The Supreme Court has held that a company director is not personally liable for failing to obtain compulsory employers’ liability insurance.

Background

Mr Campbell, an apprentice joiner, injured his hand at work and planned to raise an action against his employer for damages. However, before the claim could be raised, the company went into insolvency. It was established that the company did not have employers’ liability insurance in place. This insurance is compulsory under the Employers’ Liability (Compulsory Insurance) Act 1969 – which also imposes criminal liability on directors and other officers who fail to obtain such insurance.

Mr Campbell raised his claim against the company and Peter Gordon, the sole director, on the basis that Mr Gordon had breached his duties under the 1969 Act. Mr Campbell argued that the failure to insure the company against injury claims rendered Mr Gordon personally liable.

At the first instance, the Court of Session held that Mr Campbell had pled a relevant case. This was based upon the argument that the 1969 Act allows a director to be held civilly liable for breach of the qualified statutory duty not to permit the company to carry on business without having insurance to insure the employer against liability for injury or disease sustained by employees in the course of their employment. That decision was appealed by the director.

On appeal, the majority of the Inner House decided that, where a criminal sanction exists in legislation, civil liability does not necessarily arise. Given the split decision, it was anticipated in our last Law-Now that the employee would appeal to the Supreme Court, which he did. You can read our earlier Law-Now here.

The Supreme Court’s decision

The Supreme Court dismissed the employee’s appeal by a majority of three to two. The majority held that there was no authority for the proposition that a person could be made indirectly liable for breach of an obligation imposed by statute on someone else, and that it is only possible to pierce the corporate veil to impose liability on the director if it is expressly or impliedly justified by the statute. Lord Toulson, dissenting, said that the imposition of a criminal responsibility for a specified act (or omission) carries with it a legal obligation not to act (or omit to act) in that way, and a breach will ordinarily give rise to a cause of action. Lord Toulson quoted Judge Richard Posner who said that, “a judge’s role in such cases is the active role of filling gaps left by the legislature.”

Comment

The majority decision of the Supreme Court confirms that no personal liability will attach to directors who fail to insure their employees against workplace injuries. However, directors will still be liable to criminal prosecution if they ignore their statutory duty. It is also noticeable that the dissenting justices appeared open to taking a more purposive than a constructionist approach to interpreting legislation. 

You can access the decision here.