Legal Briefing

Directors in Scotland: it’s getting more personal than England

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Corporate and commercial | 01 April 2014

A recent decision of the Outer House of the Scottish Court of Session, Campbell v Peter Gordon Joiners Ltd & ors [2013], has introduced a distinction between Scotland and England as to when a director may face personal liability in a civil action for breach of statutory duty.

The statute in question was the Employers’ Liability (Compulsory Insurance) Act 1969 (the 1969 Act), which applies to employers in Great Britain. Employers commit an offence if they do not have in place insurance for bodily injuries and disease suffered by employees arising out of and in the course of their employment. 


An apprentice joiner was injured as a result of an accident at work involving an electrically powered circular saw. His employer was a sole director company registered in Scotland. The company had employers’ liability insurance but it did not cover accidents caused by this kind of equipment. The company went into liquidation so there were no assets available to meet the employee’s personal injury claim. The employee sought a remedy against the sole director personally. The Scottish court had to decide as a preliminary issue whether the employee could have a civil claim against the director as a result of the employer company’s breach of the 1969 Act.

The English Court of Appeal had answered this question in the negative in Richardson v Pitt-Stanley [1995]. The Scottish judge (Lord Glennie) came to a different conclusion. The result is that the employee in Scotland has been allowed to pursue an action against the director personally. The loss being claimed by the employee will presumably be the value of the personal injury claim that would ordinarily have been settled by an insurer.

This article looks at the rationale behind 
the decision1. It then considers whether, should Scotland become independent, further differences are likely to emerge between Scotland and the rest of the UK in areas where judges have traditionally sought to interpret UK-wide laws consistently across borders.

THE DECISION IN CAMPBELL

Under s5 of the 1969 Act, an employer is guilty of a criminal offence if it does not have in place the insurance required by s1. The maximum penalty is £2,500 for every day on which the employer is uninsured. If the employer is a corporation, and the offence was ‘committed 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’, that individual is also guilty of an offence and liable to be punished accordingly (s5).

There was no question in Campbell that the company was guilty of an offence under the 1969 Act. For the purposes of the hearing on the preliminary issue, the employee had made enough of a case that the sole director was also guilty as a result of s5. However, given that any remedies against the company were now worthless, the employee sought to argue that the director had civil liability in addition.

Directors might have thought that criminal liability under the 1969 Act was the exclusive sanction and that they could not also be sued by injured employees in the civil courts for damages. Indeed, if the case had taken place in England, that would probably have been the result. However, the judge chose to diverge from the English approach and ruled that a civil action could be brought against the director personally.

The judge noted that whether a statutory duty gives rise to a civil right of action is to be answered by considering the whole statute and the circumstances in which it was enacted.

The general rule is that, where an Act creates an obligation and enforces performance in a specified manner, performance cannot be enforced in any other manner. There are exceptions to this. One exception is where the particular statutory obligation was imposed for the benefit or protection of a particular class of individuals. In such cases the statute may be taken to have created ‘a correlative right in those persons who may be injured by its contravention’2. On the other hand, if the statute is intended to establish a regulatory system for the benefit of the public at large, that may point the other way.

Lord Glennie viewed the 1969 Act as imposing obligations for the benefit of 
the employees who could, if the employer could not meet a damages claim, look 
to the insurance policy. The duty was 
placed on the employer and the obvious purpose was not to save it from itself but 
to protect employees from being left without a remedy.

Accordingly, there was a strong indication that the statutory obligation was civilly actionable at the suit of an employee, even though a hefty criminal sanction was imposed on the employer. The fact that a civil action may rarely be resorted to in practice did not mean it did not exist.

So Lord Glennie’s first conclusion was that an employer company could be subject to a civil action for breach of the 1969 Act. However, what about liability of the company directors?

The judge noted that the basis for 
directors’ criminal liability was different in that they are ‘deemed’ guilty of the company’s offence where that offence 
was committed through their ‘fault’ (in effect). That meant that directors were under a duty, albeit a qualified duty, to ensure the relevant insurance was in 
place. That duty was imposed for the benefit of the employees of the company. 
In those circumstances, the directors 
stood in the same position as the 
corporate employer. There was no 
reason why breach of that duty should 
not give rise to civil liability.

This Scottish decision diverges from the majority Court of Appeal decision in Richardson v Pitt-Stanley. The Court in that case found that the 1969 Act did not give rise to civil liability on the part of the company or the director. It found (in the authors’ view, oddly) that the 1969 Act was imposed for the benefit of employers (to ensure they had insurance) rather than for the benefit of employees. The fact 
that fines were substantial, and there 
was no physical injury to the employee as a result of the failure (only economic loss), also weighed against the imposition of 
civil liability.

The English decision had been doubted in at least one textbook3 and one can see why the Scottish court would come to a different conclusion.

Lord Glennie analysed the English decision in some detail and was unpersuaded by the majority’s reasoning. The consequence of the Act being construed in such a way that it imposed a criminal penalty but not a civil remedy, he said, was that it left the employee without any remedy. He could not even apply for an injunction to compel the employer to take out the requisite insurance.

For completeness, we should mention 
that the employee in Campbell also advanced a number of common law arguments in support of his case but 
these all failed.

EFFECT OF SCOTTISH INDEPENDENCE 
ON RELATIONSHIP BETWEEN ENGLISH 
AND SCOTTISH COURT DECISIONS ON 
UK-WIDE STATUTES

While this case only applies to one statute, it does raise the interesting and wider question of how Scottish independence would impact the influence of English court decisions on Scottish courts in areas where legislation applies UK-wide.

Current position

Readers will be aware that Scotland has its own legal system and that there are many substantive differences between the laws of England and Scotland, eg in property, testamentary matters, insolvency, taking security, family law, and criminal law.

However, there are numerous statutes which apply UK-wide, some with modifications to cater for the different legal systems. From a business perspective, and to name but a few, these include company and partnership laws, employment law, tax law4, product labelling and product safety, consumer protection, competition laws, data protection and statutes dealing with intellectual property rights. Therefore it is often the case that courts both sides of the border are having to interpret and apply UK-wide statutes.

Scottish courts are not bound by the decisions of English courts. They are bound by Supreme Court (formerly House of Lords) decisions made in Scottish cases, in which the Supreme Court sits as a Scottish court.

Further, Scottish courts are in practice effectively bound by Supreme Court decisions made in an English (or indeed Northern Irish) civil case if the decision involves a UK statute which has equal or similar applicability in Scotland5. Even if they are not technically bound as a matter of precedent, the persuasive authority attached to such a decision will be such that it amounts, in effect, to a binding precedent. If the Court of Appeal’s Richardson decision had been approved by the House of Lords, for example, Lord Glennie would have been most unlikely to come to the decision he did.

The Scottish courts will not, however, automatically follow a Supreme Court decision made in an English civil case dealing with a UK-wide statute where the context or peculiarities of Scots law create grounds for a different construction of the statute6.

Even where Scottish courts are not bound by decisions of English courts, Scottish judges will at the very least respect English court decisions, which will generally be regarded as persuasive.

The fact that courts in Scotland usually interpret UK-wide statutes in the same way as the courts in England is surely helpful for giving legal certainty to businesses and individuals. This was specifically recognised by Lord Glennie in Campbell:

‘The decision in Richardson is not, of course, binding in Scotland, but it is deserving of respect. While it is, in my opinion, undesirable that courts in England and Scotland should come to a different view on the effect of legislation which applies throughout the United Kingdom, I am nonetheless unpersuaded by the reasoning of the majority in Richardson and consider that it should not be followed in Scotland.’

What the future might hold

So how might this approach change if Scotland votes for independence in the referendum to take place in September this year? Would independence lessen the current incentive on courts in both jurisdictions to keep decisions consistent?

If the voters favour independence, the Scottish Government’s proposed timetable envisages Scotland becoming an independent country in March 2016. However, legislation that applies in Scotland immediately before independence (whether UK wide or Scotland specific), would continue to apply after independence unless and until it was altered or repealed by the independent Scottish parliament.

We do not currently know what, if anything, a Scottish parliament might do in relation to UK-wide laws after independence (the SNP has given certain indications as to what it might want to do7, but those proposals would depend on the SNP succeeding in the post-independence elections). It would, for example, be open to the Scottish parliament to pass a Scottish Companies Act. This is unlikely to be top of the legislative list, however, and we can anticipate that there will be many UK-wide laws that would continue to apply for a considerable time.

As my colleague Charles Livingstone has written in a previous article for The In-House Lawyer8, should the referendum produce a ‘yes’ vote, the Scottish Government proposes that the UK Supreme Court would lose its jurisdiction to hear Scottish cases (and indeed would do so in advance of independence itself). Previous Supreme Court and House of Lords decisions in Scottish cases would still be binding in Scots law, however, unless and until superseded by decisions of Scotland’s new highest court(s).

However, the post-independence UK Supreme Court would no longer hear Scottish cases (even if the existing Scottish justices remained on the bench), so its decisions could lose some of their persuasiveness. That could be even more true of Court of Appeal and High Court decisions. The Scottish courts’ practice of following Supreme Court decisions on the interpretation of UK-wide statutes could therefore change. Indeed, one can be confident that a Scottish court would not follow such a post-independence Supreme Court decision where it disagreed with it!

Nonetheless, at least in the area of business law, and given the amount of cross-border trade, one could expect the Scottish courts to continue to recognise the advantages of consistent interpretation of common legislation, and Scottish judges would no doubt be pragmatic in their approach. Given the flexibility Scottish judges already have to depart from most English decisions, it may be that nothing much would change in practice. As is 
so often the case with discussing the potential consequences of independence, watch this space.

By Will McIntosh, partner, and 
Fiona Beal, professional support lawyer, Brodies LLP.

E-mail: william.mcintosh@brodies.com; fiona.beal@brodies.com.

 

Notes


  1. Lord Glennie’s decision reflects an earlier Scottish Sherriff Court decision which also departed from the Richardson case (Quinn v McGinty [1999]).
  2. Per Lord Kinnear in Black v Fife Coal Co Ltd [1912] at pararaph 165.
  3. Eg see Munkman on Employer’s Liability at paragraph 5.15.
  4. Note, though, that some tax powers have been devolved to the Scottish parliament.
  5. Dalgleish v Glasgow Corporation [1976]. Note, however, that this does not apply to criminal court decisions even if the statute operates UK-wide.
  6. McDonald (James McFarlane) v Secretary of State for Scotland (No 1) [1994].
  7. For example, in its ‘Guide to an Independent Scotland’ (published November 2013), the SNP says that, if it formed the first post-independence Scottish Government, it would reverse certain recent employment law changes, including abolishing the ‘shares for rights’ scheme and restoring the 90-day consultation period where redundancies affecting 100 or more employees are proposed.
  8. See ‘Scottish Independence: an update’.