Legal Briefing

AXA ruling raises as many questions as it answers

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Scotland | 01 December 2011

The judgment of the UK Supreme Court in the case of AXA General Insurance Ltd & ors v The Lord Advocate & ors [2011], issued on 12 October 2011, marks the end of a long and winding litigation in which all manner of questions of Scottish public and administrative law have been examined. These include the powers of the Scottish Parliament, its relationship with Westminster and the other devolved jurisdictions, the human rights of insurance companies and the extent of ‘standing’ in Scots law to bring applications for judicial review. The case is likely to be the subject of academic and other commentary for months to come – as well as having a significant practical impact on those who raise and defend judicial reviews in Scotland.


BACKGROUND

In 2007, the House of Lords held in the case of Rothwell v Chemical and Insulating Company Ltd & ors [2007] that a condition of the lungs called pleural plaques was not an injury for which damages could be claimed in tort. Pleural plaques are scarring of the pleura and result from exposure to asbestos (although many individuals who have been exposed will not develop plaques). Plaques are most often found in those who worked, historically, in heavy industry and in shipbuilding in particular. In almost all cases they are themselves symptomless, cause no physical impairment of a person’s health and do not either cause or metamorphose into more serious asbestos-related conditions. Plaques are, however, evidence of exposure to asbestos and are a marker that an individual has a greater risk of developing more serious conditions than someone who has not been exposed.

Following the decision of the House of Lords in Rothwell, the Scottish Parliament debated the issue and resolved that it did not want that decision to have effect in Scotland. It believed it appropriate that those who had been exposed to asbestos by a negligent employer should be compensated if that exposure resulted in pleural plaques. To ensure that Rothwell did not have effect, and to achieve clarity in the law, the Scottish Parliament passed the Damages (Asbestos-related Conditions) (Scotland) Act 2009 (the 2009 Act). The 2009 Act makes clear that pleural plaques and other asymptomatic asbestos-related conditions are ‘actionable harm’ for the purposes of pursuing an action of damages for personal injuries.

Importantly, it was clear throughout its consideration of this issue that the Scottish Parliament understood that, as a matter of fact, future claims for compensation would not be met by the employers responsible for exposing their workers to asbestos (many of whom were long since defunct) but by those insurers who had provided or inherited employers’ liability insurance. The potential costs of the 2009 Act in terms of future claims was, at all stages of the process, a matter of some disagreement but all parties accepted that it would run to hundreds of millions of pounds. The Bill was passed on 11 March 2009 and the 2009 Act came into force on 17 June 2009.

A number of the insurers affected by the 2009 Act immediately lodged a petition for judicial review in the Court of Session in Edinburgh. They argued that the 2009 Act infringed their rights under the European Convention on Human Rights (ECHR) – principally the right to peaceful enjoyment of possessions under Article 1 of Protocol 1 to the Convention. They also argued that the 2009 Act could be challenged on common law grounds of judicial review and that, specifically, the Act was irrational.

A lengthy hearing over some 22 days took place in the summer of 2009 before a single judge, Lord Emslie, in the Outer House of the Court of Session. There followed, in the summer of 2010, an appeal hearing before Lord President Hamilton, Lord Eassie and Lord Hardie in the Inner House. Their decision was issued in April 2011 and an expedited appeal hearing in the Supreme Court took place in June 2011 before a panel of seven justices.

INSURERS’ CONVENTION RIGHTS

The human rights arguments in the case focused on two distinct issues. The first was whether or not it was legitimate for the insurers to bring a human rights case at all and the second was whether the 2009 Act constituted an unjustifiable interference with their property rights.

On the first point, the Lord Advocate (the law officer who represents the Scottish Government and the public interest in such cases) argued that the insurers were not ‘victims’ of the 2009 Act. The ECHR itself demands that anyone who wishes to complain of a breach of their rights must show that they are a ‘victim’ – that is, that they are directly affected by the measure complained of. This requirement to establish victim status is also a precondition of any challenge to an Act of the Scottish Parliament based on a breach of human rights (s100 Scotland Act 1998 (the 1998 Act)). The Lord Advocate’s contention was that the effect of the 2009 Act on insurers was indirect: the Act was aimed at the relationship between an employer and their employee and insurers were too remote from that relationship for it to be said that they were directly affected by the 2009 Act.

This argument was rejected at every stage of the litigation. In the Supreme Court Lord Hope concluded that the question of whether the insurers were victims depended on what the 2009 Act was designed to achieve and that there was:

‘… ample material in the record of the proceedings before the Scottish Parliament to show that it was the insurance industry that was expected, and intended, to bear the burden of meeting their claims.’

So far as the substance of Article 1 of Protocol 1 was concerned, each court took a slightly different approach to the question, but at each stage rejected the insurers’ complaint. Interestingly, by the time the case came to the Supreme Court the Northern Ireland Assembly had passed similar legislation to the 2009 Act. The Attorney General for Northern Ireland intervened in writing in the Supreme Court appeal to support the insurers’ contention that this was a breach of their rights.

In the event, the Supreme Court accepted that the funds that would be used to meet compensation claims amounted to ‘possessions’ for the purpose of Article 1 and that the 2009 Act represented an interference with those possessions such as to engage the insurers’ rights. They concluded, however, that this interference was justified.

The test of justification falls into two parts. The court must first decide whether the legislation pursues a ‘legitimate public 
aim’ and then whether it is ‘proportionate’. On the question of legitimate public aim, 
it held that the parliament’s judgement 
that the decision in Rothwell had created 
a social injustice was not one which 
was ‘manifestly without reasonable foundation’ and therefore not one with which it would interfere.

On the question of proportionality it may be argued that the Court’s reasoning is more problematic. The proportionality test requires an assessment of whether a fair balance is struck between the public good advanced by the 2009 Act and the need to protect the insurers’ rights. The Court concluded that a fair balance had been struck but in doing so took account of factors which, on the face of it, seem surprising. In particular, the Court thought it very relevant that until the decision in Rothwell insurers had, as a matter of practice, settled a relatively small number of low-value pleural plaques claims. Lord Reed observed that the 2009 Act could in a sense:

‘… be regarded as preserving the status quo which existed before a correct understanding of the legal position 
was established as a result of the Rothwell litigation’.

This gives a significance to earlier ‘without prejudice’ settlements, which doubtless was not anticipated at the time and which may be troubling to insurers and others.

SOVEREIGNTY, DEVOLUTION AND IRRATIONALITY

In one of the earliest cases dealing with a challenge to an Act of the Scottish Parliament (Adams v Scottish Ministers (2004)), it was held that such a challenge could only be brought on one of the specific grounds set out in the the 1998 Act. The 1998 Act provides that an Act of the parliament is invalid – ‘is not law’ – if it is outside the parliament’s legislative competence. The restrictions on 
legislative competence include 
prohibitions on legislating in breach 
of EU law or ECHR rights and on intruding 
on areas of law that are the exclusive province of the UK Parliament (such as foreign affairs, constitutional law and 
most areas of taxation).

Notwithstanding the views expressed in Adams, the insurers also argued that the parliament had acted irrationally in imposing on them a substantial financial burden in order to compensate individuals for a condition which produced no symptoms 
and which did not impair their physical health. The insurers contended that 
the Scottish Parliament was in a quite different position to that of Westminster and that as a creation of statute it 
should be viewed as more akin to a 
local or regional authority whose actions were subject to judicial review on the ordinary grounds.

At first instance, Lord Emslie concluded 
that the decision in Adams had been 
wrong and that the 1998 Act was not 
the only basis on which an Act of the Scottish Parliament might be challenged. His decision produced a degree of excitement among constitutional 
scholars and changed the future course 
of the litigation, even if it did not make 
the front pages of the popular press. 
The Scottish Government appealed 
against this finding and it was joined ultimately by the Counsel General to the Welsh Assembly Government, who intervened. Both argued that as legislatures with powers to make primary legislation they should stand on all fours with the UK Parliament and be immune from common law challenge. The UK government, by contrast, entered the process to argue that those legislatures were not immune from such challenge.

In the end, despite the excitement, the Supreme Court’s decision on this point leaves the Scottish Parliament and Welsh Assembly (and no doubt the Northern Ireland Assembly) with very substantial protection. It concluded that while there did remain, over and above the 1998 Act itself, common law powers that would allow the court to interfere with an Act of the Scottish Parliament, those powers would be available only in exceptional circumstances, where the parliament attempted to abrogate fundamental rights or to violate the rule of law.

STANDING IN JUDICIAL REVIEW IN SCOTLAND

Perhaps the most surprising outcome of this case is that it has provided a vehicle – which might even be described as a Trojan Horse – for the Supreme Court to examine and comment on the approach to standing in judicial review in Scotland.

Historically, the rules on standing have been fairly restrictive. The Scottish courts have applied a test of ‘title and interest’, which has, in practice, required petitioners for judicial review to demonstrate a strong relationship between themselves and the decision being impugned. Often that has led the courts to look for a financial, property or other patrimonial interest to be impacted by the decision – with the effect that representative parties, such as pressure groups or informal associations, have been unable to pursue actions for judicial review in Scotland.

In AXA, the issue arose because a 
number of individuals who wished to 
bring claims for compensation for pleural plaques were given permission to become involved in the case. Their involvement 
was not by way of ‘intervention’ but 
rather the court allowed them to become involved as ‘respondents’ or defendants 
of the principal case. The insurers argued that this was inappropriate: it was not for those who might benefit from unlawful legislation to defend the validity of that legislation.

In the course of rejecting that contention, the Supreme Court allowed written submissions to be made by Friends of the Earth Scotland on more general questions of standing in judicial review and took the opportunity, essentially, to rewrite the Scottish approach. Lord Reed in particular considered the issue in detail, observing that there is a:

‘… public interest involved in judicial review proceedings, whether or not private rights may also be affected’

and that:

‘… a public authority can violate the rule of law without infringing the rights of any individual’.

That being the case, a purely rights-based approach to standing was incompatible with the courts’ duties to protect the rule of law. Instead, the test should be whether those seeking judicial review had a ‘sufficient interest’ in the decision in question.

THE FUTURE

The decision in AXA answers some questions but raises many more, which will need to be answered in the months and years ahead. How will the courts value the pleural plaques claims that will now be brought and what will be the measure of damages? When will the courts next have to examine and further develop their thinking on the relationship between the UK Parliament and the devolved administrations? And while the Supreme Court’s decision on standing has been welcomed by those who would seek to 
bring public interest judicial reviews in Scotland, precisely how will the Scottish courts apply the new test?