Law Report: No civil claim for company crime: Richardson v Pitt-Stanley and others - Court of Appeal (Lord Justice Russell, Lord Justice Stuart Smith and Sir John Megaw), 29 July 1994

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Although company directors could be prosecuted and fined for a company's failure to insure against liability for personal injuries sustained by its employees, they could not be sued for damages.

The Court of Appeal by a majority allowed an appeal by the defendants, Ralph Pitt- Stanley, Terrence Holding, Pamela Holding, Ricky Hunn, directors of Bridge Metals Basildon Ltd, and William Burril, its company secretary, against the decision of William Crowther QC, a deputy High Court judge who, on 9 February 1993, allowed an appeal by the plaintiff, David Mark Richardson, against the order of Master Hodgson, on 15 December 1992, striking out, as showing no reasonable cause of action, parts of his claim for damages for personal injuries.

The plaintiff's hand was seriously mutilated in an accident at work in the company's Basildon factory. He obtained judgment against the company, with damages to be assessed. But the company went into liquidation, there being no assets to satisfy any judgment. The company had taken out no insurance to cover its liability to employees. The plaintiff now sought to sue the individual directors and company secretary.

Anthony Haycroft (Hook & Partners, Canvey Island) for the defendants; John Foy (Robin Thompson & Partners, Ilford) for the plaintiff.

LORD JUSTICE RUSSELL said the issue was whether the Employer's Liability (Compulsory Insurance) Act 1969 created a civil as well as a criminal liability. By section 1(1): 'every employer carrying on any business in Great Britain shall insure, and maintain insurance . . . against liability for bodily injury or disease sustained by his employees, and arising out of and in the course of their employment'.

By section 5 of the Act: 'An employer who on the day is not insured in accordance with this Act . . . shall be guilty of an offence and shall be liable on summary conviction to a fine . . . and where an offence under this section (has been) committed by a corporation . . . with the consent or connivance of, or facilitated by any neglect on the part of any director, manager, secretary or other officer of the corporation, he, as well as the corporation, shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.' The fine was pounds 1,000 for each day the offence was committed.

The judge held that section 5 created a duty on the directors not to consent to or connive at the company's breach and that there must be a cause of action on behalf of the plaintiff against them.

But there was no express provision in the 1969 Act creating civil liability on the part of the employers. Nor was there any such express provision relating to directors. Indeed, it would be anomalous if the directors were to bear civil liability whilst their company was not so subject.

In his Lordship's judgment, the Act was intended to operate within the confines of the criminal law. That was so not only in regard to employers but a fortiori in regard to directors. The plaintiff's remedy against the company subsisted at common law and under the Factories Act 1961. The failure to insure did not deprive him of his remedy as such, but rather the enforcement of that remedy by way of recovery of damages.

LORD JUSTICE STUART- SMITH gave a concurring judgment.

SIR JOHN MEGAW, dissenting, said the obligation to insure against employees' injuries had been imposed by Parliament to reduce or eliminate the risk of their being deprived of lawful compensation: failure to perform the obligation should give rise to civil liability.