The Supreme Court has recently issued a judgement in a case where a former employee of a company argued that the wording of a statute creating a criminal offence for an employer to fail to provide appropriate insurance against bodily injury incurred in the course of employment also created a civil liability against the sole director of the company. The claim was first raised in the Outer House of the Court of Session, which found for the employee, and appealed to the Inner House, which overturned the decision. The employee then appealed the Inner House’s judgement to the Supreme Court. The Supreme Court, by 3 – 2, found that, in the absence of explicit wording in the statute, there was no civil liability on the part of the sole director of the company and dismissed the appeal.

Background

The appellant, Mr Campbell, was an apprentice joiner employed by a company of which the respondent, Mr Gordon, was the sole director. Mr Campbell was injured at work in 2008 while using an electric circular saw. While the company held an employers’ liability insurance policy, the policy excluded claims arising from the use of ‘woodworking machinery’ powered by electricity, and therefore did not cover the circumstances of Mr Campbell’s injury. The company went into liquidation in 2009 and Mr Campbell therefore sought to hold Mr Gordon, as sole director of the company, liable for the company’s failure to provide adequate insurance cover.

The Employers’ Liability (Compulsory Insurance) Act 1969 (‘the 1969 Act’) requires employers to maintain insurance against liability for bodily injury or disease sustained by employees arising out of and in the course of their employment within Great Britain (section 1). Where an employer does not maintain insurance in accordance with the Act, he is guilty of a criminal offence. Where the offence has been committed with the consent, connivance or been facilitated by the neglect of any director, manager, secretary or other officer of the corporation which is the employer, the officer will also be deemed guilty of that offence (section 5).

Argument and judgement

The argument advanced on behalf of Mr Campbell was that section 5 of the 1969 Act, as well as placing criminal liability on the director or officer of a company, should also be read to place civil liability on a director. The general principle is that where a statute imposes a criminal penalty for failure to comply with a statutory obligation, there is no civil liability. However, that is subject to exceptions where the obligation was intended for the protection of a particular class of individuals (in this case, the employees of a company). Members of that particular class then have the right to seek to enforce that obligation by civil action. Mr Campbell sought to argue that this meant that Mr Gordon, as director of the company, was personally liable to him for failure to provide adequate insurance.

The majority of the Supreme Court, led by Lord Carnwath, did not agree with Mr Campbell’s position. The court held that the 1969 Act had imposed criminal liability on a director or officer who held responsibility for a failure to provide insurance cover. That penalty is closely defined and intrinsically linked to the criminal penalty which is imposed on the company. The court held that the fact that criminal liability was imposed on a director or officer did not then automatically mean that civil liability was also imposed on a director. Lord Carnwath held that the ‘corporate veil’ could only be pierced and civil liability imposed on a director or officer of the company where the wording of a statute expressly or implicitly provided for the same. While the 1969 Act did provide for criminal liability on a director or officer, the wording of section 5 was specifically chosen to restrict that liability to the criminal sphere. The majority of the court therefore held that an intention to impose civil as well as criminal liability on a director or officer could not then be read into the 1969 Act.

Lord Toulson and Lady Hale dissented, holding that the purpose of the 1969 Act – the protection of employees by obliging employers to maintain insurance against injury or disease – meant that the court should hold that civil liability did attach to a director or officer in this event. Lord Toulson’s view was that the effect of section 5 was to place an obligation on the relevant company director or officer not to cause and/or permit the company to fail to have insurance. Where the company failed to meet that obligation by action or inaction of the director or officer, the director or officer should be held personally liable unless there is explicit statutory wording excluding civil liability.

The decision of this court turned on a reading of the wording of the 1969 Act, and may have limited relevance to other cases involving the liability of company directors or officers. This case does demonstrate a reluctance to pierce the ‘corporate veil’ and hold directors or officers personally responsible for the company’s actions or failures unless there are specific statutory provisions allowing it. However, the narrowness of the court’s majority in dismissing the appeal does mean that it is not impossible that the Supreme Court could reach a different decision in the future on piercing the ‘corporate veil’, particularly if the statute in question is not so narrowly worded as the 1969 Act.