In a decision which has important ramifications for the UK insurance industry, the Supreme Court in Axa General Insurance Ltd & Ors v Lord Advocate & Ors [2011] UKSC 46 upheld the Scottish Parliament's right to legislate to reverse, in relation to Scotland, the decision of the House of Lords in Rothwell v Chemical & Insulating Co Ltd [2007] UKHL 39 that asymptomatic asbestos-related pleural plaques do not constitute actionable harm. As a result of this decision, those who have developed pleural plaques as a result of exposure to asbestos may now proceed with claims in negligence against their employers under the Damages (Asbestos-related Conditions) (Scotland) Act 2009 ("the 2009 Act"), at substantial cost to their liability insurers.

While the Supreme Court recognised that the purpose of the 2009 Act was "to create a new category of actionable bodily injury at enormous cost to insurers, estimated overall perhaps in billion of pounds", it accepted that the Scottish Parliament was competent to pass the legislation, which was also not susceptible to judicial review. Although the UK Government has declined to legislate on the issue (with the result that Rothwell remains good law in England and Wales), the Northern Ireland Assembly has passed a measure for Northern Ireland which is in materially identical terms to the 2009 Act. As matters stand, therefore, asbestos-related pleural plaques are now actionable in certain parts of the UK but not in others.

Background

The 2009 Act came into force on 17 June 2009 and was intended to reverse the decision of the House of Lords in Rothwell v Chemical & Insulating Co Ltd in Scotland. In that case it was held that, because pleural plaques were asymptomatic and did not increase the likelihood of developing other asbestos-related diseases or shorten life expectancy, the presence of pleural plaques in the lungs of those who had been exposed to asbestos (and any associated anxiety that asbestosis or mesothelioma may develop in due course) did not constitute an injury which was capable of giving rise to a claim for damages. This reflected the previously established common law position that neither the risk of injury nor the apprehension of its happening is actionable.

The Government in Westminster responded to Rothwell by introducing an extra-statutory, "no-fault" scheme, limited to those diagnosed with pleural plaques who had previously raised claims for damages, under which such claimants would receive a one-off payment of £5,000, upon application made prior to 1 August 2011. Although Rothwell was a decision in an English appeal, there was no doubt that it had full force in Scotland and Northern Ireland where the same legal principles applied. In contrast to the approach taken by the UK Government, however, the Scottish Parliament and, later on, the Northern Ireland Assembly, legislated to reverse it.

The 2009 Act was thus passed in Scotland, providing at section 1 that:

" (1) Asbestos-related pleural plaques are a personal injury which is not negligible.

(2) Accordingly, they constitute actionable harm for the purposes of an action of damages for personal injuries.

(3) Any rule of law the effect of which is that asbestos-related pleural plaques do not constitute actionable harm ceases to apply to the extent it has that effect.

(4) But nothing in this section otherwise affects any enactment or rule of law which determines whether and in what circumstances a person may be liable in damages in respect of personal injuries."

The 2009 Act contained further provisions at section 2 dealing with asymptomatic asbestos-related pleural thickening and asbestosis, replicating the section 1 regime in relation to these further conditions. The 2009 Act also provided, at section 4(2), that "Sections 1 and 2 are to be treated for all purposes as having always had effect", giving the legislation full retrospective effect. The broad effect of the 2009 Act was therefore to treat pleural plaques as always having constituted actionable harm, provided that liability in negligence could be established – in contrast to the position in Scotland prior to the 2009 Act. As was openly acknowledged by the Scottish Parliament, however, such claims would for the most part be brought against employers and in general met by their insurers pursuant to the Employers' Liability (Compulsory Insurance) Act 1960. That legislation required employers to maintain insurance in respect of liability for "bodily injury or disease" sustained by their employees and arising out of and in the course of their employment in the employer's business.

In the face of the 2009 Act, a number of insurers brought proceedings in Scotland to challenge its lawfulness. This was said to be on the basis that it contravened the European Convention of Human Rights and was otherwise vulnerable to judicial review on the grounds of irrationality, unreasonableness or arbitrariness. Such action was, as Lord Reed would later remark, an attempt by insurers to overturn legislation which was "designed to deprive them of the fruits of their victory" in Rothwell. The claimant insurers were, however unsuccessful at first instance (in the Outer House) and then on appeal (in the Inner House). The latter decision was duly appealed to the United Kingdom Supreme Court, which has jurisdiction to hear appeals from civil cases in Scotland.

Issues

The insurers' appeal against the Inner House's rejection of their challenge to the lawfulness of the 2009 Act raised two issues, both of which in turn raised important constitutional questions about the amenability to challenge of Acts of the Scottish and other devolved Parliaments. The issues were as follows:

  1. Whether the 2009 Act was incompatible with the insurers' rights under Article 1, Protocol 1 to the European Convention on Human Rights 1950 ("A1P1") and was in consequence outside the legislative competence of the Scottish Parliament by virtue of section 29(2(d) of the Scotland Act 1998 (which provides that a provision of any Act of the Scottish Parliament is outside its legislative competence in so far as it is incompatible with any of the Convention rights).
  2.  
  3. Whether the 2009 Act was open to judicial review on common law grounds as an unreasonable, irrational and arbitrary exercise of the legislative authority devolved on the Scottish Parliament by the Scotland Act 1998.

In relation to the first issue, A1P1 provides that:

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by the law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

A1P1 is thus in substance a guarantee of the right to property. However, in order for a person to rely on this or any other Convention right in Scotland, it is first necessary for that person to show that he would have "victim status" for the purposes of Article 34 if proceedings were to be brought in the European Court of Human Rights (section 100(1) of the Scotland Act 1998). As articulated by Lord Hope in his judgment, the first issue thus fell to be determined by reference to three separate questions: (1) whether the insurers were “victims” for the purposes of Article 34, (2) if so, whether the interference with their “possessions” which the 2009 Act represented was in pursuit of a legitimate aim and (3) if so, whether the means chosen by the Scottish Parliament were reasonably proportionate to the aim sought to be realised.

In relation to the second issue, it was common ground that this only arose if the Supreme Court accepted insurers’ argument that the 2009 Act was incompatible with A1P1. That said, and as Lord Hope acknowledged, the question of whether measures passed under devolved powers by the United Kingdom legislatures was “a matter of very great constitutional importance...[going] to the root of the relationship between the democratically elected legislatures and the judiciary”.

Finally, the Supreme Court was required to consider whether the third to tenth respondents – a number of individuals who had been diagnosed with pleural plaques caused by negligent exposure to asbestos and who had actions pending in the Scottish Courts – had standing to participate in the insurers’ appeal. That issue did not go to the lawfulness of the 2009 Act but concerned the correct interpretation of certain Scottish procedural rules. Save to note that it was decided in the respondents’ favour, the issue is not considered further here.

Decision

In a unanimous decision, the Supreme Court held that the 2009 Act was compatible with the European Convention on Human Rights and was not otherwise susceptible to judicial review.

1. Compatibility with A1P1

In relation to the first issue, the Supreme Court had little difficulty rejecting the argument of the Lord Advocate (representing the Scottish Parliament) that insurers should not be considered victims because they would not be directly affected by the 2009 Act (rather, the effect of the 2009 Act was indirect because it only impacted on employers and insurers if liability could be established). Such argument was rejected, first, because the intended and actual effect of the 2009 Act was for the insurance industry to bear the burden of pleural plaque claims and, second, because the amount of money that insurers would be required to pay as a result of the 2009 Act was on any view a “possession” for the purposes of A1P1.

The Supreme Court also accepted that the 2009 Act was enacted in pursuit of a legitimate aim. That aim was to eliminate what the Scottish Parliament perceived to be a social injustice occasioned by Rothwell and was to be tested by reference to the principle established in a long line of authorities that the Courts will respect a legislature’s judgment as to what is in the public interest unless that judgment is “manifestly without reasonable foundation”. Applying what Lord Hope termed a “margin of appreciation...accorded to national authorities” the Supreme Court held that the Scottish Parliament’s decision to legislate in the interests of those diagnosed with asbestos-related pleural plaques could not be considered unreasonable.

A more difficult question to answer was whether the 2009 Act was proportionate, in the sense that it struck a fair balance between the general interests of the community and the protection of the insurers' fundamental rights. On this question, the focus of the insurers' arguments was the retrospective application of the 2009 Act, which not only reversed the common law position as conclusively established in Rothwell going forward, but also did so in respect of past conduct (a feature which, as noted in Bäck v Finland (2004) 40 EHRR 1184, requires "special justification").

While the judgments of the presiding law Lords placed different emphasis on the particular matters which determined this question, it was common ground that the 2009 Act was proportionate. Among the various judgments, however, the consideration that at the time the relevant policies were entered into it could not have been predicted whether asymptomatic pleural plaques would be treated as actionable was clearly influential. As Lord Mance explained, "Had the common law as established by Rothwell been clear when the relevant policies were written and the relevant employment occurred, or had it been possible for employers and/or insurers to show that they had in the meantime relied to a meaningful extent upon the law being held to be as it was ultimately held in Rothwell, the position would have looked very different".  While Lord Hope preferred to think of the subsequent unfavourable development of the common law as a risk which insurers freely took upon themselves (an approach which Lord Mance rejected), the central importance of this consideration emerges from all of the judgments. Among the further matters that were considered relevant were that claims which the 2009 Act made possible would only succeed if fault could be established (Lord Hope), the fact that pleural plaques represented a physical change on account of the ingestion of asbestos fibres (Lord Brown) and the practice in the insurance market to concede that pleural plaques were actionable and to settle claims without admission of liability prior to Rothwell (Lord Reed). On the basis of these matters, the Supreme Court concluded that the 2009 Act was proportionate and therefore compatible with A1P1.

2. Susceptibility to judicial review

In light of the decision on A1P1, the 2009 Act could not be said to have resulted from an unreasonable, irrational or arbitrary exercise of the Scottish Parliament's legislative authority. Nevertheless, the Supreme Court went on to conclude that Acts of the Scottish Parliament are amenable to judicial review because it is subordinate to the UK Parliament. However, while the Scottish Parliament was therefore subject to the jurisdiction of the Courts, the common law grounds of review did not apply (these having developed in relation to public bodies with limited administrative powers). Rather, the power of the Scottish Parliament to legislate was subject to the statutory limit contained in section 29(2)(d) of the Scotland Act 1998, which required Scottish legislation to be compatible with Convention rights.

Comment

While the nature of pleural plaques means the cost of this decision to employers' liability insurers is unclear, it was accepted by the Supreme Court that the 2009 Act "is calculated to create a new category of actionable bodily injury [in Scotland] at enormous cost to insurers, estimated overall perhaps in billions of pounds". While the 2009 Act provides that liability on the part of the employer must be established, the reality is that employees are unlikely to have difficulty satisfying this requirement. As a result of this decision, therefore, a very large number of claims will be established against employers, the cost of which will fall on their liability insurers. This fact was not lost on the Supreme Court, though this will come as cold comfort to those insurers who are affected.  However, in the circumstances it was not felt that this outcome was inconsistent with insurers' Convention rights.

Whereas the UK Parliament had previously passed retrospective legislation in the form of the Compensation Act 2006 to reverse the decision of the House of Lords in Barker v Corus UK Ltd [2006] 2 AC 572 in relation to mesothelioma claims, the 2009 Act goes further in relation to claims involving pleural plaques. Whereas the earlier Act made jointly and severally liable all those responsible for exposing to asbestos individuals who subsequently contracted mesothelioma, the 2009 Act makes actionable claims which would otherwise have failed. Not only that, but the 2009 Act has the effect of reversing, in relation to pleural plaque claims in Scotland, the well established principle that a personal injury claimant must be able to demonstrate actual injury in order to recover damages. The Supreme Court (and Lord Brown in particular) was conscious that, in this sense, the 2009 Act represented "a very great departure indeed" from the established principles recognised in Rothwell; however, ultimately, it was felt to be more significant that insurers did not underwrite insurance in the 1970s and 1980s on the basis of the law as it was subsequently established in Rothwell.

Although the Government in Westminster has declined the opportunity to reverse Rothwell, preferring to implement a more limited extra-statutory scheme, the consequences of the Supreme Court's decision are unlikely to be confined to Scotland. As set out above, the Northern Ireland Assembly has passed a measure that is in materially the same terms as the 2009 Act. For present purposes, therefore, the development of pleural plaques is actionable in certain parts of the United Kingdom but not in others – an unsatisfactory situation that may well result in "forum shopping" by claimants where there is scope to establish Scottish jurisdiction.