justification for retrospectivity.

Judgment

Lord Mance (with whom Lord Neuberger and Lord Hodge agreed)

Lord Mance held that even assuming paragraph 9 was capable to some extent of covering the raising of monies (such as by charging users of NHS services), it could not extend to imposing liabilities on third parties having no direct connection with the NHS. Any permitted charging power would have to be “more directly connected with the service provided and its funding”. The connection between the alleged wrongdoing of compensators and NHS funding was at best “indirect, loose or consequential”. Section 15 did not achieve genuine hypothecation, since it required only regard to desirability.

As to section 14, this engaged an entirely different relationship — that between compensators and insurers — and could not be characterised as enforcing, making effective, or being incidental or consequential upon section 2 within section 108(5). Citing Martin v Most and Attorney General v National Assembly for Wales Commission, Lord Mance held section 14 raised separate and important issues of principle.

Although strictly unnecessary, Lord Mance addressed A1P1. He held it was engaged in respect of both compensators and insurers, applying AXA General Insurance Ltd v HM Advocate. Following Bank Mellat (No 2), the four-stage proportionality analysis applied, modified for A1P1: the legislature’s judgment of public interest was reviewed on the “manifestly without reasonable foundation” standard, but the fourth stage required the court itself to assess fair balance. Retrospective legislation required “special justification” (citing Pressos Cia Naviera SA v Belgium and Bäck v Finland). The Bill was distinguishable from AXA: it was not remedial social legislation directed at sufferers, it changed a well-understood position rather than restoring one, and it bypassed established principles by making liability dependent merely on payment of compensation. No special justification was shown. The Bill thus also fell outside competence by reason of section 108(6)(c).

Lord Thomas (with whom Lady Hale agreed)

Lord Thomas reached the same result on section 14 but by narrower reasoning. He considered that “funding” in paragraph 9 meant the raising of funds, and that the Welsh Assembly had competence to impose charges directly on employers as machinery for recovering treatment costs which could have been charged to employees. He considered the first and central aim of the Bill — making the tortfeasor rather than the State bear costs — was legitimate and not manifestly unreasonable. However, section 14 as drafted went beyond providing an indemnity equivalent to what insurers would owe if charges had been levied on employees and recovered as damages; in particular it overrode policy deductibles and limits. To that extent it exceeded section 108(5) and infringed A1P1.

Implications

The decision confirms several important principles:

• The phrase “relates to” in section 108(4) GOWA, like section 29(3) of the Scotland Act 1998, requires more than a loose or consequential connection between the provision and the listed subject (following Martin v Most and Imperial Tobacco).
• Devolved competence to legislate on “organisation and funding” of the NHS does not amount to a general power to raise revenue, even where hypothecated.
• Provisions imposing liabilities on third parties (such as insurers) cannot readily be justified as “incidental to, or consequential on” a substantive devolved provision where they raise distinct issues of principle.
• A1P1 is engaged where legislation retrospectively alters tortious or contractual liabilities, and special justification is required to justify retrospectivity; the four-stage proportionality test applies, with the “manifestly without reasonable foundation” standard confined principally to the question of legitimate aim, while the court itself evaluates fair balance at the fourth stage.
• Competence must be assessed by reference to what the legislature has done, not by reference to alternative measures that might have been enacted.

The judgment matters to devolved legislatures, particularly when contemplating legislation that affects pre-existing private law rights or imposes liabilities on third parties. It also matters to the insurance industry, confirming that retrospective statutory amendment of historic insurance contracts requires strong justification under A1P1. The decision delineates the limits of Welsh legislative competence in the post-2011 third phase of devolution while leaving open the precise scope of “funding” in paragraph 9 of Schedule 7.

Verdict: The Supreme Court (by majority) held that the Recovery of Medical Costs for Asbestos Diseases (Wales) Bill fell outside the legislative competence of the National Assembly for Wales, both because it did not relate to a subject listed in paragraph 9 of Part 1 of Schedule 7 to the Government of Wales Act 2006 and because it was incompatible with Article 1 of Protocol 1 to the ECHR. The reference was answered accordingly.

Source: Recovery of Medical Costs for Asbestos Diseases (Wales) Bill (Reference By The Counsel General For Wales) [2015] UKSC 3