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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> KR & Ors v Royal & Sun Alliance Plc [2006] EWCA Civ 1454 (03 November 2006) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2006/1454.html Cite as: [2007] BusLR 139, [2006] EWCA Civ 1454, [2007] Lloyd's Rep IR 368, [2007] Bus LR 139 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MR JUSTICE SIMON Case No: HQ03X02173
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE LONGMORE
and
LORD JUSTICE SCOTT BAKER
____________________
KR & ORS |
Claimants/ Respondents |
|
- and - |
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ROYAL & SUN ALLIANCE PLC |
Defendant/ Appellant |
____________________
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
the Appellant
Robert F. Owen Q.C. and Philip Turton (instructed by Messrs Uppal Taylor) for the Respondent
____________________
Crown Copyright ©
Lord Justice Scott Baker:
This is the judgment of the court to which each member has contributed.
The background.
"…in due course solicitors (for the Insurer)…gave notice to the claimants' solicitors of a potential conflict of interest arising out of an exception clause in the contract of insurance which they had entered into with (the Company). As a result (the Insurer) might be entitled to refuse to indemnify (the Company) against any judgment entered against them in these claims. Accordingly (the Insurer) was added as second defendant and it has contested each claim through leading and junior counsel. It has advanced no positive case, save in the claim by JS, but equally has made few concessions and has required each claimant to prove their claim."
(J.S. is irrelevant to the issues in the present appeal.)
The Act.
"(1) Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then
…
(b) in the case of the insured being a company, in the event of a winding-up order being made, or a resolution for a voluntary winding-up being passed, with respect to the company…
if, either before or after that event, such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall… be transferred to and vest in the third party to whom the liability was incurred.
…
(4) Upon transfer under subsection (1)… of this section, the insurer shall … be under the same liability to the third party as he would have been to the insured…"
It is common ground that the respondents cannot be in a better position against the insurer than they would be against the insured.
The policy.
"A. Indemnity to Insured
1. In the event of…(b) bodily injury to any person not being an employee…happening in the territorial limits and caused in the course of the business the insurers will subject to the limits of liability indemnify the insured in respect of any legal liability incurred in respect of such injury or damage.
D. Exceptions
1…
The Insurers shall not be liable for
8. Injury or damage which results from a deliberate act or omission of the insured and which could reasonably have been expected having regard to the nature and circumstances of such act or omission."
"C. Exceptions
This section does not cover liability in respect of…
…
4. Injury damage or financial loss which results from any deliberate act or omission of the insured his partners directors or managerial employees and which could reasonably have been expected having regard to the nature and circumstances of such act or omission…"
"John Allen devised all the original systems relating to childcare that were used at Bryn Alyn until he took a less involved role with the day-to-day running of the homes in the late 1980s. John Allen devised the vast majority of the original internal and external documentation ranging from policy and procedure documents to booklets advertising the facilities that Bryn Alyn could offer. Responsibility for implementation of the policies was devolved to other senior staff as subsequently reflected in the comprehensive practice handbook. At all times until the late 1980s, John Allen was the man in charge. He treated Bryn Alyn as his own property. He came and went as he pleased. He chaired all the board meetings and set the agendas. At all times, John Allen's decision was final. He remained the person in charge of operations until he ceased to be the majority shareholder in 1989."
The individual respondents.
D.K.
G.S.
D.J.
G.O'M.
P.S.
"However the main burden of the claimant's case relates to the system which was in general operation during the time that he lived in the Community. He describes the atmosphere in Bryn Alyn as such that you had to fight your way or die. He says that the staff were vicious, and in particular Keith Evans or 'Beef', and that other residents were violent towards him. The staff encouraged the "top dog" regime whereby older children were used to discipline the younger children. His case is that violence was an every day occurrence in the Community and he further recalls John Allen giving particular consideration, together with expensive gifts, to his favourite children."
J.M.
The basis of the Company's liability found by Connell J.
"18. Now in the 21st century a good deal more is known about child abuse than was known in 1973 when the oldest of the claimants went to live in the Community. Nonetheless any organisation to whom the care of problematic children was regularly entrusted must be taken to have known that certain basic skills and understanding would be required of those caring for the children. The Community Homes Regulations 1972 which applied to community homes provided by local authorities required proper provision for the care, treatment and control of children accommodated there, which control was to be maintained on the basis of good, personal and professional relationships between staff and children. In my view equivalent standards were reasonably to be expected of privately run community homes. Further the first defendants set themselves standards which they believed to be appropriate (see for example the Bryn Alyn Care Information Booklet No. 34/1978 which set out guidelines for the standards and quality of care). The aims of Bryn Alyn for the children in their care were, inter alia, "building up their self image, increasing their self discipline and enabling them to make a better adjustment to present day society". The first defendant recognised that each living unit within the organisation would need to establish a clear policy and procedure to ensure that the right persons are selected as residents and that the reception into care of each child is carried out sensitively. All workers must have a real concern for the individual personalities and idiosyncrasies of the residents, an acceptance of their problems and weaknesses and a belief in their strong points as a potential for growth and change. Where at all possible no action should be taken that is likely to diminish the child's self respect or to humiliate him in his own eyes or in the eyes of others. Bryn Alyn was opposed to the use of physical punishment, which was seen as contrary to the total caring process. The possible need for the physical restraint of an aggressive or uncontrolled child was foreseen. Supervision sessions for junior grass roots workers should not be less than two per week for the first 12 months. The document entitled "Bryn Alyn Community – The Alternative" shows clearly the profile of the community, the range of services available and the philosophy of the first defendants. It included the assertion, "The corner stone of the whole developmental process is rooted in the formation of good relationships between adult workers and the young people in their care".
"19. In the result I conclude that on the evidence placed before me these worthy aspirations were not met in very many respects. First the staff were not trained, nor experienced in dealing with damaged children. Keith Evans came via the Army and a civil engineering company to Bryn Alyn in 1974, as it happened he had a certain aptitude for dealing with difficult children, and over the 24 years that he worked in the Community he developed that aptitude through experience rather than training. He said of himself, "In 1974 I had no experience of dealing with young people. I had been a corporal in the Army and I had two children". He described the training in the Community in his early days as, "pathetic", although it improved considerably over time. The employment contract was "absolute rubbish". He was shocked by the violence and addictive tendencies of the children in his care. The training offered was "in service" training only which was very poor until the mid 1980s, the complaint system started off ok, but fizzled out. Nonetheless he said, and I accept, that a lot of good things were done in the Community. Peter Steen came to Bryn Alyn from his own steel erecting business. He had had no formal training for working with difficult children. No training was available until Steve Elliot started some in the 1980s. John Jeffreys had worked for Rolls Royce before working in a local authority children's home and a multi racial youth club for about 12 months leading up to joining the first defendants in the 1970s. He was not trained at Bryn Alyn. He found you could not get hold of senior staff if you had a problem and staff morale was not good. In my view the probability is that these were three of the better care workers employed by the first defendants. In the light of all the evidence I have heard, and despite the denials of unnecessary violence by the three witnesses just referred to, I am satisfied that the homes run by the first defendants were overcrowded with too many difficult children; that the staff were expected to deal with such children with no adequate instruction or training; that the staff were so busy dealing with day to day problems that they failed to heed obvious warning signs about the principal, John Allen (e.g. John Jeffreys said that he knew the children called Allen a bender, a brownie, a queer; Peter Steen knew Allen bought presents for his favourites; Keith Evans heard references to children "bending down for John") and that the use of violence on residents, although forbidden in the first defendants literature, was common place and often excessive; not so much out of malice but because the untrained and uninformed staff could not cope without it. I have no doubt that many of the children living in the Community presented real problems, and could be violent. However the use of the "Top Dog" system, whereby the strongest children were used to control other children by force if necessary was entirely inappropriate; and the evidence satisfies me that the use of violence by staff and by fellow residents on these children was far too frequent and on occasions excessive. Keith Evans specifically denied that this was so. In repeating his denial, I do not believe that he was intentionally misleading the court. Rather he was so occupied with producing pragmatic solutions to difficult situations that over time he had come to forget what had actually occurred on a regular basis. The staff employed by the first defendants failed to prevent other staff from resorting to violence as a matter of course; they failed to keep a proper ear open for indications of improper practice; and they tolerated practices such as the "Top Dog" system which were clearly inappropriate. In passing I observe that the imposition of the punishment called the Scrubs (whereby the miscreant had to dress in T shirt, shorts, and shoes without socks and scrub the floor) was not in my view inherently improper; since some deterrent punishment was necessary from time to time; but the frequency of its automatic use, e.g. for absconders, in my view was inappropriate when some of those punished had absconded for reasons of fear or despair, rather than for the fun of it. Humiliation of a miscreant may be unavoidable at times; but its wholesale automatic use had no place in a properly run system of discipline. In summary the evidence that I have heard supports the conclusions of the Waterhouse Tribunal at paragraphs 21.131, 21.132, and 21.133. Had the staff been properly selected, trained and supervised, I also conclude that they would have questioned John Allen's use of favourites, his giving of gifts to particular children, and his frequent night time presence around the dormitories; with the result that many of his acts of sexual abuse would have been prevented. In summary the system of care operated in the first defendants Community was neither adequate nor properly organised and supervised. In this way the first defendants in my view are proved to have been negligent."
"In the case of sexual assaults which I have found proved it is difficult to see how they can form the basis of vicarious liability in negligence. In every case the sexual assault was a deliberate act, not a negligent one and the assault could properly form the basis for an allegation of breach of duty based on trespass to the person."
"if the loss is caused by two causes operating at the same time and one is wholly expressly excluded from the Policy, the Policy does not pay"
see Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1974] 1 QB 57 per Roskill L.J. at P 75 D, followed in The Miss Jay Jay [1987] 1 Lloyds Rep 32, 40 by Slade L.J. and in The Aliza Glazial [2002] 2 Lloyds Rep 421, 231 by Potter L.J. This was not contested by Mr Robert Owen Q.C who has appeared for the respondents.
The decision of Simon J.
The Insurer's case.
The first argument.
"John Allen was the [Company's] "alter ego" and by his own personal acts of omissions he devised and implemented or otherwise established a regime in homes operated and managed by the Assured which involved the deliberate infliction of physical and/or sexual and/or emotional abuse on the children (including the Claimants) who resided there. (Emphasis added)."
The second argument.
"There was no finding that the injury or damage resulted from the deliberate act or omission on the part of the assured, its servants or agents, in respect of which liability attached. On the contrary the Judge referred back to the earlier generic findings of neglect in relation to the adequacy of the system, its organisation and supervision; and damages were ordered to be paid on the basis of the neglect and not for the infliction of deliberate harm."
"I am satisfied that inexperienced staff, inadequately supervised, accepted a regime in which the use of violence by way of pushes, slaps, cuffs and punches was a regular occurrence. Accepting as I do that D.K. was a complex and difficult child who was himself capable of significant physical violence, nonetheless he was the victim of serious physical abuse over 3 years and at the time in his life when he needed to be able to trust adults and be treated sympathetically by them. He suffered in this way because of faults in the system which was operated in the Community, in which the safety and wellbeing of some of the residents were neglected on a regular basis."
"Again I am not satisfied that the Insurer can bring itself within the exception. At the root of the claim is the negligence which permitted deliberate acts of abuse to occur; but the acts of abuse were not the acts of the Company. The precise status of the abuser within the Company is not the material issue; it is the role of the abuser which is significant. In each case they were not acting in a managerial role, they were acting for their own ends or, as Mr Owen QC put it, 'selfishly and gratuitously'."
The principle of attribution.
"It must be upon the true construction of that section in such a case as the present one that the fault or privity is the fault or privity of somebody who is not merely a servant or agent for whom the company is liable on the footing of respondeat superior but somebody for whom the company is liable because his action is the very action of the company itself. It is not enough that the fault should be the fault of a servant in order to exonerate the owner, the fault must also be one which is not the fault of the owner, or a fault to which the owner is not privy…."
"A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company. That is made clear in Lord Haldane's speech in Lennard's Carrying Co. Ltd v Asiatic Petroleum Co. Ltd. So also in the criminal law, in cases where the law requires a guilty mind as a condition of a criminal offence, the guilty mind of the directors or the managers will render the company itself guilty. That is shown by Rex v I.C.R. Haulage Ltd., to which we referred and in which the court said:
"Whether in any particular case there is evidence to go to a jury that the criminal act of an agent, including his state of mind, intention, knowledge or belief is the act of the company… must depend on the nature of the charge, the relative position of the officer or agent, and the other relevant facts and circumstances of the case."
So here, the intention of the company can be derived from the intention of its officers and agents. Whether their intention is the company's intention depends on the nature of the matter under consideration, the relative position of the officer or agent and the other relevant facts and circumstances of the case."
"Where a limited company is the employer difficult questions do arise in a wide variety of circumstances in deciding which of its officers or servants is to be identified with the company so that his guilt is the guilt of the company.
I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent. In that case any liability of the company can only be a statutory or vicarious liability."
He added at 171F:
"……Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. Their subordinates do not. They carry out orders from above and it can make no difference that they are given some measure of discretion. But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them. I see no difficulty in holding that they have thereby put such a delegate in their place so that within the scope of the delegation he can act as the company. It may not always be easy to draw the line but there are cases in which the line must be drawn. Lennard's case [1915] AC 705 was one of them."
"The doctrine attributes to the company the mind and will of the natural person or persons who manage and control its actions. At that point, in the words of Millett J ([1993] 3 ALL ER 717 at 740): "Their minds are its mind; their intention its intention; their knowledge its knowledge." It is important to emphasise that management and control is not something to be considered generally or in the round. It is necessary to identify the natural person or persons having management and control in relation to the act or omission in point. This was well put by Eveleigh J in delivering the judgment of the Criminal Division of this court in R v Andrews Weatherfoil Ltd [1972] 1 ALL ER 65 at 70, [1972] 1 WLR 118 at 124:
"It is necessary to establish whether the natural person or persons in question have the status and authority which in law makes their acts in the matter under consideration the acts of the company so that the natural person is to be treated as the company itself"
Decided cases show that, in regard to the requisite status and authority, the formal position, as regulated by the company's articles of association, service contracts and so forth, though highly relevant, may not be decisive. Here Millett J adopted a pragmatic approach. In my view he was right to do so, although it has led me, with diffidence, to a conclusion different from his own. "
"These primary rules of attribution are obviously not enough to enable a company to go out into the world and do business. Not every act on behalf of the company could be expected to be the subject of a resolution of the board or a unanimous decision of the shareholders. The company therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company's primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and vicarious liability or tort.
It is worth pausing at this stage to make what may seem an obvious point. Any statement about what a company has or has not done, or can or cannot do, is necessarily a reference to the rules of attribution (primary and general) as they apply to that company. Judges sometimes say that a company "as such" cannot do anything; it must act by servants or agents. This may seem an unexceptionable, even banal remark. And of course the meaning is usually perfectly clear. But a reference to a company "as such" might suggest that there is something out there called the company of which one can meaningfully say that it can or cannot do something. There is in fact no such thing as the company as such, no ding an sich, only the applicable rules. To say that a company cannot do something means only that there is no one whose doing of that act would, under the applicable rules of attribution, count as an act of the company.
The company's primary rules of attribution together with the general principles of agency, vicarious liability and so forth are usually sufficient to enable one to determine its rights and obligations. In exceptional cases, however, they will not provide an answer. This will be the case when a rule of law, either expressly or by implication, excludes attribution on the basis of the general principles of agency or vicarious liability. For example, a rule may be stated in language primarily applicable to a natural person and require some act or state of mind on the part of that person "himself" as opposed to his servants or agents. This is generally true of rules of the criminal law, which ordinarily impose liability only for the actus reus and mens rea of the defendant himself. How is such a rule to be applied to a company?
One possibility is that the court may come to the conclusion that the rule was not intended to apply to companies at all; for example, a law which created an offence for which the only penalty was community service. Another possibility is that the court might interpret the law as meaning that it could apply to a company only on the basis of its primary rules of attribution, i.e. if the act giving rise to liability was specifically authorised by a resolution of the board or an unanimous agreement of the shareholders. But there will be many cases in which neither of these solutions is satisfactory; in which the court considers that the law was intended to apply to companies and that, although it excludes ordinary vicarious liability, insistence on the primary rules of attribution would in practice defeat that intention. In such a case, the court must fashion a special rule of attribution for the particular substantive rule. This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy."
"But their Lordships would wish to guard themselves against being understood to mean that whenever a servant of a company has authority to do an act on its behalf, knowledge of that act will for all purposes be attributed to the company. It is a question of construction in each case as to whether the particular rule requires that the knowledge that an act has been done, or the state of mind with which it was done, should be attributed to the company. Sometimes, as in In re Supply of Ready Mixed Concrete (No. 2) [1995] 1 A.C. 456 and this case, it will be appropriate….. On the other hand, the fact that a company's employee is authorised to drive a lorry does not in itself lead to the conclusion that if he kills someone by reckless driving, the company will be guilty of manslaughter. There is no inconsistency. Each is an example of an attribution rule for a particular purpose, tailored as it always must be to the terms and policies of the substantive rule."
"On ordinary principles of insurance law an assured cannot by his own deliberate act cause the event upon which the insurance money is payable. The insurers have not agreed to pay on that happening. The fire assured cannot recover if he intentionally burns down his house, nor the marine assured if he scuttles his ship nor the life assured if he deliberately ends his own life. This is not the result of public policy, but of the correct construction of the policy."
The June 1981 amendment.
"Deliberate Acts Exclusion.
This has been modified in two respects.
(a) Since most operational decisions are taken by senior officials we have amended the wording to read "any deliberate act or omission of the Insured his partners directors or managerial employees…..We accept that there is an element of imprecision about the term "managerial employees" but we think that in practice this should not create difficulty because the level at which operational managerial responsibility is exercised will usually be capable of identification in specific sets of circumstances.
(b) (is not relevant)."
Conclusion.