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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Poole & Ors v HM Treasury [2007] EWCA Civ 1021 (24 October 2007) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2007/1021.html Cite as: [2007] EWCA Civ 1021 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE LANGLEY
Strand, London, WC2A 2LL |
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B e f o r e :
Lord Justice Jacob
Lord Justice Moore-Bick
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FREDERICK THOMAS POOLE and others |
Appellants |
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- and - |
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HER MAJESTY'S TREASURY |
Respondent |
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Mr D Friedman QC, Miss J Stratford and Mr A Henshaw (instructed by The Solicitor to Her Majesty's Treasury) for the Respondent
Hearing dates : 11,12 October 2007
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Crown Copyright ©
Lord Justice Buxton:
The background to this appeal
The nature of the case
The claimants' case
The Claimants' case in outline is that:
2.1 Each Claimant participated in the writing of insurance Business by Lloyd's syndicates, which are annual ventures acting as insurance undertakings, and in so doing subscribed capital to the venture and placed at risk his entire net personal wealth to meet, if necessary, syndicate liabilities;
2.2 The liabilities of each syndicate included liabilities incurred but not reported ("IBNR") in respect of insurance business written in previous years, acquired on supposedly commercial terms under a system known as reinsurance to close ("RITC") which involved, among other things, fixing reserves at a level sufficient to meet all liabilities including IBNR;
2.3 Contrary to the requirements of the Insurance Directive, the Defendant failed to implement in the domestic law of the UK, or to achieve the result prescribed by, the provisions of the Insurance Directive relating to (among other things) the conditions to which the authorisation of insurance undertakings at Lloyd's was to be subject, and the monitoring of same; the classes of insurance business such undertakings are permitted to write; requirements at to technical reserves and solvency margin of such undertakings; and the verification of such requirements.
2.3A The Defendant failed to ensure, as at the date of each annual RITC exercise after the Insurance Directive came into force, that there was in place at Lloyd's any adequate system of accounting reasonably capable of ensuring that syndicate assets (including reserves) were sufficient to meet known and IBNR liabilities, including those inherited through successive RITC exercises.
when the IBNR liabilities inherited by many syndicates were, unbeknown to them, far greater than was revealed by the information available to them and than the assets available to meet those liabilities. Each Claimant has, in consequence, suffered the other loss and damage pleaded in paragraphs 99 to 103, including, in many cases, personal liability incurred on or about 3 September 1996 to pay a substantial sum as part of Lloyd's "Reconstruction and Renewal" ("R & R") exercise (which related to the 1992 and earlier years of account), and additionally facing the prospect of future demands as a result of the proportionate insolvency of Equitas.
2.5 Had the Defendant, as at the date of each material RITC exercise, ensured compliance with the requirements of the Insurance Directive, the existence of very substantial but unquantifiable IBNR liabilities, and an ineffective accounting and auditing system, would have been revealed and the Claimants would not, variously, have joined Lloyd's, continued in membership or increased their underwriting, and to that extent would not have suffered the loss and damage pleaded in paragraphs 99 to 103.
Francovich in the ECJ
[32]….it has been consistently held that the national courts whose task it is to apply the provisions of Community law in areas within their jurisdiction must ensure that those rules take full effect and must protect the rights which they confer on individuals….
[33] The full effectiveness of Community provisions would be impaired and the protection of the rights which they grant would be weakened if individuals were unable to obtain redress when their rights are infringed by a breach of Community law for which a Member State can be held responsible.
[34] The possibility of obtaining redress from the Member State is particularly indispensible where, as in this case, the full effectiveness of Community rules is subject to prior action on the part of the State and where, consequently, in the absence of such action individuals cannot enforce before the national courts the rights conferred on them by Community law.
[35] It follows that the principle whereby a State must be liable for loss and damage caused to individuals as a result of breaches of Community law for which the State can be responsible is inherent in the system of the Treaty.
[36] A further basis for the obligation of Member States to make good such loss and damage is to be found in Article 5 of the Treaty, under which the Member States are required to take all appropriate measures, whether general or particular, to ensure fulfilment of their obligations under Community law. Among these is the obligation to nullify the unlawful consequences of a breach of Community law (see, in relation to the analogous provision of Article 86 of the ECSC Treaty, the judgment in Case 65/60 Humblet v Belgium [1960] ECR 559).
[37] It follows from all the foregoing that it is a principle of Community law that the Member States are obliged to make good loss and damage caused to individuals caused by breaches of Community law for which they can be held responsible.
[39] When, as in this present case, a Member State fails to fulfil its obligation under the third paragraph of Article 189 of the Treaty to take all the measures necessary to achieve the result prescribed by a directive, the full effectiveness of that rule of Community law requires that there should be a right to reparation provided that three conditions are fulfilled.
[40] The first of those conditions is that the result required by the Directive should entail the grant of rights to individuals. The second condition is that it should be possible to identify the content of those rights on the basis of the provisions of the directive. Finally, the third condition is the existence of a causal link between the breach of the State's obligation and the loss and damage suffered by the injured parties.
[41] Those conditions are sufficient to give rise to a right on the part of individuals to obtain reparation, a right founded directly on Community law.
Directive 73/239
Whereas in order to facilitate the taking-up and pursuit of the business of insurance, it is essential to eliminate certain divergencies which exist between national supervisory legislation; whereas in order to achieve this objective, and at the same time ensure adequate protection for insured and third parties in all the Member States, it is desirable to coordinate, in particular, the provisions relating to the financial guarantees required of insurance undertakings.
The decision of Langley J
If it were otherwise, there would be liability in damages for any failure to implement a Directive which could be shown to have caused sufficiently serious loss to a claimant who would have benefited from its implementation.
It would also, to my mind, be a surprising conclusion that a directive granted the same rights to insurers and insureds to have insurers regulated. As the Claimants' submissions were developed they were revealed to be a claim to a right to be regulated or to equality of regulation. The loss claimed arose from losses in the syndicates of which the Names were members. In my judgment regulation of others is of no relevance (nor indeed is there any suggestion that some syndicates or Names were regulated differently from others and, as I have already said, the notion of a grant of a right to be regulated is, as Mr Plender QC acknowledged, an abuse of language or "nonsensical". The purpose of regulation is not to protect the regulated but those to whom they supply their services or products. It is, of course, conceivable that different rights might be granted to insurers (say, to establish) and to insureds (say, to compensation for failure of an insurer), but that is of no relevance in this case.
Necessity
[40] ….it does not necessarily follow either from the existence of such obligations or from the fact that the objectives pursued by those directives also include the protection of depositors that those directives seek to confer rights on depositors in the event that their deposits are unavailable as a result of defective supervision on the part of the competent national authorities…
[42] …the harmonisation under [the directives in issue], since it is based on Article 57(2) of the Treaty, is restricted to that which is essential, necessary and sufficient to secure the mutual recognition of authorisations and of prudential supervision systems, making possible the granting of a single licence recognised throughout the Community and the application of the principle of home Member State prudential supervision.
[43] However, the coordination of national rules on the liability of national authorities in respect of depositors in the event of defective supervision does not appear to be necessary to secure the results described in the preceding paragraph.
The appellants' case in this court
[43] The learned judge approached the issue of Grant of Rights on the premise that it was necessary for the Appellants to show that the Insurance Directive was intended to bestow rights upon individuals in the particular situation of the Appellants. In his view the Appellants had to show that the Insurance Directive was intended to bestow rights on the Names as insurers or as reinsureds or the beneficiaries of policies designed to limit their exposures as insurers (Judgment [192-193]. He should not be blamed for adopting that premise since it is not far removed from the Appellants' original submission, which was that "the rule of law infringed must be intended to confer rights on persons in the position of those advancing a claim for damages for failure to implement it". But the Appellants subsequently modified their submission on the issue so as to rely on the precise words of the Court of Justice in Francovich, and on the explanation of those words given by Judge Geddes in his book in Protection of Individual Rights under EC Law:
"A directive will as a general rule confer rights on individuals where on its proper construction it is intended to protect natural or legal persons as regards their health, safety or economic welfare. Where a provision in a directive is not intended to confer rights on individuals (as for example in the case of many directives designed to protect the environment) no such right of action will arise even though the State is in breach of its Community obligation, such as by failing to implement the directive in due time"
44. In other words, also quoted in the Appellants' original skeleton argument (those of Brealey and Hoskins) there is a grant of rights under a directive when a claimant can point to a right which would have been granted to him by the national legal order if the directive had been implemented. If the Insurance Directive had been properly implemented, the Appellants would have derived identifiable and enforceable rights from the implementing legislation (as indeed they did when the Insurance Directive was finally implemented by FSMA 2000).
45. Consistently with the Appellants' revised submission, the learned judge should simply have asked whether the Insurance Directive is intended to protect natural or legal persons as regards their economic welfare rather than being designed for the advancement of the indivisible public good. To that question the answer is plainly "Yes".
Individual welfare contrasted with general protection
Some observations on the appellants' formulations
The Francovich doctrine
The first of those conditions is that the result required by the Directive should entail the grant of rights to individuals. The second condition is that it should be possible to identify the content of those rights on the basis of the provisions of the directive. Finally, the third condition is the existence of a causal link between the breach of the State's obligation and the loss and damage suffered by the injured parties.
A new argument
Conclusion on the meaning of Francovich
Does Directive 73/239 entail the grant of rights to the appellants?
The insurers' rights as insureds
Nor do I think it sustainable, simply on an appreciation of the terms of the Insurance Directive, to contend that it was intended to bestow, let alone necessarily did bestow, rights upon the Names as reinsureds or the beneficiaries of policies designed to limit their exposure as insurers. The Directive assumes regulation is in place and assumes its purpose is indeed to protect insureds and third parties (in the sense I have indicated: paragraph 35). But, whether or not any rights are necessarily granted to insureds (and, as will be seen, I think not) and whatever the technicalities of the meaning of "reinsurance", I think it fanciful to suggest that rights are necessarily granted by the Directive to insurers who seek cover for their exposures as such, nor is that the basis of the claims, which are for losses resulting from the Claimants' own underwriting.
Both the stop-loss contracts and the reinsurance contracts were part of, or an incident of, the business of insurance; and the claims made in the present case are not in respect of losses incurred either as the beneficiaries of stop-loss contracts or as reinsureds.
The insurers' rights of establishment
Authority
must be able to demonstrate that the result to be achieved by the Directive entailed the grant of rights to depositors and potential depositors as well as to the credit institutions operating in several member states whose activities were to be authorised and supervised by the competent authorities.
it does not necessarily follow either from the existence of such obligations or from [those objectives] that those directives seek to confer rights on depositors in the event that their deposits are unavailable as a result of defective supervision on the part of the competent national authorities.
First, therefore, a mere failure in the supervision required by the Directives does not ground a Francovich claim. What is necessary is the grant of a right to the depositors. That right must be one to be protected against the failure of supervision that has caused their loss: that is, a right in the terms envisaged by Argument A.
Reference to the ECJ
Disposal
Lord Justice Jacob:
Lord Justice Moore-Bick: