Motor Insurance - Informa/media/... · Insurance Ofﬁ ce of New South Wales v King (1960) 104 CLR 93, Government Insurance Ofﬁ ce of New South Wales v Green and Lloyd Pty Ltd (1965)

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ContentsThis booklet brings together six reports and articles focused on the motor insurance industry, which are available as part of Insurance & Reinsurance on i-law.com. Bringing together case reports, incisive commentary and analysis across our magazines, journals and newsletters, Insurance & Reinsurance on i-law.com ensures you are the first to know about key developments and have access to a vast archive of legal knowledge.

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3 UK Insurance Ltd v Holden and AnotherInsurance (motor) — Fire to premises where vehicle was being repaired — Whether policy applied where vehicle was not on a road or in a public place — Whether vehicle being used — Whether fire was an accident. This was an action by UK Insurance, the motor liability insurers of the defendant, Mr Holden, for a declaration that they did not face liability to Mr Holden.Lloyd’s Law Reports: Insurance & Reinsurance, [2016] Lloyd’s Rep IR 349

13 Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance LtdThe decision of the New South Wales Court of Appeal in Barrie Toepfer contains a detailed analysis of obligations on the assured to take reasonable care and to avoid reckless behaviour. The decision, which cites both English and Australian authority, confirms that such provisions are to be construed narrowly.Insurance Law Monthly, June 2016, (2016) 28 ILM 6 7

16 ERGO Insurance SE v If P&C Insurance AS; Gjensidige Baltic AAS v PZU Lietuva UAB DKInsurance (motor) — Applicable law — Two assureds liable for same loss — Allocation of liability — Right of subrogation of paying insurer — Regulation on the Law Applicable to Contractual Obligations, European Parliament and Council Regulation 593/2008 (Rome I) — Regulation on the Law Applicable to Non-Contractual Obligations, European Parliament and Council Regulation 864/2007 (Rome II) — Consolidated Motor Insurance Directive, European Parliament and Council Directive 2009/103/EC.This was a reference to the CJEU by the courts of Lithuania in two joined cases with similar facts.Lloyd’s Law Reports: Insurance & Reinsurance, [2016] Lloyd’s Rep IR 299

25 Motor round-upThompsons warning over Brexit and foreign injuries, EU Commission to tackle issues raised by Vnuk case, “Brief era of profit-making” for motor insurance market over, and talking on hands-free phone as distracting as hand-held.Liability, Risk and Insurance, July 2016

28 Sobrany v UAB TranstiraInsurance (motor) — Credit hire charges — Credit hire agreements unenforceable — Charges paid by insurers — Whether two policies existed — Subrogation — Contribution.This was a subrogated claim by an insurer who had paid credit hire charges for the hire of a replacement motor vehicle.Lloyd’s Law Reports: Insurance & Reinsurance, [2016] Lloyd’s Rep IR 266

39 Marshall v Motor Insurers’ Bureau and Others Marshall was an unsuccessful attempt to secure compensation under English regulations rather than under the EU regime, even though insurance was seemingly in place.Insurance Law Monthly, March 2016, (2016) 28 ILM 3 6

© Informa UK plc. No unauthorised copying or sharing of this document is permitted

QUEEN’S BENCH DIVISION

20–21 January; 19 February 2016

————–

UK INSURANCE LTDv

HOLDEN AND ANOTHER

[2016] EWHC 264 (QB)

Before His Honour Judge WAKSMAN QC

Insurance (motor) — Fire to premises where vehicle was being repaired — Whether policy applied where vehicle was not on a road or in a public place — Whether vehicle being used — Whether fi re was an accident.

This was an action by UK Insurance, the motor liability insurers of the defendant, Mr Holden, for a declaration that they did not face liability to Mr Holden.

On Saturday 12 June 2010 Mr Holden, a mechanical fi tter employed by Phoenix, was working overtime at Phoenix’s premises. He obtained Phoenix’s permission to use the loading bay at the premises to do some work on his car. In the course of carrying out welding work, sparks ignited fl ammable material inside the car. The fi re spread and set light to some rubber mats close to the car. The fi re took hold in Phoenix’s premises and adjoining premises and substantial damage was caused. Phoenix’s insurer AXA paid out some £2 million to Phoenix and the owner of the adjoining property and sought to exercise subrogation rights against Mr Holden. The claim was limited to the amount that Mr Holden was able to recover from UK Insurance under his policy.

Clause 1a of the policy provided as follows: “We will cover you for your legal

responsibility if you have an accident in your vehicle and:

• you kill or injure someone; • you damage their property; or • you damage their vehicle.”

The Certifi cate of Insurance, which formed part of the policy, declared:

“I hereby certify that the Policy to which this Certifi cate relates satisfi es the requirements of the relevant law applicable in Great Britain and Northern Ireland, the Republic of Ireland, the Isle of Man, the Island of Guernsey, the Island of Jersey and the Island of Alderney.” Under section 145(3)(a) of the Road Traffi c

Act 1988, a motor policy “must insure such person, persons or classes of persons as may be

specifi ed in the policy in respect of any liability which may be incurred by him or them in respect of the death of or bodily injury to any person or damage to property caused by, or arising out of, the use of the vehicle on a road or other public place in Great Britain, . . . ”

UK Insurance argued that the policy did not cover the loss, for three reasons: the events did not occur on a road or public place; the vehicle was not being used at the time; and there was no accident. ——— Held , by QBD, HHJ WAKSMAN QC, that the declaration sought by UK Insurance would be granted.

(1) Clause 1a was not happily worded, but its proper construction was that it provided cover for legal responsibility if there was an accident caused by or arising out of the use of the vehicle ( see paras 23 and 25).

(2) Coverage was not limited to the use of a vehicle on a road or public place.

(a) The policy itself covered the location of the accident. There was no express limitation to roads at all, and the fact that the policy had to comply with minimum third-party cover under the 1988 Act did not mean that it could not be more generous. The Certifi cate, which was part of the policy, by excluding races, etc suggested that activities not on roads would otherwise be covered ( see paras 27, 29 and 31); ——— British Waterways v Royal & Sun Alliance Insurance plc [2012] Lloyd’s Rep IR 562 , applied.

(b) If that was wrong, then under EU law insurance was compulsory for any use of a vehicle which was consistent with the normal function of that vehicle. It was implicit that cover could extend further than where the accident happened on a road. Section 145(3)(a) of the 1988 Act was incompatible with EU law ( see paras 34 and 39); ——— Vnuk v Zavarovalnica Triglav dd Case C-162/13 [2015] Lloyd’s Rep IR 142 , applied; Churchill Insurance Co Ltd v Fitzgerald [2013] Lloyd’s Rep IR 137 ; [2013] 1 WLR 1776, referred to. (3) The vehicle was not in “use” at the time

of the fi re. (a) The word “use” did not include repair.

EU law suggested some activity performed by the vehicle qua vehicle, including carrying passengers or goods, transporting the driver to some destination, positioning a trailer or caravan, or parking. On the other hand, sleeping in an ordinary saloon car would not constitute such use because the normal

UK Insurance Ltd v Holden

INSURANCE AND REINSURANCE[2016] 349

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function of a saloon car did not include providing accommodation ( see para 45); ——— Vnuk v Zavarovalnica Triglav dd Case C-162/13 [2015] Lloyd’s Rep IR 142 , applied.

(b) Undertaking a repair to a vehicle was not in any sense a “use” of it. The repair (as here) might be necessary to make the vehicle roadworthy so that it could later be lawfully driven and thus used but that was a different matter. The thing being used was the repair equipment ( see paras 47 and 60); ——— Dunthorne v Bentley [1999] Lloyd’s Rep IR 560 , distinguished; Gramak Ltd v State Farm Mutual Automobile Insurance Co (1975) 63 DLR (3d) 630, Elias v Insurance Corporation of British Columbia (2002) 95 DLR (4th) 303, Munro v Johnston (1994) CanLII 2676 (BC SC), Pilliteri v Priore (1997) CanLII 12135 (ON SC), Government Insurance Offi ce of New South Wales v King (1960) 104 CLR 93, Government Insurance Offi ce of New South Wales v Green and Lloyd Pty Ltd (1965) 114 CLR 437, Clement v Clement (1984) 1 MVR 435, Motor Vehicle Insurance Trust v Seeney (1984) 1 MVR 443, Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500, New Insurance Ministerial Corporation v Handford (1994) 35 NSWLR 187, considered.

(c) The alternative argument based on causation failed. The fi re was caused by and arose out the allegedly negligent repair of the car by the use of grinders and welders without taking any precautions with regard to fl ammable materials in the car itself ( see para 66); ——— Dunthorne v Bentley [1999] Lloyd’s Rep IR 560 , distinguished. (4) Had the point arisen, there was an accident,

because there was a fortuitous or unexpected incident. The word could not be confi ned to where the incident was a collision between two vehicles or one vehicle and a person or property ( see para 67).

————–

The following cases were referred to in the judgment: British Waterways v Royal & Sun Alliance Insurance

plc [2012] EWHC 460 (Comm) ; [2012] Lloyd’s Rep IR 562 ;

Churchill Insurance Co Ltd v Fitzgerald (CA) [2012] EWCA Civ 1166 ; [2013] Lloyd’s Rep IR 137 ; [2013] 1 WLR 1776 ;

Clement v Clement (1984) 1 MVR 435; Dickinson v Motor Vehicle Insurance Trust (1987)

163 CLR 500 ;

Dunthorne v Bentley (CA) [1999] Lloyd’s Rep IR 560 ; Elias v Insurance Corporation of British Columbia

(2002) 95 DLR (4th) 303; Government Insurance Offi ce of New South Wales

v Green and Lloyd Pty Ltd (1965) 114 CLR 437 ; Government Insurance Offi ce of New South Wales v

King (1960) 104 CLR 93 ; Gramak Ltd v State Farm Mutual Automobile

Insurance Co (1975) 63 DLR (3d) 630; Motor Vehicle Insurance Trust v Seeney (1984) 1

MVR 443; Munro v Johnston (1994) CanLII 2676 (BC SC); New Insurance Ministerial Corporation v Handford

(1994) 35 NSWLR 187; Pilliteri v Priore (1997) CanLII 12135 (ON SC); Vnuk v Zavarovalnica Triglav dd Case C-162/13

(CJEU) [2015] Lloyd’s Rep IR 142 .

————–

Graham Eklund QC, instructed by Keoghs LLP, for the claimant; Michael Davie QC, instructed by DAC Beachcroft LLP, for the defendant.

Friday, 19 February 2016

————–

JUDGMENT

HHJ WAKSMAN QC:

Introduction

1. On Saturday 12 June 2010 Mr Thomas Holden, the fi rst defendant and a mechanical fi tter employed by the second defendant (“Phoenix”), was working overtime at Phoenix’s premises. The day before his car had failed its MOT due to corrosion on its underside. Having completed his fi rst piece of work that day he asked his employer if he could use the loading bay at the premises to do some work on the car which would hopefully enable it to pass the MOT. His employer agreed. His intention was to weld some plates onto the underside of the car to deal with the corrosion.

2. He disconnected the car battery so there were no live circuits which the welding equipment might interfere with. He then used a forklift truck to push the car up on its side so that he could get at the underside. He used a grinder fi rst to prepare the underside and then successfully welded a plate under the driver’s side. He then reconnected the battery, started the car and moved it round the other way before disconnecting it again and lifting it up once more but now with the underneath of the passenger side exposed. He started to weld, but then his phone went and he stood up to take the call. As he did so, he saw fl ames inside the car. What had happened was


LLOYD’S LAW REPORTS350 [2016]

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that sparks from the welding had ignited fl ammable material inside the car including the seat covers. The fi re spread and set alight some rubber mats lying close to the car. The fi re then took hold in Phoenix’s premises and adjoining premises and substantial damage was caused before it was extinguished.

3. Phoenix’s insurer was AXA. It has paid out to Phoenix and the owner of the adjoining property in excess of £2 million. Being subrogated to Phoenix’s rights, AXA has now made a claim against Mr Holden in the name of Phoenix for an indemnity in respect of the sums it has paid out (“the claim”). If Mr Holden has any insurance in respect of the claim, it is only by reason of his ordinary car insurance effected with the claimant, UK Insurance Ltd (“UK”) (“the policy”).

4. As a result UK has brought this action, seeking a declaration that the policy does not cover the claim. AXA, though Phoenix, denies this and counterclaims for the indemnity. Although Mr Holden is named as fi rst defendant he has played no part in these proceedings. He is not personally at risk since Phoenix has undertaken only to recover such sum (if any) as can be recovered from UK.

5. The trial of this action took place without any live evidence and, for present purposes, the facts as recounted by Mr Holden in his witness statement dated 16 October 2010 (though signed on 9 January 2015) summarised above, can be taken as agreed. The issues which have arisen are ones of analysis and law.

6. Before descending into detail it is worth summarising broadly the rival contentions as follows: UK contends that the policy insured Mr Holden in respect of third-party claims resulting from an accident involving his car while being driven or used on a public road or other public place. Here, however, it was on private premises and moreover was not in any relevant sense being used; rather it was being repaired. Accordingly, the policy does not respond.

7. As against that, Phoenix contends that, properly interpreted, the policy covers accidents off-road as well. Further, repair to a car can be described as the use of it and thus the fi re fell within the terms of the policy because it was caused by such repair.

8. There are some subsidiary arguments, too, but they will be referred to in context below.

The policy

9. Clause 1a of section A provided as follows: “ Cover for you We will cover you for your legal responsibility

if you have an accident in your vehicle and: • you kill or injure someone; • you damage their property; or • you damage their vehicle.

This cover also applies to any accident involving injury or damage caused by a trailer, caravan or vehicle which you are towing.” 10. Clause 2 states that such cover will also be

provided for anyone whom the insured allows to use but not drive the vehicle for social or domestic purposes or anyone getting into or out of the vehicle, among others.

11. Clause 1 of section G, dealing with territorial limits, provides as follows:

“(a) This policy provides the cover described in your Schedule in Great Britain, Northern Ireland, the Isle of Man and the Channel Islands and during Journeys between these places.

(b) It also provides the minimum cover you need by law to use your vehicle in

• any country which is a member of the European Union:

• and any country which the Commission of the European Community approves as meeting the requirements of Article 7(2) of the European Community Directive on Insurance of Civil Liabilities arising from using motor vehicles (number 72/166/CEE).”

12. General Exception 1 provides that the owner is not covered for the following among others:

“We will not cover any injury, loss or damage which takes place while your vehicle is being:

• driven or used by anyone not allowed to drive it or used for any purpose not allowed by the Certifi cate . . . or Schedule or

• driven by someone who does not have a valid driving licence or is breaking the conditions of their driving licence. This exception does not apply if your vehicle is:

• with a member of the motor trade for maintenance or repair;

• stolen or taken away without your permission; or

• being parked by an employee of a hotel, restaurant or car parking service.”

13. The Certifi cate (which forms part of the policy) contained the following declaration:

“I hereby certify that the Policy to which this Certifi cate relates satisfi es the requirements of the relevant law applicable in Great Britain and Northern Ireland, the Republic of Ireland, the Isle of Man, the Island of Guernsey, the Island of Jersey and the Island of Alderney.”

The Road Traffi c Act 1988

14. As is well-known it is compulsory for car drivers to have third-party liability insurance, and it is a criminal offence not to. The RTA 1988 (“the Act”) is the present governing statute. All motor insurance



QBD] [HHJ WAKSMAN QC



policies express themselves, one way or the other, to comply with the minimum third-party liability insurance requirements of the Act. What this means is that whatever the detail of such insurance required by the Act, properly construed, the underlying policy contains such cover as well. In this case, that linkage is expressed by the certifi cation on the Certifi cate set out above.

15. Section 145 of the Act, headed “Requirements in respect of policies of insurance” provides, among other things, as follows:

“(1) In order to comply with the requirements of this Part of this Act, a policy of insurance must satisfy the following conditions . . .

(3) Subject to subsection (4) below, the policy: (a) must insure such person, persons or

classes of persons as may be specifi ed in the policy in respect of any liability which may be incurred by him or them in respect of the death of or bodily injury to any person or damage to property caused by, or arising out of, the use of the vehicle on a road [or other public place] in Great Britain . . . ”

The EU Motor Insurance Directives

16. The EU background to the Act is the series of Directives requiring member states to take measures to oblige the insurance against civil liability claims in respect of motor vehicles.

17. Article 3(1) of the First Directive (Council Directive 72/166/EEC of 24 April 1972) states that:

“Each Member State shall, subject to Article 4, take all appropriate measures to ensure that civil liability in respect of the use of vehicles normally based in its territory is covered by insurance. The extent of the liability covered and the terms and conditions of the cover shall be determined on the basis of these measures.” 18. The Second Directive (Council Directive 84/5/

EEC of 30 December 1983) provided (article 1(1)) that “The insurance referred to in Article 3(1) of [the First Directive] shall cover compulsorily both damage to property and personal injuries”.

19. Article 1a of the Third Directive (Council Directive 90/232/EEC of 14 May 1990), as amended, provides:

“The insurance referred to in Article 3(1) of [the First Directive] shall cover personal injuries and damage to property suffered by pedestrians, cyclists and other non-motorised users of the roads who, as a consequence of an accident in which a motor vehicle is involved, are entitled to compensation in accordance with national civil law.” 20. The various Directives were then consoli-

dated into the Sixth Directive (Council Directive

2009/103 EC of 16 September 2009) which provides as follows:

(1) By Preamble (2) “Insurance against civil liability in respect

of the use of motor vehicles (motor insurance) is of special importance for European citizens, whether they are policyholders or victims of an accident. It is also a major concern for insurance undertakings as it constitutes an important part of non-life insurance business in the Community. Motor insurance also has an impact on the free movement of persons and vehicles. It should therefore be a key objective of Community action in the fi eld of fi nancial services to reinforce and consolidate the internal market in motor insurance.” (2) And then:

“Article 3 Compulsory insurance of vehicles Each Member State shall, subject to Article 5,

take all appropriate measures to ensure that civil liability in respect of the use of vehicles normally based in its territory is covered by insurance.

The extent of the liability covered and the terms and conditions of the cover shall be determined on the basis of the measures referred to in the fi rst paragraph.

Each Member State shall take all appropriate measures to ensure that the contract of insurance also covers:

(a) according to the law in force in other Member States, any loss or injury which is caused in the territory of those States;

(b) any loss or injury suffered by nationals of Member States during a direct journey between two territories in which the Treaty is in force, if there is no national insurers’ bureau responsible for the territory which is being crossed; in such a case, the loss or injury shall be covered in accordance with the national laws on compulsory insurance in force in the Member State in whose territory the vehicle is normally based. The insurance referred to in the fi rst

paragraph shall cover compulsorily both damage to property and personal injuries.”

21. These Directives are not of direct effect in the UK but it is common ground that so far as possible, the Act must be interpreted so as to accord with them.

The initial wording of clause 1a of section A

22. This clause is not altogether happily worded as will appear. First, it suggests that damage to






property is only covered if it belongs to someone who has been injured or killed in the accident. Mr Eklund QC accepts that there is no basis for that limitation and the true cover is for personal injury or death or damage to someone’s property or damage to someone’s vehicle (or more than one of these). Thus the claimed damage to property here would be within the policy if all the other elements are made out.

23. Secondly, the reference to “if you have an accident in your vehicle” is accepted as being too narrow. The policy will respond if there is an accident caused by the vehicle even if the insured is not in it or driving it at the time, for example where it is parked without the handbrake being on and it rolls down a hill into another car. Or if it is parked in a dangerous manner as a result of which another car collides with it. A better wording would be “if there is an accident involving your vehicle”. But at this point one needs to take account of the words used in section 145(3)(a) of the Act. This refers to liability for damage etc “caused by, or arising out of, the use of a vehicle” (on a road) and clause 1a must comply with this.

24. In my judgment therefore, the proper construction of the initial part of clause 1a is: “We will cover you for your legal responsibility if there is an accident caused by or arising out of your use of your vehicle and you kill or injure . . . etc”.

Is cover limited to accidents arising from use of the vehicle on a road or other public place?

Introduction

25. Section 145(3)(a) requires liability insurance in respect of use of the vehicle “on a road or other public place”. Is the policy so limited? Phoenix contends not, for the following reasons:

(1) The policy contains no express words confi ning its operations to where the vehicle is used on a road or public place; therefore premises such as those involved here, are covered.

(2) Even if the policy was said impliedly to follow the wording of section 145(3)(a) which does have that limit, this does not assist because that section must be construed in accordance with the Third Directive as itself interpreted by the decision of the CJEU in Vnuk v Zavarovalnica Triglav dd Case C-162/13 [2015] Lloyd’s Rep IR 142 ; if so its scope must extend beyond a road or public place. 26. In response, UK contends as follows:

(1) The policy is impliedly limited to roads. (2) There is no basis by reason of the decision

in Vnuk to interpret section 145 as extending beyond roads and if, that is the effect of Vnuk , one cannot interpret the limitation to roads out

of section 145. The court can do no more than say that section 145 is incompatible with EU law as laid down in Vnuk – but that would not help Phoenix here.

Scope of the policy itself

27. In the policy, there is no express limitation to roads at all, whether in clause 1a or anywhere else. That suggests that use of the vehicle elsewhere is covered. Mr Eklund QC really had only one answer to this which is that it would be commercially odd if the policy was deemed to give cover which was more generous than it had to by reason of the Act. He asked rhetorically why any insurer would do that. In my judgment that goes too far. The fact that a policy has to comply with the minimum third-party cover stipulated by the Act does not mean, objectively, that it cannot be more generous. If UK wanted to confi ne the policy (or this part of it) to roads, it could easily have said so.

28. I am fortifi ed in this approach by the decision of Burton J in British Waterways v Royal & Sun Alliance Insurance plc [2012] Lloyd’s Rep IR 562 . There the question was whether the policy in issue covered liability for the death of the person driving the vehicle as well as third persons. There was no express limitation in the policy itself. Burton J rejected an argument that because the relevant provision of the Act had been so restrictively construed the same should follow for the policy. (See paras 31 to 35 of the judgment.) I accept that in that case the policy at issue was already shown to be wider than what the Act required in some respects so it was perhaps easier to reject any congruence between them in other respects: nonetheless the decision shows, in my view, that the fact that the policy may go wider than the Act is not to be regarded as surprising or commercially impossible. Here the difference is glaring: the Act contains in the central section an explicit limit to roads. It is not repeated in the equivalent provision in the policy, clause 1a.

29. In addition there is one indicator in the policy itself that it is not intended to be confi ned to roads. That is in the Certifi cate itself. This states that it does not cover races, track days etc or 4 X 4 off-road events. That suggests that other activities not on public roads that would otherwise be covered are not excluded.

30. I should record that Mr Davie QC made the additional submission that the effect of clause 1(b) of section G, cited above, was to import directly the First Directive into the policy. I do not accept that. This provision simply lists a number of countries where the insured would have minimum cover if driving there, and some of those are listed by reference to having been approved by






the Commission as being compliant. However, in the light of my fi nding above, this argument is unnecessary.

31. Accordingly I fi nd that the policy here covered the location of the accident – assuming all the other requirements are made out.

The proper interpretation of section 145(3)(a) andthe case of Vnuk

32. That conclusion makes it unnecessary to consider the case of Vnuk in relation to section 145(3). But lest the matter go further and in deference to the arguments canvassed before me, I deal briefl y with the point. Unvarnished by Vnuk , section 145(3) could not have helped Phoenix because of its express limitation to roads. However it is said that Vnuk has changed all that.

33. In Vnuk , a reference by the Slovenian court, the claimant, Mr Vnuk was standing on a ladder in a barn when he was struck by a tractor with a trailer attached, which was reversing in the yard in order to position the trailer. The question actually posed was whether the expression “use of vehicles” in article 3(1) of the First Directive extended to the circumstances here even though it was not a road traffi c accident. It appears that the Slovenian legislation akin to the Act was not expressly limited to roads although it was submitted that it had been so interpreted. The German and Irish governments submitted specifi cally that the compulsory insurance requirement contemplated by article 3(1) was limited to roads in any event.

34. The CJEU held fi rst that the concept of “use of vehicles” must be given an independent and uniform EU interpretation. It then held that this concept must be understood in the light of the dual objective of protecting the victims of accidents caused by motor vehicles and of liberalising the movement of goods and persons within the EU. On that footing it cannot be taken that the EU legislature wished to exclude from protection parties injured by an accident that was caused by a vehicle “in the course of its use, if that use is consistent with the normal function of that vehicle”. (See paras 42, 49 and 56.)

35. With regard to the instant case, the court observed that the vehicle here seemed to be reversing for the purpose of taking up a specifi c position and that use seemed to be consistent with its usual function. However, that was a matter for the national court to determine. But it was possible that it was covered by the requirement of use of a vehicle which meant “any use of a vehicle which is consistent with the normal function of that vehicle”. (See paras 58 and 59.)

36. It is true that the CJEU did not make any specifi c ruling about whether the ambit of the First

Directive was limited to public roads, and that question was not squarely put by the referring court. Nonetheless it must be implicit in this decision that in an appropriate case cover can extend further than where the accident happens on a road, otherwise there could have been no cover in the instant case. Moreover, and as recited by the court, the background to the question was the submission that compulsory cover did not apply here because: (a) this was not an accident occurring on a road; and (b) the tractor was not being used as a vehicle anyway but rather as a machine. Moreover the Advocate General referred to it specifi cally, submitting there should be no limit by reference to roads: see para 43 of his Opinion.

37. In the court’s view the key question was whether the use was consistent with the normal function of the vehicle. If it was then, as here, cover was required even though private premises were involved. On that footing the Vnuk defi nition of “use” not merely applies to the term as employed in the relevant provisions of the Directives, but it must be read into the Act if possible. There is no diffi culty about that since the Act deploys the word “use” and it is just a question of defi ning it.

38. There is more diffi culty, however with any requirement that compulsory insurance may extend to places other than roads and public places as far as the Act is concerned since it expressly limits the obligation to roads and other public places. (See section 145(3)(a) cited above.) Mr Davie QC’s solution is to add the word “including” before “on a road”. The addition of that single word belies, however the scale of the change. It may be that extending the ambit of the Act in this way does not in practice lead to many more claims especially given the need to have the requisite use of the vehicle but nonetheless, this is potentially a signifi cant addition to the scope of the Act and it is in a different league to importing the ECJ’s defi nition of “use”. While (as with the ECHR) the court should if at all possible construe primary legislation to as to be compatible with the requirements of EU law, that does not require the court to violate the essential meaning of the provision in question, so as to go against its “grain”. Or to put it another way, so as to “cross the line” between interpretation and amendment. (See the decision of the Court of Appeal in Churchill Insurance Co Ltd v Fitzgerald [2013] Lloyd’s Rep IR 137 ; [2013] 1 WLR 1776 at paras 48 to 50 of the judgment of Aikens LJ.) In my judgment, it is impossible to add the word “including” without clearly going against the grain of the Act – this is an amendment, not interpretation.

39. Since the interpretation advanced by Mr Davie QC cannot be undertaken, all I can do is to say that in my judgment section 145(3)(a) is






incompatible with article 3(1) of the Third Directive as interpreted by the CJEU in Vnuk .

40. I should mention a subsidiary argument advanced by Mr Davie QC here. He said that it was not in fact necessary to amend section 145(3)(a) at all, because the operative provision was section 145(4)(b) which required not more than £1 million cover for damage to property. He says that this subsection makes no reference to roads and so when it comes to damage to property (as here) the requirement should be to insure against third-party liability, whether arising on or off road. I regard that as a hopeless contention. All section 145(4) is doing is providing some further limits to the cover already mandated by section 145(3). It is not some alternative version of the primary cover required. The absurdity if it were otherwise can be shown by the fact that if correct, the Act requires more extensive cover for damage to property than for personal injury or death.

Conclusion

41. Since I have found that the policy itself extends beyond roads, the claim here cannot be said to be outwith the policy simply because of where it arose. One therefore turns to the next question which is whether what occurred can be said to have arisen out of the “use” of Mr Holden’s car.

Was there use of Mr Holden’s car here?

Preliminary matters

42. The starting point, in the light of Vnuk is that the accident must have been caused by or have arisen out of the “use” of the car by Mr Holden, in the sense that it was a use consistent with its normal function. In my judgment the question acutely raised is whether a repair to a vehicle in circumstances like this is such a use. The answer to that question not merely impacts upon the true scope of the policy but also the Act – the concept of use must be the same for both.

43. It is also necessary to distinguish this threshold question as to whether there was the required use from the posterior question as to whether the accident was caused by or arose from such use.

Does use include repair?

44. I accept that the policy sometimes employs the word “use”. In some cases this seems to be interchangeable with “drive”, but not always. (See, for example, clause 2 of section A, cited above.) However that does not answer the question of the meaning to be given to the word “use” and in particular, its breadth.

45. In my judgment, the Vnuk defi nition suggests some activity performed by the vehicle qua vehicle. Thus, carrying passengers or goods, transporting the driver to some destination, positioning a trailer or caravan, or parking, by way of some examples. On the other hand, sleeping in an ordinary saloon car would not in my judgment constitute such use because the normal function of a saloon car does not include providing accommodation.

46. But as a matter of impression and from fi rst principles, I cannot see how undertaking a repair to a vehicle is in any sense a “use” of it. The repair (as here) may be necessary to make the vehicle roadworthy so that it can later be lawfully driven and thus used but that is a different matter. The thing being used is the repair equipment.

47. There is no English authority directly in point. Extensive reference was made in argument to the decision of the Court of Appeal in Dunthorne v Bentley [1999] Lloyd’s Rep IR 560. In my judgment, however, that case was not concerned with this question but the next one, ie causation and I deal with it below in that context.

48. On the question of “use”, Mr Davie QC makes two essential points:

(1) This court should follow a number of Commonwealth cases which have adopted a broad defi nition of “use”.

(2) But even if it does not and use, here, means driving, the fi re caused by the repair was in truth caused by or arose out of such driving. This, again, arises at the next, stage, causation.

The Commonwealth cases

Canada

49. In Gramak Ltd v State Farm Mutual Automobile Insurance Co (1975) 63 DLR (3d) 630, the claimant’s employee brought his car onto the claimant’s premises to drill a hole in it so a trailer could be attached but while drilling the petrol tack was punctured leading to a fi re which caused damage to the claimant. Donohue J held that the expression “use” included the ordinary and well-known activities to which vehicles were put and this included the work being done here.

50. In Elias v Insurance Corporation of British Columbia (2002) 95 DLR (4th) 303, a case similar to this one, the claimant was repairing his wife’s car at his employer’s premises when a spark from a welder set the car on fi re and then the building. The issue was whether this was “use” of the car. Boyle J, following earlier cases, held that the repair work “went to” the use of the vehicle and that prevention of deterioration by a family member is an integral part of use and that was so whether the repair was immediately necessary or not.






51. Elias was followed in Munro v Johnston (1994) Can LII 2676 (BC SC) where Drake J held that where a house was damaged by a fi re started when part of the car’s exhaust had been removed from it and was being ground on the driveway, this was part of the use of the car. Repair work on a car was part of its use. (See also Pilliteri v Priore (1997) CanLII 12135 (ON SC).)

Australia

52. The Australian cases go in a slightly different direction in my view. First, in Government Insurance Offi ce of New South Wales v King (1960) 104 CLR 93, the car owner of the parked car had made some repair to the carburettor and in attempting to start it for some purpose (perhaps to test the repair) poured petrol onto the carburettor which caught fi re and as a result one of the persons there threw away the can of petrol which caused a fi re injuring a third party. The High Court held that this did not arise from the use of the car. Dixon CJ made a number of important observations. He said that if the accident had occurred when the car had been in the course of a journey or when it had been about to commence one, however short, the claim would have been covered. But there was a distinction between using a car and putting it in order for some use. All incidents attending the actual use of the vehicle formed part of its use. But here the accident was not caused in the course of its present use or an attempt to use it. Rather, the injury was caused in the fi nal stages of car repair and so fell on the wrong side of the line. Menzies J also adopted the distinction between using a car and working on it for some purpose. He also agreed that to start the engine preparatory to its use is part of its use as would be to drive it to test repairs. But to make it ready for use is not to use it. Windeyer J also said that making a thing fi t for its ordinary use is not use in the ordinary sense of the word. But it was a question of fact and degree.

53. In Government Insurance Offi ce of New South Wales v Green and Lloyd Pty Ltd (1965) 114 CLR 437, the vehicle was a lorry moved into position to transport away a hoist which was being loaded onto it when the hoist fell off and caused injury. The High Court held that this arose from the use of the lorry. The act of loading upon it was an indispensable step in the intended imminent transport of the hoist. Windeyer J perhaps went further in saying that use included “driving or doing something to it or with it that is incidental to its normal use” although of course he did not have the question of repair specifi cally in mind since it was not relevant.

54. In Clement v Clement (1984) 1 MVR 435, the claimant’s daughter was injured when his car

which he had driven onto his sloping driveway fell, having been jacked up. Foster J held not that the work being done to the car was use, but rather that the accident arose out of the driving of the car onto the driveway and then its being parked there in a position which was likely to lead it to slip. On that footing it arose from the car’s use. He was referred to King and did not suggest it was wrong – rather that this case was different.

55. In Motor Vehicle Insurance Trust v Seeney (1984) 1 MVR 443 the Full Court of the Supreme Court of Western Australia held that injury caused when a man was struck by a vehicle which was being moved in the course of repairs, albeit manually and not by the engine, arose from its use. Kennedy J referred to King and said that there was no real diffi culty when the car was just being prepared for use. That was not use. The diffi culty comes when some part of its mechanism was being used in the course of repair or where it was being driven in the course of repair. Where the vehicle was moving on its own wheels and being controlled by the steering and brakes it was unrealistic not to regard it as being used.

56. In Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500, the car had been parked with passengers inside it, including the daughter of the car owner. While her father was at a shop she played with some matches which started a fi re as a result of which her sibling suffered injuries. The High Court held that the car was being used because it had been carrying the passengers and that trip had been temporarily interrupted to enable the driver to go to the shop. Use could include things other than locomotion.

57. Finally, in New Insurance Ministerial Corporation v Handford (1994) 35 NSWLR 187, the tipper tray part of a lorry had been raised to allow Mr Handford to get access to the cabin to effect a repair. But while he was there part of the hydraulics failed so that the tipper tray collapsed and Mr Handford was injured when jumping aside. The Court of Appeal held that the accident arose from the raising of the tipper tray and that was a use of the lorry albeit no actual tipping was involved. Meagher JA said it could be analogised to where a car was parked and the brakes failed. King was referred to and it was noted that (as had been said in King itself) some repairs would constitute use where they also involved driving the vehicle.

Observations

58. It seems clear to me that the Australian approach is overall, less broad than the Canadian one and in particular while some cases of repair might amount to ones where the accident arose out of the use of the car, these cases (unlike the






Canadian ones) do not foursquare equate repair of a vehicle to its use without more. Moreover I do not accept that the essential reasoning of the High Court in King has been doubted in later cases or (as Mr Davie QC suggested) is somehow obsolete. The potential for all sorts of incidents which could affect third parties arising from activities involving cars was just as much there in 1960 as it has been later.

59. There are therefore different approaches to this question. Sometimes this may be masked where a generous approach to causation is taken so that the accident is traced back to some use which itself is uncontroversial.

The approach here

60. In my judgment, the Canadian approach is too broad especially given that the defi nition of use which is directly relevant is that laid down in Vnuk . I am not therefore prepared to hold that repair of a vehicle whether to enable it to pass its MOT or for any other purpose amounts to its use without more. While it is normal, indeed necessary, for cars to be repaired from time to time, I do not accept that it is a “normal function” of a car to undergo repair. Driving it to test a repair is a different matter, as might be running the engine to test a repair or for some other purpose since at least some important part of the car is being operated in the usual way. Insofar as public policy is invoked in support of a broader defi nition this does not help at what might be described as “the outer limits” of the concept of use. A line has to be drawn somewhere and different legal systems may draw it in slightly different places. The paradigm examples – namely driving and immediately related activities like parking – are covered in any event and this is surely the source of the vast majority of accidents affecting third parties.

61. One additional argument made by Mr Davie QC is that the policy clearly intends “use” to encompass repair because of the carve-out from clause 1 of Exception 1 (cited above) for members of the motor trade who have the car for repair. I do not agree. That merely allows such persons to drive the car while with them, to give the paradigm example. It says nothing about the scope of the word “use”.

62. He also submitted that since the policy required Mr Holden to keep the car in a roadworthy condition, anything he did (including this repair) which was to ensure he complied with it must constitute use. I disagree. That requirement is obviously needed however one defi nes “use”.

Analysis

63. On that footing, the repair being undertaken to this car was clearly not using it. It was not being operated in any way at all but was immobile and

indeed partly off the ground so that it could be worked on.

64. If I took that view, Phoenix’s alternative argument is that some other use of the car which is uncontroversial nonetheless caused this accident. This arises in the context of causation, to which I now turn.

Causation

65. The only English authority which is in point here is Dunthorne . Here the driver had parked her car on the road having run out of petrol. She ran across the road, having seen a colleague, but into the path of an oncoming car. She was killed and the driver of the other car, who was seriously injured, brought a claim. The question was whether the claim fell within the deceased’s insurance policy on the basis that the injuries were caused by or arose out of the use of her car. There was no real doubt about what the use was. It was driving and then parking up the car. The question was whether the later accident arose out of it. The Court of Appeal held that it did. Rose LJ pointed to the fact that the reason she was crossing the road was because of her recent use of the car and indeed it was conceded that if she had got out of the car to get petrol that would arise out of its use. It is worth noting that Pill and Hutchison LJJ both thought that the case was close to the line. And Hutchison LJ made clear that he was not accepting some general principle that every time a driver gets out of the car to seek assistance, that must be use of the car. That is obviously right. If a driver leaves the car at home and then later walks to a garage to buy a can of oil, in one “but for” sense, it could be said that without the car having been there and being previously used, he would not be walking to the garage but that would surely not be enough to make any incident in that journey arise from use of the car. As with what constitutes use within a particular defi nition, what is caused by or arises out of such use is a question of fact and degree in each case.

66. Here, in the alternative, Phoenix argues that the fi re arose out of the use of Mr Holden’s car. Either because he had just been driving it, or because he drove it into the garage, or because he drove it in near mats on the fl oor which also caught fi re, or because he would be driving it afterwards, and points of this kind. (See paras 34 to 37 of the Defence.) This is a wholly artifi cial analysis in my judgment. The fi re was caused by and arose out the allegedly negligent repair of the car by the use of grinders and welders without taking any precautions with regard to fl ammable materials in the car itself. For that reason these alternative arguments also fail.






The meaning of “accident”

67. In the light of my fi ndings above, it has not been necessary to resolve a further issue as to whether the fi re resulting from the repair constituted an “accident” at all. Had I found the requisite use and causation, I would have held that there was an “accident” here because it was a fortuitous or unexpected incident. The word cannot be confi ned to where the incident is a collision between two

vehicles or one vehicle and a person or property. But as I say, this point does not strictly arise.

Conclusion

68. Accordingly the policy does not respond to this particular claim and UK is entitled to the declaration sought. The counterclaim must be dismissed. I am grateful to both counsel for their assistance and the excellence of their submissions.

————————————————–





June 2016

Volume 28 • Number 6

(2016) 28 ILM 6 7

EDITORProfessor R Merkin QC, LLD

Lloyd’s Law ReportsProfessor of Commercial Law, University of Exeter

Special Counsel, DLA Piper, New Zealand (a member of the DLA Piper Group)

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Liability and motor insuranceReasonable care and recklessness clauses

The decision of the New South Wales Court of Appeal in Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [2016] NSWCA 67, the leading judgment being delivered by Meagher J, contains a detailed analysis of obligations on the assured to take reasonable care and to avoid reckless behaviour. The decision, which cites both English and Australian authority, confirms that such provisions are to be construed narrowly.

Barrie Toepfer: the policyThe assured, BTE, conducted an earthmoving and heavy vehicle transport business in the Newcastle and Central Coast areas of New South Wales from premises at Wyee. It was insured by CGU and two other insurers under a Commercial Motor Vehicle Policy that covered loss, liability or damage arising out of an accident involving any of its vehicles. The insured vehicles were “dozers, excavators, prime movers, tractors and trailers”. The policy contained two exclusions relevant to the facts of the present case.

Exclusion 7(i) excluded the liability of the insurer for any claim in respect of third-party damage if there was “Recklessness by You or any person acting on Your part or by reckless failure to comply with any statutory obligations and by-laws or regulations imposed by any public authority, for the safety of Motor Vehicle/s and, for the carriage of goods and merchandise”.

Condition 3 was a reasonable care clause in the following terms: “You and any person acting on Your behalf must exercise reasonable care and precautions to prevent loss or damage to the Motor Vehicle, and comply with all statutory obligations and by-laws or regulations imposed by any public authority, for the safety of the Motor Vehicle/s and, for the carriage of goods and merchandise”. This was subject to the overriding provision that: “We may refuse to pay a claim, or may reduce the amount payable under a claim to the extent that Your breach of any condition of this policy causes or contributes to loss, damage or liability or prejudices Our interest or rights, in respect of that claim”.

The loss and the issuesOn 15 April 2003 BTE planned to move a 16 tonne excavator from Wyee to North Arm Cove where it was to be used and then returned to Wyee. The transport was to be carried out by two employees, Mr Luck (the driver of the transport vehicle) and Mr Wyborn (the operator of the excavator), who had been employed for five and eight years respectively. It was loaded onto a low-loader at


Insurance Law Monthly . (2016) 28 ILM 6 7

Wyee and positioned so that its boom, arm and bucket were facing forward and tucked down so as not to rest on the raised front section of the low-loader. The low-loader was successfully transported to North Arm Cover. The problem arose on the return journey to Wyee. The load was inspected at a weighing station at Twelve Mile Creek, and the inspector informed Mr Luck that the weight distribution on the rear axles exceeded statutory limits. To remedy the problem Mr Luck and Mr Wyborn repositioned the excavator so that the bucket rested on the raised front section of the low-loader, raising the height from 4.49 m to 5.46 m. The inspector did not raise any concern as to the height of the excavator. The maximum permissible height on NSW roads at the time, under the Road Transport (Vehicle Registration) Regulation 1998 (SI 1998 No 341), was 4.3 m without a special permit and 4.8 m with a special permit.

The low-loader was driven across Hexham Bridge, a lift span opening bridge with overhead beams. The height of the beams was between 5.52 and 5.58 m, but there was a sign on the approach stating that the clearance was only 4.8 m. The boom of the excavator struck the beams, causing significant damage to the bridge.

The Roads and Traffic Authority (RTA) of New South Wales sought to recover some AUS$12.8 million by way of repair costs. In the same proceedings BTE sought indemnity from the insurers. They relied upon the recklessness exclusion (exclusion 7(i)) and the reasonable care condition (condition 3). The trial judge entered judgment for the RTA against BTE, but dismissed the claim against the insurers on the basis that Mr Luck had been reckless in that he appreciated that there was a danger that the load might strike the bridge but made a conscious decision to run that risk by not stopping or slowing. The insurers had thus proved breach of exclusion 7(i). There was also a failure to comply with condition 3. In deciding the latter point, the judge held that the burden of proof under condition 3 was borne by BTE, in that it was not an exclusion but rather a condition precedent and it was up to the assured to prove compliance.

In so deciding the judge did not deal with an alternative argument by the insurers that condition 3 was in two parts: an obligation to take reasonable care; and an absolute obligation not to infringe statutory requirements. He also did not deal with BTE’s arguments that the statutory obligations breached fell outside the two provisions. BTE appealed against the rulings on exclusion 7(i) and condition 3.

Burden of proof under condition 3The New South Wales Court of Appeal disagreed with the trial judge’s ruling that the burden of proving compliance with condition 3 was borne by the assured, and held instead that the insurers were required to prove non-compliance. In the present case the insuring clause provided that the insurers’ agreement to indemnify is subject to “the terms,

conditions and exclusions of this policy”, and that made it clear that the onus was on the insurers. Independently, the general principle remained that the party who made an allegation had to prove it.

Had Mr Luck been reckless?It was common ground that the reasonable care requirement in condition 3 meant that BTE was precluded from recovery only if its conduct had been reckless: the law on this point – as exemplified by Fraser v B N Furman (Productions) Ltd [1967] 2 Lloyd’s Rep 1 – is the same in both England and Australia. After a lengthy review of the evidence, including police interviews with Mr Luck and Mr Wyborn after the accident, the court held that the judge had erred in finding that both men had recognised that there was a risk. Mr Wyborn’s evidence was that he did not for a minute believe that there was a risk of collision, and Mr Luck’s evidence was that he thought that all was well given that the repositioning of the load had been at the direction of the RTA. Further, there was no explanation as to why, if the men had appreciated the risk, the vehicle had not slowed down when entering the bridge. It could not be said that the risk had been deliberately courted if neither man had been aware of it. That finding meant that there had not been recklessness as required by exclusion 7(i), and that the reasonable care requirement in condition 3 had not been broken. The court also rejected a further argument by the insurers that there had been recklessness in failing to stop on the bridge once there had been the sound of contact with it, in that it had been necessary to take account of other traffic on the bridge and the vehicle could not have been stopped within a short distance.

The interpretation of condition 3As noted above, condition 3 was in two parts: an obligation to take reasonable care, and an obligation to comply with statutory requirements. The insurers’ case was that the two parts of condition 3 were to be construed disjunctively so that the latter obligation was absolute and did not rest upon proof of recklessness. Meagher J rejected that argument. The policy had to be given a businesslike interpretation, and a consistent construction was to be preferred. Condition 3 was headed “Reasonable Care”. That point aside, if it was right that condition 3 in that respect imposed an absolute obligation, then it was inconsistent with the second part of exclusion 7(i) under which cover was excluded for a reckless disregard of statutory rules.

Statutory obligationsIt will be recalled that both provisions demanded compliance with statutory obligations “for the safety of Motor Vehicle/s and, for the carriage of goods and merchandise”. The court was satisfied that the alleged infringements relied upon



Wyee and positioned so that its boom, arm and bucket were facing forward and tucked down so as not to rest on the raised front section of the low-loader. The low-loader was successfully transported to North Arm Cover. The problem arose on the return journey to Wyee. The load was inspected at a weighing station at Twelve Mile Creek, and the inspector informed Mr Luck that the weight distribution on the rear axles exceeded statutory limits. To remedy the problem Mr Luck and Mr Wyborn repositioned the excavator so that the bucket rested on the raised front section of the low-loader, raising the height from 4.49 m to 5.46 m. The inspector did not raise any concern as to the height of the excavator. The maximum permissible height on NSW roads at the time, under the Road Transport (Vehicle Registration) Regulation 1998 (SI 1998 No 341), was 4.3 m without a special permit and 4.8 m with a special permit.

The low-loader was driven across Hexham Bridge, a lift span opening bridge with overhead beams. The height of the beams was between 5.52 and 5.58 m, but there was a sign on the approach stating that the clearance was only 4.8 m. The boom of the excavator struck the beams, causing significant damage to the bridge.

The Roads and Traffic Authority (RTA) of New South Wales sought to recover some AUS$12.8 million by way of repair costs. In the same proceedings BTE sought indemnity from the insurers. They relied upon the recklessness exclusion (exclusion 7(i)) and the reasonable care condition (condition 3). The trial judge entered judgment for the RTA against BTE, but dismissed the claim against the insurers on the basis that Mr Luck had been reckless in that he appreciated that there was a danger that the load might strike the bridge but made a conscious decision to run that risk by not stopping or slowing. The insurers had thus proved breach of exclusion 7(i). There was also a failure to comply with condition 3. In deciding the latter point, the judge held that the burden of proof under condition 3 was borne by BTE, in that it was not an exclusion but rather a condition precedent and it was up to the assured to prove compliance.

In so deciding the judge did not deal with an alternative argument by the insurers that condition 3 was in two parts: an obligation to take reasonable care; and an absolute obligation not to infringe statutory requirements. He also did not deal with BTE’s arguments that the statutory obligations breached fell outside the two provisions. BTE appealed against the rulings on exclusion 7(i) and condition 3.

Burden of proof under condition 3The New South Wales Court of Appeal disagreed with the trial judge’s ruling that the burden of proving compliance with condition 3 was borne by the assured, and held instead that the insurers were required to prove non-compliance. In the present case the insuring clause provided that the insurers’ agreement to indemnify is subject to “the terms,

conditions and exclusions of this policy”, and that made it clear that the onus was on the insurers. Independently, the general principle remained that the party who made an allegation had to prove it.

Had Mr Luck been reckless?It was common ground that the reasonable care requirement in condition 3 meant that BTE was precluded from recovery only if its conduct had been reckless: the law on this point – as exemplified by Fraser v B N Furman (Productions) Ltd [1967] 2 Lloyd’s Rep 1 – is the same in both England and Australia. After a lengthy review of the evidence, including police interviews with Mr Luck and Mr Wyborn after the accident, the court held that the judge had erred in finding that both men had recognised that there was a risk. Mr Wyborn’s evidence was that he did not for a minute believe that there was a risk of collision, and Mr Luck’s evidence was that he thought that all was well given that the repositioning of the load had been at the direction of the RTA. Further, there was no explanation as to why, if the men had appreciated the risk, the vehicle had not slowed down when entering the bridge. It could not be said that the risk had been deliberately courted if neither man had been aware of it. That finding meant that there had not been recklessness as required by exclusion 7(i), and that the reasonable care requirement in condition 3 had not been broken. The court also rejected a further argument by the insurers that there had been recklessness in failing to stop on the bridge once there had been the sound of contact with it, in that it had been necessary to take account of other traffic on the bridge and the vehicle could not have been stopped within a short distance.

The interpretation of condition 3As noted above, condition 3 was in two parts: an obligation to take reasonable care, and an obligation to comply with statutory requirements. The insurers’ case was that the two parts of condition 3 were to be construed disjunctively so that the latter obligation was absolute and did not rest upon proof of recklessness. Meagher J rejected that argument. The policy had to be given a businesslike interpretation, and a consistent construction was to be preferred. Condition 3 was headed “Reasonable Care”. That point aside, if it was right that condition 3 in that respect imposed an absolute obligation, then it was inconsistent with the second part of exclusion 7(i) under which cover was excluded for a reckless disregard of statutory rules.

Statutory obligationsIt will be recalled that both provisions demanded compliance with statutory obligations “for the safety of Motor Vehicle/s and, for the carriage of goods and merchandise”. The court was satisfied that the alleged infringements relied upon

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(2016) 28 ILM 6 7 . Insurance Law Monthly

did not fall into these categories, and for that reason alone

neither condition 3 nor exclusion 7(i) had been infringed by

reason of such breaches alone.

“Any person acting”Condition 3 used the expression “any person acting on

Your behalf ” and exclusion 7(i) used the phrase “any person

acting on Your part”. Although the point did not arise, the

court considered briefly the assured’s argument that these

phrases merely codified the principle in Tesco Supermarkets

Ltd v Nattrass [1972] AC 153 that only those individuals

constituting the controlling mind and will of BTE were

within their scope. Mr Luck was a driver and not a director or

senior executive and thus could not be regarded as acting on

the part of BTE. Meagher J had little difficulty in dismissing this contention in the following terms:

“Provisions such as those in issue in this case were no doubt included to extend the obligation imposed by the condition to persons employed by an employer to take the relevant precautions. Accepting that Mr Luck’s duties as an employee included taking care to prevent loss or damage to any insured vehicle that he was driving, or had responsibility for, he would in my view be a person acting ‘on Your behalf ’ within condition 3. Although the language in exclusion 7(i) is slightly different, the notion of ‘acting on Your part’ equally is directed to a person acting for, or on behalf of or in the interests of the company in a relevant activity, and for that reason would include an employee such as Mr Luck.”



COURT OF JUSTICE OF THE EUROPEAN UNION

21 January 2016

————–

ERGO INSURANCE SE v

IF P&C INSURANCE AS

GJENSIDIGE BALTIC AAS v

PZU LIETUVA UAB DK

Joined Cases C-359/14 and C-475/14

Before Judge L BAY LARSEN , President of the Third Chamber,

Judge J MALENOVSKÝ , Judge M SAFJAN , Rapporteur,

Judge S PRECHAL and Judge K JÜRIMÄE

Insurance (motor) — Applicable law — Two assureds liable for same loss — Allocation of liability — Right of subrogation of paying insurer —Regulation on the Law Applicable to Contractual Obligations, European Parliament and Council Regulation 593/2008 (Rome I) —Regulation on the Law Applicable to Non-Contractual Obligations, European Parliament and Council Regulation 864/2007 (Rome II) — Consolidated Motor Insurance Directive, European Parliament and Council Directive 2009/103/EC.

This was a reference to the CJEU by the courts of Lithuania in two joined cases with similar facts.

In Case C-359/14, on 1 September 2011, near Mannheim in Germany, a tractor coupled with a trailer overturned while performing a U-turn. The driver of the tractor was held to be responsible. The insurer of the tractor, ERGO, paid the victims, and then brought an action in Lithuania against the insurer of the trailer, If P&C, for half of the sum paid on the ground that it had to assume one-half of the liability. A dispute arose as to how the law applicable to the claim was to be determined. The Lithuanian court referred two questions to the CJEU. (1) Did article 4(4) of the Rome I Regulation (providing that in the absence of choice of law for a contract, the applicable law is the law with which the contract is most closely connected) mean that German law was applicable. (2) If German law was not applicable, was the principle in article 4 of the Rome II Regulation (providing that in a tort claim the

governing law is the law of the country where the damage occurred) the governing provision?

In Case C-475/14, on 21 January 2011 in Germany, a tractor coupled with a trailer caused damage to property belonging to third parties. The tractor was insured by Baltic and the trailer was insured by PZU. Baltic paid compensation to the German victims and sought to recover half of that amount from PZU. The Lithuanian court referred three questions to the CJEU. (1) Did article 14(b) of the Consolidated Motor Insurance Directive (which requires that a policy provides, for a single premium, the cover required by the law in each member state) lay down a confl ict of law rule. (2) If that was not the case, were the relations between the insurers contractual obligations within the Rome I Regulation so that the law applicable to the dispute was determined in accordance with the special choice of law rules for insurance contracts in article 7? (3) If that was not the case, were the relations between the insurers non-contractual within the Rome II Regulation so that the applicable law was to be determined by article 4 of that Regulation, and were the two insurers debtors liable for the same claim under article 20 so that the applicable law was the law governing the insurer’s non-contractual obligation to the victims . ——— Held , by CJEU, that the questions referred would be answered as follows.

(1) Article 14(b) of the Consolidated Motor Insurance Directive did not contain any specifi c confl ict of law rule intended to determine the law applicable to an action for indemnity between insurers in the present circumstances. It dealt exclusively with the territorial extent and level of cover that the insurer was required to provide ( see paras 38, 40, 41 and 42).

(2) The Rome I and Rome II Regulations were to be interpreted as meaning that the law applicable to an action for indemnity between the insurer of a tractor and the insurer of the trailer was to be determined in accordance with the law applicable to the insurance policy under article 7 of the Rome I Regulation where the rules of liability in tort under the Rome II Regulation provided for an apportionment of the obligation to compensate for the damage.

(a) Only a legal obligation freely consented to by one person towards another was a matter relating to a contract within the Rome I Regulation. The Rome II Regulation applied to obligations in tort. In the present case contractual obligations existed between the insurers and the owners or drivers of the tractor, and between the insurers the owners of the trailer, but there was no contract between the insurers ( see paras 44, 45 and 47);

ERGO Insurance SE v If P&C Insurance AS


CJEU] PART 5



——— Östergötlands Fastigheter AB (ÖFAB) v Koot Case C-147/12, Kolassa v Barclays Bank plc Case C-375/13, applied.

(b) The very existence of the right of the insurer of a tractor unit, the driver of which caused an accident, to bring an action for indemnity against the insurer of a trailer, once the victim had been compensated, could not be inferred from the insurance contract, but was based on the premise that the owner of the trailer would concomitantly incur liability in tort in relation to the same victim. An obligation to pay compensation by the owner of the trailer must, therefore, be regarded as “non-contractual”. The applicable law under article 4 of the Rome II Regulation was that of the country where damage directly resulting from the accident was suffered. German law thus determined the respective liabilities of the owners of the trailer and tractor ( see paras 51, 52 and 53); ——— Lazar v Allianz SpA Case C-350/14, applied.

(c) The obligation of an insurer to compensate the damage caused to the victim arose from the contract between it and the insured party, and was therefore based on a contractual obligation. The applicable law was to be determined in accordance with the Rome I Regulation ( see para 54).

(d) Article 19 of the Rome II Regulation provided that the issue of any subrogation of the victim’s rights was governed by the law applicable to the obligation of the third party, namely the civil liability insurer, to compensate that victim. That obligation arose under a contract of insurance, so that the applicable law was to be determined under article 7 of the Rome I Regulation ( see paras 57 and 58).

(e) It was for the referring court to establish, fi rst of all, how damages paid to the victim were to be divided between the owner of the tractor and the owner of the trailer, under the Rome II Regulation. Rights of subrogation were then to be determined in accordance with the law applicable to the policy under article 7 of the Rome I Regulation ( see paras 61 and 62).

————–

The following cases were referred to in the judgment: Kolassa v Barclays Bank plc Case C-375/13

(CJEU); Lazar v Allianz SpA Case C-350/14 (CJEU); Östergötlands Fastigheter AB (ÖFAB) v Koot Case

C-147/12 (CJEU).

————–

M Navickas, for ERGO Insurance SE; A Rjabovs, for Gjensidige Baltic AAS; A Kunčiuvienė, for If P&C Insurance; R Krasuckaitė, G Taluntytė and D Kriaučiūnas, for the Lithuanian government; T Henze and J Kemper, for the German government; A Steiblytė and M Wilderspin, for the European Commission.

Thursday, 21 January 2016

————–

JUDGMENT

COURT OF JUSTICE OF THE EUROPEAN UNION:

1. These requests for a preliminary ruling concern the interpretation of article 14(b) of Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability (OJ 2009 L 263, p 11), and Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (OJ 2008 L 177, p 6) (“the Rome I Regulation”) and Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) (OJ 2007 L 199, p 40) (“the Rome II Regulation”).

2. The requests have been made in two sets of proceedings between the insurance companies “ERGO Insurance” SE and “If P&C Insurance” AS, on one hand, and “Gjensidige Baltic” AAS and “PZU Lietuva” UAB DK on the other, concerning the law applicable to actions for indemnity between the parties following road traffi c accidents which occurred in Germany.

Legal context

EU law

The Rome I Regulation

3. According to recital 7 in the preamble to the Rome I Regulation:

“The substantive scope and the provisions of this Regulation should be consistent with Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [OJ 2001 L 12, p 1] (‘the Brussels I Regulation’) and the [Rome II Regulation].” 4. Article 1(1) of the Rome I Regulation defi nes

the scope of that Regulation as follows:



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“This Regulation shall apply, in situations involving a confl ict of laws, to contractual obligations in civil and commercial matters.

It shall not apply, in particular, to revenue, customs or administrative matters.” 5. Article 4 of that Regulation, entitled

“Applicable law in the absence of choice”, provides: “1. To the extent that the law applicable to

the contract has not been chosen in accordance with Article 3 and without prejudice to Articles 5 to 8, the law governing the contract shall be determined as follows:

(a) a contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence;

(b) a contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence;

(c) a contract relating to a right in rem in immovable property or to a tenancy of immovable property shall be governed by the law of the country where the property is situated;

(d) notwithstanding point (c), a tenancy of immovable property concluded for temporary private use for a period of no more than six consecutive months shall be governed by the law of the country where the landlord has his habitual residence, provided that the tenant is a natural person and has his habitual residence in the same country;

(e) a franchise contract shall be governed by the law of the country where the franchisee has his habitual residence;

(f) a distribution contract shall be governed by the law of the country where the distributor has his habitual residence;

(g) a contract for the sale of goods by auction shall be governed by the law of the country where the auction takes place, if such a place can be determined;

(h) a contract concluded within a multilateral system which brings together or facilitates the bringing together of multiple third-party buying and selling interests in fi nancial instruments, as defi ned by Article 4(1), point (17) of Directive 2004/39/EC, in accordance with non-discretionary rules and governed by a single law, shall be governed by that law. 2. Where the contract is not covered by

paragraph 1 or where the elements of the contract would be covered by more than one of points (a) to (h) of paragraph 1, the contract shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence.

3. Where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply.

4. Where the law applicable cannot be determined pursuant to paragraphs 1 or 2, the contract shall be governed by the law of the country with which it is most closely connected.” 6. Article 7 of that Regulation, entitled

“Insurance contracts”, provides as follows: “1. This Article shall apply to contracts

referred to in paragraph 2, whether or not the risk covered is situated in a Member State, and to all other insurance contracts covering risks situated inside the territory of the Member States. It shall not apply to reinsurance contracts.

2. An insurance contract covering a large risk as defi ned in Article 5(d) of the First Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance [(OJ 1973 L 228, p 3), as amended by Directive 2005/68/EC of the European Parliament and of the Council of 16 November 2005 (OJ 2005 L 323, p 11)], shall be governed by the law chosen by the parties in accordance with Article 3 of this Regulation.

To the extent that the applicable law has not been chosen by the parties, the insurance contract shall be governed by the law of the country where the insurer has his habitual residence. Where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with another country, the law of that other country shall apply.

. . . 6. For the purposes of this Article, the country

in which the risk is situated shall be determined in accordance with Article 2(d) of the Second Council Directive 88/357/EEC of 22 June 1988 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services [(OJ 1988 L 172, p 1), as amended by Directive 2005/14 of the European Parliament and of the Council of 11 May 2005 (OJ 2005 L 149, p 14)], and, in the case of life assurance, the country in which the risk is situated shall be the country of the commitment within the meaning of Article 1(1)(g) of Directive 2002/83/EC.” 7. Under article 15 of the same Regulation,

entitled “Legal subrogation”:



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“Where a person (the creditor) has a contractual claim against another (the debtor) and a third person has a duty to satisfy the creditor, or has in fact satisfi ed the creditor in discharge of that duty, the law which governs the third person’s duty to satisfy the creditor shall determine whether and to what extent the third person is entitled to exercise against the debtor the rights which the creditor had against the debtor under the law governing their relationship.” 8. Article 16 of the Rome I Regulation, entitled

“Multiple liability”, provides: “If a creditor has a claim against several debtors

who are liable for the same claim, and one of the debtors has already satisfi ed the claim in whole or in part, the law governing the debtor’s obligation towards the creditor also governs the debtor’s right to claim recourse from the other debtors. The other debtors may rely on the defences they had against the creditor to the extent allowed by the law governing their obligations towards the creditor.” 9. Article 23 of that Regulation, entitled

“Relationship with other provisions of Community law”, provides:

“With the exception of Article 7, this Regulation shall not prejudice the application of provisions of Community law which, in relation to particular matters, lay down confl ict-of-law rules relating to contractual obligations.”

The Rome II Regulation

10. Recital 7 in the preamble to the Rome II Regulation states:

“The substantive scope and the provisions of this Regulation should be consistent with [the Brussels I Regulation] and the instruments dealing with the law applicable to contractual obligations.” 11. Under article 4 of that Regulation, entitled

“General Rule”: “1. Unless otherwise provided for in this

Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.

2. However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply.

3. Where it is clear from all the circumstances of the case that the tort/delict is manifestly more

closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question.” 12. Article 15 of the Regulation, which is

entitled “Scope of the law applicable”, provides: “The law applicable to non-contractual

obligations under this Regulation shall govern in particular:

(a) the basis and extent of liability, including the determination of persons who may be held liable for acts performed by them;

(b) the grounds for exemption from liability, any limitation of liability and any division of liability;

. . .” 13. Article 18 of the Regulation, entitled “Direct

action against the insurer of the person liable”, states: “The person having suffered damage may

bring his or her claim directly against the insurer of the person liable to provide compensation if the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides.” 14. Article 19 of the same Regulation, entitled

“Subrogation”, states as follows: “Where a person (the creditor) has a non-

contractual claim upon another (the debtor), and a third person has a duty to satisfy the creditor, or has in fact satisfi ed the creditor in discharge of that duty, the law which governs the third person’s duty to satisfy the creditor shall determine whether, and the extent to which, the third person is entitled to exercise against the debtor the rights which the creditor had against the debtor under the law governing their relationship.” 15. Article 20 of the Rome II Regulation, entitled

“Multiple liability”, provides: “If a creditor has a claim against several debtors

who are liable for the same claim, and one of the debtors has already satisfi ed the claim in whole or in part, the question of that debtor’s right to demand compensation from the other debtors shall be governed by the law applicable to that debtor’s non-contractual obligation towards the creditor.” 16. Article 27 of that Regulation, entitled

“Relationship with other provisions of Community law”, provides:

“This Regulation shall not prejudice the application of provisions of Community law which, in relation to particular matters, lay down confl ict-of-law rules relating to non-contractual obligations.”



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Directive 2009/103/EC

17. Recital 26 in the preamble to Directive 2009/103 states:

“In the interests of the party insured, every insurance policy should guarantee for a single premium, in each Member State, the cover required by its law or the cover required by the law of the Member State where the vehicle is normally based, when that cover is higher.” 18. Article 3 of that Directive, entitled

“Compulsory insurance of vehicles”, provides in its third paragraph:

“Each Member State shall take all appropriate measures to ensure that the contract of insurance also covers:

(a) according to the law in force in other Member States, any loss or injury which is caused in the territory of those States;

. . .” 19. Article 14 of that Directive, entitled “Single

premium”, is worded as follows: “Member States shall take the necessary

steps to ensure that all compulsory policies of insurance against civil liability arising out of the use of vehicles:

(a) cover, on the basis of a single premium and during the whole term of the contract, the entire territory of the Community, including for any period in which the vehicle remains in other Member States during the term of the contract; and

(b) guarantee, on the basis of that single premium, in each Member State, the cover required by its law or the cover required by the law of the Member State where the vehicle is normally based when that cover is higher.”

Lithuanian law

20. The provisions of Directive 2009/103 were transposed into national law by the Law on compulsory insurance against civil liability in respect of the use of motor vehicles (TPVCAPDĮ), of 5 March 2004 (Zin, 2004, No 46-1498), as amended by Law No X-1137 of 17 May 2007 (Zin, 2007, No 61-2340 (“the Law on compulsory insurance”).

21. Article 10(1) of the Law on compulsory insurance, entitled “Territorial scope of insurance contracts”, provides:

“A standard insurance contract [for a vehicle which is normally based in Lithuania] or a cross border insurance contract shall on the basis of a single premium and during the whole term of the insurance contract, including for any period in which the motor vehicle remains in other Member States during the term of the insurance contract,

provide insurance coverage in any Member State of the European Union to the extent required by the legal acts of the respective Member State of the European Union regulating compulsory insurance against civil liability in respect of the use of motor vehicles or to the extent required by this Law, if that coverage is higher . . . ” 22. Under article 11 of the Law on compulsory

insurance, entitled “Sums insured and insurance premiums”:

“. . . 3. The insurer shall pay compensation for

the damage caused in another Member State of the European Union based on the sums insured in accordance with the legal acts of the Member State concerned or the sums insured as specifi ed in paragraph 1 of this Article, if the latter are greater.

. . .” 23. Article 16(1) of that law, entitled “Principles

of paying compensation”, provides: “The responsible insurer or the Bureau shall

pay compensation if the user of motor vehicle incurs civil liability for damage caused to an injured third party. The compensation is to be paid in accordance with the legislation regulating compulsory insurance against civil liability in respect of the use of motor vehicles of the State in which the road traffi c accident took place.

. . .”

The actions in the main proceedings and the questions referred for a preliminary ruling

Case C-359/14

24. On 1 September 2011, near Mannheim (Germany), a tractor unit coupled with a trailer overturned on the road while performing a U-turn. On the basis of the fi ndings made by police offi cers who attended the site of the accident, the driver of the tractor unit was held to be responsible. Consequently, the insurer of that vehicle, a branch of ERGO Insurance SE, paid the victims of the accident 7,760.02 Lithuanian litas (LTL) (approximately €2,255). That insurer then brought an action before the referring court seeking an order for the insurer of the trailer, that is the Lithuanian branch of If P&C Insurance AS, to pay half of the compensation on the ground that it had to assume joint liability for the damage caused.

25. According to the referring court, there are doubts as to how to determine the law applicable to the dispute between those two insurers.

26. It was in those circumstances that the Vilniaus miesto apylinkės teismas (District Court of the City of Vilnius) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:



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“(1) Must Article 4(4) of the Rome I Regulation, which provides that ‘[w]here the law applicable cannot be determined pursuant to [Article 4(1) or (2)], the contract shall be governed by the law of the country with which it is most closely connected’, be interpreted as meaning that, in circumstances such as those at issue in the case in the main proceedings, German law has to be applied?

(2) If the answer to the fi rst question is in the negative, must the principle laid down in Article 4 of the Rome II Regulation be interpreted as meaning that, in circumstances such as those at issue in the case in the main proceedings, the law to be applied to the dispute between the insurer of the tractor unit and the insurer of the trailer must be determined in accordance with the law of the country of the place in which the damage resulting from the road traffi c accident occurred?”

Case C-475/14

27. In a road traffi c accident which occurred in Germany on 21 January 2011, a tractor unit coupled with a trailer caused damage to property belonging to third parties. At the time, the tractor unit was insured against civil liability with the Lithuania branch of Gjensidige Baltic. The trailer was insured under an insurance contract against civil liability concluded with PZU Lietuva.

28. Following claims submitted in Germany by the victims of that accident, Gjensidige Baltic paid compensation of 4,331.05 LTL (approximately €1,254.36). Gjensidige Baltic takes the view that since that compensation covered all the damage suffered by those victims, it could bring an action for indemnity against PZU Lietuva to recover half of that amount, that is 2,165.53 LTL (approximately €629).

29. By judgment of 2 January 2013, the Vilniaus miesto apylinkės teismas (District Court of the City of Vilnius) upheld Gjensidige Baltic’s action. It ordered PZU Lietuva to reimburse Gjensidige Baltic the compensation paid out in the sum of 2,165.53 LTL, plus 6 per cent annual interest. That court held that, in accordance with article 4(1) of the Rome II Regulation, German law applied to the non-contractual obligation arising from the event giving rise to the damage. Under German law, liability on account of the damage resulting from a road traffi c accident caused by a vehicle coupled with a trailer must be shared. Where the damage is compensated by one of the insurers, the latter is entitled to recover half of the amount from another insurer.

30. By judgment of 8 November 2013, the Vilniaus apygardos teismas (Vilnius Court of Appeal) set aside the judgment of the Vilniaus miesto apylinkės teismas (District Court of the City of Vilnius) and dismissed the action for

indemnity brought by Gjensidige Baltic. The Court of Appeal held that, in the case at issue in the main proceedings, issues pertaining to the civil liability of vehicle users had to be resolved on the basis of the compulsory civil liability insurance contract for vehicle users and that the provisions of the Rome II Regulation were not applicable. Given that a compulsory insurance contract had been concluded in the case in the main proceedings, the situation at issue could not fall within tort, delict or quasi-delict. Taking the view that PZU Lietuva’s obligation derived from the compulsory insurance contract, that court held that Lithuanian law applied.

31. The appeal in cassation brought by Gjensidige Baltic before the referring court seeks to have that judgment set aside and to have the judgment of 2 January 2013 of the Vilniaus miesto apylinkės teismas (District Court of the City of Vilnius) confi rmed.

32. The referring court observes that the dispute concerns essentially the classifi cation of the legal relationship existing between the respective insurers of the tractor unit and the trailer, and the determination of the law applicable to that relationship. That classifi cation is decisive for the dispute, since the Lithuania and German legal systems lay down different principles for the allocation of responsibility between the insurer of the tractor unit and the insurer of the trailer where the damage is caused by a towing vehicle.

33. Furthermore, it is necessary to determine whether, as Gjensidige Baltic claims, article 14(b) of Directive 2009/103 lays down a confl ict of law rule according to which the law of the place where the accident occurred is applicable to a dispute between insurers such as that at issue in the main proceedings.

34. In those circumstances, the Lietuvos Aukščiausiasis Teismas decided to stay the proceedings and to refer the following questions to the court for a preliminary ruling:

“(1) Does Article 14(b) of [Directive 2009/103] lay down a confl ict-of-law rule, which ratione personae should be applied not only to the victims of road traffi c accidents but also to the insurers of the vehicle responsible for the damage caused in the accident, for the purposes of determining the law applicable to the relations between them, and is this provision a special rule with respect to the rules on the applicable law laid down in [Rome I and Rome II]?

(2) If the fi rst question is answered in the negative, it is important to ascertain whether the legal relations between the insurers in the present case fall within the concept of ‘contractual obligations’ within the meaning of Article 1(1) of the Rome I Regulation. If the legal relations between the insurers do fall within the concept of



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‘contractual obligations’, the important question is then whether those relations fall within the category of insurance contracts and whether the law applicable to them must be determined in accordance with Article 7 of the Rome I Regulation.

(3) If the fi rst two questions are answered in the negative, it is important to ascertain whether, in the case of an action for indemnity, the legal relations between the insurers of vehicles used in a combination fall within the defi nition of a ‘non-contractual obligation’ within the meaning of the Rome II Regulation and whether or not these relations should be treated as derivative legal relations arising as a result of the road traffi c accident (delict), when determining the applicable law in accordance with Article 4(1) of the Rome II Regulation. In a case such as the present case, must the insurers of the vehicles used in a combination be treated as debtors who are liable for the same claim within the meaning of Article 20 of the Rome II Regulation, and must the law applicable to the relations between them be determined according to that rule [?]” 35. By order of the President of the Court of 19

November 2007, Cases C-359/14 and C-475/14 were joined for the purposes of the oral procedure and of the judgment.

Consideration of the questions referred for apreliminary ruling

36. By their questions, which it is appropriate to examine together, the referring courts ask essentially how to interpret the Rome I and II Regulations and Directive 2009/103 in order to determine the law or laws applicable to an action for indemnity between the insurer of a tractor unit, which has compensated the victims of an accident caused by the driver of that vehicle, against the insurer of the trailer which, at the time of the accident, was coupled to that vehicle.

37. It should be stated that, as is clear from article 1 thereof, the Rome I and II Regulations have harmonised the confl ict of law rules on the applicable laws in civil and commercial matters relating to contractual obligations and non-contractual obligations respectively. The law applicable to those two categories of obligations must be determined by means of one or other of those regulations, without prejudice however to the rules referred to in articles 23 and 25 of the Rome I Regulation and articles 27 and 28 of the Rome II Regulation.

38. In that regard, it must be observed, fi rst, in answer to the question referred by the Lietuvos Aukščiausiasis Teismas (Supreme Court, Lithuania) in Case C-475/14, that article 14(b) of Directive

2009/103 does not lay down a special confl ict of law rule with regard to the confl ict of law rules laid down in the Rome I and II Regulations regarding actions for indemnity between insurers and, therefore, does not fulfi l the conditions laid down in article 23 of the Rome I Regulation and article 27 of the Rome II Regulation respectively.

39. Directive 2009/103 requires member states to adopt measures guaranteeing that the victim of a road traffi c accident and the owner of the vehicle involved in that accident are protected. According to recital 12 in the preamble thereto, that Directive has a general objective of ensuring the protection of accident victims by guaranteeing that they receive a minimum amount of insurance cover.

40. There is nothing in the wording or the objectives of Directive 2009/103 to suggest that it is intended to lay down confl ict of law rules.

41. More particularly, article 14 of that Directive, read together with recital 26 in the preamble thereto, merely requires member states to take the measures necessary so that motor insurance policies cover, on the basis of a single premium, all the territory of the European Union for the term of the contract, and that they guarantee, on the basis of that premium, in each of the member states the cover required by its law or the cover required by the law of the member state where the vehicle is normally based when that cover is higher.

42. That provision therefore deals exclusively with the territorial extent and level of cover that the insurer is required to provide, so as to ensure adequate protection for the victims of road traffi c accidents. No rule can be inferred according to which the law of the member state thus determined governs the allocation of responsibility between insurers.

43. Secondly, as regards the respective scopes of the Rome I and Rome II Regulations, the defi nitions of “contractual obligation” and “non-contractual” obligation set out therein must be interpreted independently, by reference to their scheme and purpose (see, by analogy, judgment in Östergötlands Fastigheter AB (ÖFAB) v Koot Case C-147/12, para 27). As is clear from recital 7 in the preamble to each of those Regulations, account should be taken not only of the aim of consistency in the reciprocal application of those Regulations, but also in the application of the Brussels I Regulation which, inter alia, draws a distinction, in article 5 thereof, between matters relating to contract and matters relating to tort, delict and quasi-delict.

44. It is clear from the case law of the court on the Brussels I Regulation that only a legal obligation freely consented to by one person towards another and on which the claimant’s action is based is a “matter relating to contract” within the meaning of article 5(1) thereof (see judgment



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in Kolassa v Barclays Bank plc Case C-375/13, para 39). By analogy, and in accordance with the aim of consistency mentioned in para 43 of the present judgment, it must be held that the concept of “contractual obligation” within the meaning of article 1 of the Rome I Regulation designates a legal obligation freely consented to by one person towards another.

45. As regards the concept of “non-contractual obligation”, within the meaning of article 1 of the Rome II Regulation, it must be recalled that the concept of “matters relating to tort, delict and quasi-delict”, within the meaning of article 5(3) of the Brussels I Regulation, includes all actions which seek to establish the liability of a defendant and are not related to a “contract” within the meaning of article 5(1) thereof (judgment in ÖFAB , para 32 and the case law cited). Furthermore, it must be observed, as appears from article 2 of the Rome II Regulation, that that Regulation applies to obligations ensuring from damage, that is to say, any consequence arising out of tort/delict, unjust enrichment, “negotiorum gestio” or “culpa in contrahendo”.

46. In the light of the above, “non-contractual obligation” must be understood as meaning an obligation which derives from one of the events listed in article 2 of that Regulation, set out in the preceding paragraph of this judgment.

47. In the present case, it is clear from the orders for reference that contractual obligations, within the meaning of the Rome I Regulation, exist between the insurers and the owners or drivers of the tractor and the owners of the trailer respectively. However, there is no contractual undertaking between the two insurers.

48. In addition, the existence and extent of the obligation to compensate the victims at issue in the main proceedings depend, above all, on assessments relating to the road traffi c accidents which gave rise to the damage concerned. Those assessments, concerning tort or delict, are foreign to the contractual relationship between the insurers and their respective insured.

49. As to whether the insurer of a tractor unit, which compensated a victim for all the harm sustained as a result of the accident involving both the tractor vehicle and the trailer coupled to it, may bring an action for indemnity against the insurer of the trailer, the following observations should be made.

50. First, the very existence of the right of the insurer of a tractor unit, the driver of which caused an accident, to bring an action for indemnity against the insurer of a trailer, once the victim has been compensated, cannot be inferred from the insurance contract, but is based on the premise that the owner of the trailer will concomitantly incur liability in tort, delict or quasi-delict in relation to the same victim.

51. In that connection, it must be observed that such an obligation to pay compensation by the owner of the trailer must, therefore, be regarded as a “non-contractual” obligation, within the meaning of article 1 of the Rome II Regulation. Therefore, it is in the light of the provisions of that regulation that the law applicable to the obligation must be determined.

52. In accordance with article 4 of that Regulation, save as otherwise provided, the law applicable to such a non-contractual obligation is that of the country in which the harm was sustained, that is, in the cases in the main proceedings, the country in which the damage directly resulting from the accident is suffered (see, to that effect, judgment in Lazar v Allianz SpA Case C-350/14, para 24). According to article 15(a) and (b) of the Rome II Regulation, that law will determine the basis and extent of liability and the grounds for any division of that responsibility.

53. Therefore, it is in the light of the law of the place of the direct harm, in the present case German law, that the debtors of the obligation to compensate the victim and, if appropriate, the respective contributions of the owner of the trailer and of the owner or driver of the tractor unit to the damage caused to the victim must be determined.

54. Secondly, it must be recalled that the obligation for an insurer to compensate the damage caused to a victim arises not from the damage caused to the latter but from the contract between it and the insured party who is liable. Such compensation is therefore based on a contractual obligation, since the law applicable to such an obligation must be determined in accordance with the provisions of the Rome I Regulation.

55. Therefore, it must be examined, in the light of the law applicable to the contract of insurance of the tractor units, such as those at issue in the main proceedings, and to that of the trailers coupled to them, respectively, whether the insurers of those two kinds of vehicle were in fact bound, in accordance with those contracts, to compensate the victims of an accident caused by those vehicles.

56. Thirdly, regarding the issue whether the insurer of a tractor unit who has compensated a victim has, in some circumstances, a right to bring an action in subrogation against the insurer of the trailer, it must be observed that article 19 of the Rome II Regulation distinguishes between matters subject to the tort/delict regime and those subject to the contractual regime. That provision applies in particular to the situation in which a third party, namely an insurer, has compensated the victim of an accident, the creditor of an obligation in tort/delict of damages owed by the driver or owner of a motor vehicle, in order to discharge the duty to satisfy that obligation.



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57. More particularly, article 19 of the Rome II Regulation provides that, in that case, the issue of any subrogation of the victim’s rights is governed by the law applicable to the obligation of the third party, namely the civil liability insurer, to compensate that victim.

58. Thus, the insurer’s obligation to cover the civil liability of the insured party with respect to the victim resulting from the contract of insurance concluded with the insured party and the conditions under which the insurer may exercise the rights the victim of the accident has against the persons responsible for the accident depend upon the national law governing that insurance contract, which are determined in accordance with article 7 of the Rome I Regulation.

59. However, the law applicable to the determination of the persons who may be held liable and the allocation of responsibility between them and their respective insurers remains subject, in accordance with article 19, to article 4 et seq of the Rome II Regulation.

60. In particular, it must be held that, if, according to the law applicable by virtue of those provisions of the Rome II Regulation, the victim of a road traffi c accident caused by a tractor unit coupled with a trailer has rights against both the owner of the trailer and its insurer, the insurer of the tractor unit, after compensating the victim, has a right of action against the insurer of the trailer since the law applicable, in accordance with article 7 of the Rome I Regulation, to the insurance contract provides for subrogation of the insurer to the victim’s rights.

61. Therefore, it is for the referring courts to establish, fi rst of all, how the damages to be paid to the victim are to be divided between the driver and the owner of the tractor unit, on the one hand, and the owner of the trailer, on the other, in accordance with the rules of national law applicable by virtue of the Rome II Regulation.

62. Secondly, in accordance with article 7 of the Rome I Regulation, the law applicable to the insurance contract concluded between the insurers which are the applicants in the main proceedings and the respective insured parties must be determined, in order to ascertain whether and, if so, to what extent those insurers may, by subrogation, exercise the victim’s rights against the insurer of the trailer.

63. In the light of all of the foregoing, the answer to the questions referred is that article 14(b) of Directive 2009/103 must be interpreted as meaning that that provision does not contain any specifi c confl ict of law rule intended to determine the law applicable to the action for indemnity between

insurers in circumstances such as those at issue in the main proceedings.

64. The Rome I and Rome II Regulations must be interpreted to the effect that the law applicable to an action for indemnity between the insurer of a tractor unit, which has compensated the victims of an accident caused by the driver of that vehicle, against the insurer of the trailer coupled to it at the time of that accident, is to be determined in accordance with article 7 of the Rome I Regulation if the rules of liability in tort, delict and quasi-delict applicable to that accident by virtue of article 4 et seq of the Rome II Regulation provide for apportionment of the obligation to compensate for the damage.

Costs

65. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (Fourth Chamber) hereby rules:

Article 14(b) of Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability must be interpreted as meaning that that provision does not contain any specifi c confl ict of law rule intended to determine the law applicable to the action for indemnity between insurers in circumstances such as those at issue in the main proceedings.

Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) and Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations must be interpreted to the effect that the law applicable to an action for indemnity between the insurer of a tractor unit, which has compensated the victims of an accident caused by the driver of that vehicle, against the insurer of the trailer coupled to it at the time of that accident, is to be determined in accordance with article 7 of Regulation No 593/2008 if the rules of liability in tort, delict and quasi-delict applicable to that accident by virtue of article 4 et seq of Regulation No 864/2007 provide for an apportionment of the obligation to compensate for the damage.

————————————————–



CJEU] [CJEU


• serving the liability market and professions •

Liability,risk and insurance

EDITION: LRI DATE: 26, April, 2013 PAGE: 1 VERSION: 1

MotorThompsons warning over Brexit and foreign injuriesThompsons Solicitors has warned that making a claim for injuries sustained on the continent may be much harder after Brexit.

The law firm said that British holidaymakers travelling to European destinations will have a much more difficult time attempting to make a claim for a road accident as they will no longer be able to run their claim through a UK-based law firm or pursue a case in the UK courts.

At present, British tourists can claim for road crash injuries under the “European Motor Directives” which give a direct right of action against the insurer in the injured person’s home country. When the UK leaves the EU however, tourists involved in a car crash in Europe will struggle to recover damages for pain, suffering and expenses.

“While the UK is a member state of the EU, victims have a right to make a damages claim in the UK – even if they were injured abroad – meaning that in most cases, injured people are not required to tackle language barriers or incur huge travel expenses to enforce their rights,” said Thompsons.

Martin Gwyther, foreign jurisdiction claims expert at Thompsons Solicitors, said: “For UK citizens injured in Europe, pulling out of the EU will mean a personal injury claim will be a lot harder. The agreements that are now in place making it possible to get compensation relatively easily after, say, a road crash on holiday could well be ripped up on Brexit. Add to that the prospect of the Conservatives forcing through their proposal to raise the small claims limit in road accident cases, which will strip injured people of access to independent, free legal support, and you’re looking at a potential double attack on justice.”

EU Commission to tackle issues raised by Vnuk caseThe British Insurance Brokers Association (BIBA) has said that the EU Commission intends to put forward BIBA’s preferred solution to the problem for motor insurance resulting from the ruling on the Vnuk case (Vnuk v Zavarovalnica Triiglav dd [2015] Lloyd’s Rep IR 142).

BIBA CEO, Steve White had previously said: “BIBA has been working with interested parties in the insurance industry and motor sports sector since the judgement which had the potential to have far-reaching implications. If not resolved it brings into the scope of compulsory motor insurance some 43 different types of vehicle that previously didn’t need insurance including those used off the public roads for motor sport.”

BIBA has been working with the Department for Transport, the European Federation of Insurance Intermediaries (BIPAR) and the EU to seek a “surgical amendment” to the Motor Insurance Directive to redefine the Directive to apply to only those vehicles used in traffic. “The fact that this is now being put forward in a European Commission roadmap for better regulation is a big win for us and we look forward to the outcome,” said White.

Issue 311


Liability, Risk and Insurance • Issue 311

BIBA’s 2016 manifesto had called for an amendment to be made to the Motor Insurance Directive to exclude motor sports and other anomalies from the Directive and mitigate the unintended consequences of the judgment.

BIBA explained that the Vnuk case involved a man who suffered an injury in an accident involving a tractor on farmland in Slovenia. It was subsequently found that there was no insurance cover in place to provide compensation. The case was taken through the courts and ultimately it was ruled that motor vehicle “use” should mean “any use of a vehicle that is consistent with the normal function of that vehicle”.

BIBA said the implication of the ruling for the UK is that vehicles such as sit-on mowers, forklift trucks and golf buggies cannot simply be covered, as they can be now, under a public liability policy, but will require a Motor Insurance Road Traffic Act cover. Similarly, motor-racing events will require competitor-to-competitor liability insurance.

“Brief era of profit-making” for motor insurance market over

Ernst & Young has said that “the brief era of profit-making for the motor insurance market” has come to an end. According to Ernst & Young, the industry dropped back into the red in 2015 after two years of profitability following the 2013 reforms to the personal injury compensation system. However, Ernst & Young said it anticipates a slight improvement in insurers’ net combined ratio (NCR) in 2016 thanks to recent premium rate increases.

Whilst the industry posted a loss in 2015, it was marginal, with insurers registering 100.5 per cent NCR. This was 0.7 percentage points worse than the 2014 results. However, underlying poor performance in 2015 was masked by a 10.8 per cent reserve release, the second year in a row at this level and the joint second highest in the last 30 years, said Ernst & Young.

In 2016 insurers are predicted to achieve an NCR of 100.1 per cent, representing a year-on-year improvement of 0.4 per cent resulting from the increase in premium rates at the end of last year. But following that, Ernst & Young predict that “losses will extend, with NCR forecast to deteriorate in 2017 (101.7 per cent), as pressure to pass on premium reductions from the government’s planned whiplash reforms hits profitability and the level of reserve releases – currently providing insurers with healthy profits – dries up.”

Tony Sault, UK General Insurance Market Lead at Ernst & Young, said: “With the insurance market slipping back into the red – a trend we expect to continue over the next year – discipline around pricing and underwriting will be key to maintaining a favourable NCR in the current climate. The reliance on reserve releases, which last year saw something of a surprise jump, now appears to be becoming a norm. However, the sustainability of this model is questionable,

particularly as the market has reduced rates so aggressively from their recent peak in 2012.”

He went on: “One of the most notable impacts is that we are seeing an increase in market share from some of the Gibraltar-based insurers, which have increased their share of the motor insurance market to almost 20 per cent. This increase in competition may lead to a softening market, which will not help insurers looking to post a profit over the coming year.”

Ernst & Young said premiums are estimated to continue to harden significantly throughout 2016, with a 7.9 per cent year-on-year increase and premiums approaching 2012 levels. “However, premiums are predicted to fall by 6.2 per cent over 2017, as insurers try to anticipate the impact of the major whiplash reforms announced by the government. In accordance with this, the forecast for claims inflation in 2016 is a rise of 4.9 per cent, decreasing to 1 per cent in 2017 as a result of soft tissue injury reforms,” said the firm.

Talking on hands-free phone as distracting as hand-held

A study has suggested that driving while talking on a hands-free phone can be as distracting as talking on a hand-held mobile. The study, by psychologists at the University of Sussex and published in the Transportation Research journal, found that drivers having conversations which “sparked their visual imagination” detected fewer road hazards than those who didn’t.

They also focused on a smaller area of the road ahead of them and failed to see hazards, even when they looked directly at them. The researchers said this showed the risks of even hands-free phone conversations.

The researchers found that conversations may use more of the brain’s visual processing resources than previously understood. Having a conversation which requires the driver to use their visual imagination creates competition for the brain’s processing capacity, which results in drivers missing road hazards that they might otherwise have spotted, the study said.

Dr Graham Hole, Senior Lecturer in Psychology at the University of Sussex, said:

“A popular misconception is that using a mobile phone while driving is safe as long as the driver uses a hands-free phone. Our research shows this is not the case. Hands-free can be equally distracting because conversations cause the driver to visually imagine what they’re talking about. This visual imagery competes for processing resources with what the driver sees in front of them on the road.”

He went on: “Clearly this research isn’t a green light to use hand-held mobile phones while driving, however. The use of hand-held phones was made illegal primarily because they interfere with vehicle control; but our study adds to a mounting body of research showing that both hand-held and


Liability, Risk and Insurance • Issue 311

BIBA’s 2016 manifesto had called for an amendment to be made to the Motor Insurance Directive to exclude motor sports and other anomalies from the Directive and mitigate the unintended consequences of the judgment.

BIBA explained that the Vnuk case involved a man who suffered an injury in an accident involving a tractor on farmland in Slovenia. It was subsequently found that there was no insurance cover in place to provide compensation. The case was taken through the courts and ultimately it was ruled that motor vehicle “use” should mean “any use of a vehicle that is consistent with the normal function of that vehicle”.

BIBA said the implication of the ruling for the UK is that vehicles such as sit-on mowers, forklift trucks and golf buggies cannot simply be covered, as they can be now, under a public liability policy, but will require a Motor Insurance Road Traffic Act cover. Similarly, motor-racing events will require competitor-to-competitor liability insurance.

“Brief era of profit-making” for motor insurance market over

Ernst & Young has said that “the brief era of profit-making for the motor insurance market” has come to an end. According to Ernst & Young, the industry dropped back into the red in 2015 after two years of profitability following the 2013 reforms to the personal injury compensation system. However, Ernst & Young said it anticipates a slight improvement in insurers’ net combined ratio (NCR) in 2016 thanks to recent premium rate increases.

Whilst the industry posted a loss in 2015, it was marginal, with insurers registering 100.5 per cent NCR. This was 0.7 percentage points worse than the 2014 results. However, underlying poor performance in 2015 was masked by a 10.8 per cent reserve release, the second year in a row at this level and the joint second highest in the last 30 years, said Ernst & Young.

In 2016 insurers are predicted to achieve an NCR of 100.1 per cent, representing a year-on-year improvement of 0.4 per cent resulting from the increase in premium rates at the end of last year. But following that, Ernst & Young predict that “losses will extend, with NCR forecast to deteriorate in 2017 (101.7 per cent), as pressure to pass on premium reductions from the government’s planned whiplash reforms hits profitability and the level of reserve releases – currently providing insurers with healthy profits – dries up.”

Tony Sault, UK General Insurance Market Lead at Ernst & Young, said: “With the insurance market slipping back into the red – a trend we expect to continue over the next year – discipline around pricing and underwriting will be key to maintaining a favourable NCR in the current climate. The reliance on reserve releases, which last year saw something of a surprise jump, now appears to be becoming a norm. However, the sustainability of this model is questionable,

particularly as the market has reduced rates so aggressively from their recent peak in 2012.”

He went on: “One of the most notable impacts is that we are seeing an increase in market share from some of the Gibraltar-based insurers, which have increased their share of the motor insurance market to almost 20 per cent. This increase in competition may lead to a softening market, which will not help insurers looking to post a profit over the coming year.”

Ernst & Young said premiums are estimated to continue to harden significantly throughout 2016, with a 7.9 per cent year-on-year increase and premiums approaching 2012 levels. “However, premiums are predicted to fall by 6.2 per cent over 2017, as insurers try to anticipate the impact of the major whiplash reforms announced by the government. In accordance with this, the forecast for claims inflation in 2016 is a rise of 4.9 per cent, decreasing to 1 per cent in 2017 as a result of soft tissue injury reforms,” said the firm.

Talking on hands-free phone as distracting as hand-held

A study has suggested that driving while talking on a hands-free phone can be as distracting as talking on a hand-held mobile. The study, by psychologists at the University of Sussex and published in the Transportation Research journal, found that drivers having conversations which “sparked their visual imagination” detected fewer road hazards than those who didn’t.

They also focused on a smaller area of the road ahead of them and failed to see hazards, even when they looked directly at them. The researchers said this showed the risks of even hands-free phone conversations.

The researchers found that conversations may use more of the brain’s visual processing resources than previously understood. Having a conversation which requires the driver to use their visual imagination creates competition for the brain’s processing capacity, which results in drivers missing road hazards that they might otherwise have spotted, the study said.

Dr Graham Hole, Senior Lecturer in Psychology at the University of Sussex, said:

“A popular misconception is that using a mobile phone while driving is safe as long as the driver uses a hands-free phone. Our research shows this is not the case. Hands-free can be equally distracting because conversations cause the driver to visually imagine what they’re talking about. This visual imagery competes for processing resources with what the driver sees in front of them on the road.”

He went on: “Clearly this research isn’t a green light to use hand-held mobile phones while driving, however. The use of hand-held phones was made illegal primarily because they interfere with vehicle control; but our study adds to a mounting body of research showing that both hand-held and

Issue 311 • Liability, Risk and Insurance

hands-free phones are dangerously distracting for drivers. The only ‘safe’ phone in a car is one that’s switched off.”

Dr Hole said that anything which causes drivers to imagine something visually, including passengers, can interfere with driving performance because the two tasks compete for similar processing resources. ”However, chatty passengers tend to pose less of a risk than mobile phone

conversations. They will usually moderate the conversation when road hazards arise. Someone on the other end of a phone is oblivious to the other demands on the driver and so keeps talking. And talking in person involves non-verbal cues which ease the flow of conversation. Phone conversations are more taxing because they lack these cues,” he said.


COURT OF APPEAL

17 December 2015; 28 January 2016

————–

SOBRANY v

UAB TRANSTIRA

[2016] EWCA Civ 28

Before Lord Justice LAWS, Lord Justice LEWISON and

Lord Justice CHRISTOPHER CLARKE

Insurance (motor) — Credit hire charges — Credit hire agreements unenforceable — Charges paid by insurers — Whether two policies existed — Subrogation — Contribution.

On 25 September 2009 Mr Sobrany’s Bentley was seriously damaged by a lorry being driven by an employee of UAB. Mr Sobrany entered into a credit hire agreement on 26 September 2009 under which he hired a replacement vehicle. There was a second credit hire agreement on 6 October 2009 and a third agreement on 5 January 2010. All of the agreements were with Accident Exchange. The total duration of all three agreements was some six months. The credit hire charges were not payable until the end of the credit period.

Mr Sobrany did not pay credit hire charges himself. He was insured against liability to do so by AmTrust under a free insurance policy issued by AmTrust entered into on 26 September 2009. Accident Exchange acted as claims agent and cover holder for AmTrust. Clause 4.9 of the policy stated that claims were excluded where the assured was indemnifi ed under any other policy of insurance.

On 16 March 2010 Accident Exchange produced a statement of charges in the sum of £142,751. Mr Sobrany claimed under the insurance policy and AmTrust paid the sums in question. In the present proceedings AmTrust brought a subrogated claim in the name of Mr Sobrany to recover from UAB the sums paid by them to Accident Exchange under the policy.

UAB claimed that the second and third credit hire agreements were unenforceable by reason of infringement of Regulations made under the Consumer Credit Act 1974 in that no notice of the right to cancel had been provided when the agreements were signed. UAB’s case in its pleadings was that because there was only one policy, taken out when Mr Sobrany entered into

the fi rst hire agreement, that policy could only pay out in relation to the fi rst hire agreement, the sum of £9,076.88.

In the course of cross-examination at the trial, the claimant gave evidence that there had been a second insurance policy on 6 October 2009. UAB obtained permission from the trial judge to adduce evidence that there had been a second policy. The apparent purpose in doing so was to rely on clause 4.9 of the fi rst policy, which removed cover where there was any other insurance in place: if there was a second policy covering the second credit hire agreement, then the fi rst policy could not respond to the second credit agreement.

The judge decided that, on the evidence, there was more than one policy, and that the two policies were likely to have been in identical or substantially the same terms. That meant that the second policy engaged clause 4.9 in the fi rst policy and recovery under the fi rst policy was limited to the fi rst period of hire even if it otherwise extended to the entire period of hire. The judge awarded only the amount payable under the fi rst hiring agreement and ordered Mr Sobrany to pay the costs. The judge also found that, if he was wrong, the period of credit hire should be reduced by 46 days.

Mr Sobrany appealed, and claimed £101,382.22, representing the amount of the credit hire charges less the sum representing the 46-day period deducted by the judge. Mr Sobrany sought to adduce new evidence to show that he had in fact signed notices to cancel in respect of the fi rst two hire contracts (no notice was required for the third because it had been sent by post) and that there had been only one policy. Three questions arose on appeal: (a) whether the judge had been right to allow UAB to contend that there were two policies when that was contrary to UAB’s pleadings; (b) whether the new evidence of the signed notices to cancel and of the existence of only one policy should be admitted; and (c) on the assumption that there were two policies, whether the judge had correctly concluded that there was no cover under the fi rst policy beyond the fi rst period of credit hire.

——— Held , by CA (LAWS, LEWISON and CHRISTOPHER CLARKE LJJ) that the appeal would be allowed and that Mr Sobrany would be awarded the sum of £101,382.22.

(1) If the credit hire agreement was unenforceable it could be said that the hirer had suffered no loss, because he had obtained the use of a car for which he did not have to pay. That would be double recovery. However, that impediment to recovery was avoided when insurance was in place and the hire charges had

Sobrany v UAB Transtira


[CAPART 4


been paid by the insurer. Such payment was regarded as payment by the assured, and the insurers had the right to pursue the defendant by way of subrogation. The claimant was not regarded as having failed to mitigate his loss if he paid for a car which had been provided to him even if it was likely that he would not have to pay if he took the matter to court ( see para 5); ——— Giles v Thompson [1994] 1 AC 142, Arab Bank plc v John D Wood (Commercial) Ltd [2000] Lloyd’s Rep IR 471 ; [2000] 1 WLR 857, Dimond v Lovell [2002] 1 AC 384, Lagden v O’Connor [2004] Lloyd’s Rep IR 315 ; [2004] 1 AC 1067, Bee v Jenson [2008] Lloyd’s Rep IR 221 ; [2007] 4 All ER 791, W v Veolia Environmental Services (UK) plc [2012] Lloyd’s Rep IR 419 , applied.

(2) The judge’s decision to admit evidence of two policies would not be overturned.

Per Lewison and Laws LJJ: it was diffi cult to regard the judge’s decision to admit evidence of two policies as fair. However, whether to allow the point to be taken was a discretionary decision for the trial judge; and disagreement with him on the facts was not enough for an appeal against his ruling to succeed ( see paras 50 and 52).

Per Christopher Clarke LJ: the judge had not erred in admitting evidence that there were two policies. There would have been a degree of unreality in proceeding as if the evidence had not been given. Further there was a difference between allowing a defendant to advance a positive case that was inconsistent with its pleading and allowing it to rely upon the evidence which the claimant had in effect volunteered. Having accepted Mr Sobrany’s evidence, it was open to the judge to fi nd that there were two policies in the same or substantially the same terms ( see paras 33 and 34); ——— Hawksworth v Chief Constable of Staffordshire [2012] EWCA Civ 293, referred to.

(3) The Court of Appeal would not admit fresh evidence that the two later credit hire agreements had in fact been properly signed by the claimant and were valid. Such evidence could have been produced long before the trial. The position as regards the one policy was different but the fresh evidence would not be admitted because Mr Sobrany would suffer no injustice by its non-admission ( see paras 35 and 37).

(4) On the basis that there were two policies, one incepting on 26 September 2009 and the other on 6 October 2009, the claimant was still able to recover the £101,382.22 sought.

(a) The claim was one by Mr Sobrany for the entirety of the hire charges. Whilst that claim might have been defeated by virtue of

the operation of the Regulations, UAB was not entitled to defeat it effectively on the basis that Mr Sobrany had no title to sue. He was the only person who could do so, and the claim was manifestly a claim for the whole of the charges ( see para 39).

(b) On the fi ndings of the judge Mr Sobrany had cover under the fi rst policy for only a small portion of the hire charges, and cover under the second policy (from the same insurer) for the much larger balance. Mr Sobrany had to be taken, absent some compelling evidence to the contrary, to have claimed and been paid under both policies such that the insurer was subrogated under both and should be treated as claiming as such ( see para 40).

(c) If there were two policies and the claim was brought only under the fi rst policy, where each policy excluded cover when there was some other policy in force, each exclusion was to be construed as not applying in respect of a policy containing a similar exclusion ( see para 42); ——— Weddell v Road Transport and General Insurance Co Ltd (1931) 41 Ll L Rep 69; [1932] 2 KB 563, referred to.

(d) If that was wrong, AmTrust was not bound to take the thoroughly unmeritorious point that it was not liable for the second period under the fi rst policy although it was under the secondly, a point which would simply have led to a claim under the second policy. If it did not take that point its total payment fell to be regarded as a payment under the fi rst insurance policy. The fact that the insurer did not seek to rely on a policy exclusion did not mean that the sums paid were not to be regarded as the fruits of the insurance or that the tortfeasor could take them ( see para 45); ——— King v Victoria Insurance Co Ltd [1896] AC 250, applied.

————–

The following cases were referred to in the judgment: Arab Bank plc v John D Wood (Commercial)

Ltd (CA) [2000] Lloyd’s Rep IR 471 ; [2000] 1 WLR 857 ;

Bee v Jenson (CA) [2007] EWCA Civ 923 ; [2008] Lloyd’s Rep IR 221 ; [2007] 4 All ER 791 ;

Dimond v Lovell (HL) [2002] 1 AC 384 ; Giles v Thompson (HL) [1994] 1 AC 142 ; Hawksworth v Chief Constable of Staffordshire

(CA) [2012] EWCA Civ 293 ; King v Victoria Insurance Co Ltd (PC) [1896]

AC 250 ;



CA]


Ladd v Marshall (CA) [1954] 1 WLR 1489 ; Lagden v O’Connor (HL) [2003] UKHL 64 ; [2004]

Lloyd’s Rep IR 315 ; [2004] 1 AC 1067 ; W v Veolia Environmental Services (UK) plc [2011]

EWHC 2020 (QB) ; [2012] Lloyd’s Rep IR 419 ; Weddell v Road Transport and General Insurance

Co Ltd (1931) 41 Ll L Rep 69 ; [1932] 2 KB 563.

————–

Christopher Butcher QC and Guy Vickers, instructed by True Solicitors LLP for the appellant, Mr Sobrany; Steven Turner, instructed by Keoghs LLP, for the respondent, UAB.

Thursday, 28 January 2016

————–

JUDGMENT

Lord Justice CHRISTOPHER CLARKE:

1. This is another chapter in the long-running saga of disputes between insurers about liability to indemnify claimants in respect of the cost of hiring replacement vehicles whilst their cars are being repaired following a road traffi c accident.

2. The arrangements with which this case is concerned have come into existence because comprehensive insurance policies usually do not cover the cost of hiring a replacement vehicle whilst repairs are carried out. They work like this. A motorist whose car has been damaged by an accident which was entirely the fault of someone else hires a replacement car from a credit hire company. Under the credit hire agreement he agrees to pay hire charges but only at the expiry of a credit period as defi ned in the agreement. The hire company pursues the driver of the vehicle who was at fault and the innocent motorist accounts to the company for any recovery. Often, as in the present case, the hire agreement is accompanied by an insurance under which the motorist is insured in respect of the hire charges and legal costs. As a result he is not out of pocket; and the hire company pursues the driver who was at fault (in effect his insurers) for damages and costs.

3. Credit hire arrangements have produced much litigation. The background is set out in the judgment of HHJ Mackie QC in W v Veolia Environmental Services (UK) plc [2012] Lloyd’s Rep IR 419 as follows:

“14. As is well known, credit hire arrangements have given rise to a lot of litigation. The legal framework is helpfully summarised in the skeleton argument of Mr Butcher QC and Mr Williams for the claimant as follows:

(a) In Giles v Thompson [1994] 1 AC 142 it was held that the claimant who entered into this type of arrangement incurred a loss (namely his liability to the credit hire company) for which he could claim compensation from the at fault defendant, notwithstanding that the schemes envisaged that the claimant would not have to pay the credit hire company anything.

(b) In Giles v Thompson it was further held that this type of scheme was not champertous or invasive of any requirement of public policy.

(c) In Dimond v Lovell [2002] 1 AC 384 it was held that, while the amount of the hire charges was prima facie the loss the claimant had suffered, in the case of credit hire charges would include amounts for benefi ts additional to the simple hiring of a car.

(d) The majority of the House found that the claimant would only be entitled to recover that part of his loss which represented the cost of hiring a substitute car, and this would, ordinarily, be what was established to be ‘the equivalent spot rate’ for the relevant kind of vehicle.

(e) In the same case, it was further added that, if the hire charges were incurred under an ‘irredeemably unenforceable’ consumer credit agreement, the claimant could not recover them from the defendant as this would offend the rule against double recovery.

(f) In Lagden v O’Connor [2004] Lloyd’s Rep IR 315 ; [2004] 1 AC 1067 the majority of the House of Lords found that, in the case of claimants who were unable to afford to pay hire charges ‘up front’, they should be able to recover the entire amount of the hire charges in any event.

(g) In Bee v Jenson [2007] 4 All ER 791, it was held that even if a hire agreement did not impose a liability on the claimant to pay the hire charges, he could still be awarded general damages for the loss of use of his car, and that these could be calculated with reference to the reasonable cost of hire in any event.”

4. In Dimond v Lovell [2002] 1 AC 384 the credit hire agreement was unenforceable under the Consumer Credit Act 1974. Since then defendants have also relied on other statutory provisions. Under the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc Regulations 2008 (SI 2008 No 1816) consumers who have made a contract for the supply of goods or services during a visit by a trader to their home or place of work have a right to cancel within a cancellation period. A trader who supplies goods or services is bound to give the consumer a written notice of his right to cancel when the contract is made. In Veolia



CHRISTOPHER CLARKE LJ] [CA


HHJ Mackie QC held at para 54 that the failure to give the requisite notice rendered the hiring agreement unenforceable.

5. If the hiring agreement is unenforceable it could be said that the hirer has suffered no loss. He has obtained the use of a car for which he does not have to pay. To give him damages for services which he has received but for which he has not had to pay would mean that he recovered damages for a loss for which he had already been compensated by the provision of a free car – a form of double recovery. This impediment to recovery has been avoided when insurance is in place and the hire charges have been paid by the insurer. Payment by the insurers is treated as payment by the claimant, and the insurers will have the right to pursue by way of subrogation, and in the name of the insured, any claim for damages which its insured has in respect of the indemnifi ed loss. So there can be no question of double recovery: Arab Bank plc v John D Wood (Commercial) Ltd [2000] Lloyd’s Rep IR 471 ; [2000] 1 WLR 857 at paras 95 and 101. The claimant is not regarded as having failed to mitigate his loss if he pays for a car which has been provided to him even if it is likely that he would not have to pay if he took the matter to court: Veolia at para 39.

6. In Veolia the car was a 21-year-old Bentley. The credit hire arrangements were made with Accident Exchange Ltd (“Accident Exchange”). The total hire fees were in excess of £138,000. The limit of indemnity under the policy was, as here, £100,000. The claimant was held entitled to recover £100,000.

7. At para 40 HHJ Mackie QC said this: “There are layers of artifi ciality in the

arguments of each side. The defendant’s reliance upon the Regulations arises not from a new and unexpected concern for the rights of consumers but from a search for weapons in a continuing battle with those behind the claimant. The decision by insurers to pay immediately after the issue of Regulations was raised in the litigation was similarly tactical and part of what Mr Butcher QC describes as ‘meeting fi re with fi re’. These considerations and the motives behind them do not in themselves invalidate the points taken or transactions entered into. But there is a limit. I have concluded that the arrangements between W and AEL involved genuine contracts of insurance (and in evidence he so regarded them). But insurers paid more than £138,000 under a policy whose limit was £100,000. It is true, as Mr Butcher QC submits, that parties to a contract can vary their arrangements. However insurers were under no contractual liability to pay out more than £100,000. Insurers are understandably

cautious about paying any claims given their duties to shareholders and their responsibilities to other payers of premiums. Cheerful, prompt and knowing overpayment of claims by insurers is unheard of, at least in this court. It would be extraordinary for insurers to pay out almost 40 per cent more than the limit under the policy except in unusual ex gratia circumstances which certainly do not apply here. While recognising that the transactions in this case amount to a valid contract of insurance I will not treat anything above £100,000 as being a good faith payment of a claim made under the policy. Apart from that I accept the claimant’s case on this point. (In practice this does not affect the overall result because the entire £100,000 can be allocated to the fi rst hire agreement given the position on the second one – see para 55 below).” The last sentence refers to the fact that there were

two hire agreements and only the second one was affected by the Regulations.

The facts

8. On 25 September 2009 Mr James Sobrany was driving his recently acquired Bentley Continental along the M25 when a Mercedes lorry belonging to UAB Transtira and driven by its employee changed from the nearside to the middle lane and drove into the nearside of his vehicle. Mr Sobrany was in no way to blame.

9. The Bentley was badly damaged. Mr Sobrany wanted to hire a replacement until his car was repaired. For that purpose he took advantage of the services provided by Accident Exchange. He hired a replacement vehicle from them on credit hire terms by virtue of which he had to pay somewhat more than he would have had to do if he paid the hire as it accrued due, but did not have to pay until the expiry of the credit period as defi ned in the applicable terms. He also took advantage of the free insurance offered. That insured him in respect of legal expenses and replacement vehicle charges. There was a limit of £100,000. The insurer was IGI Insurance Co Ltd which with effect from 1 July 2015 changed its name to AmTrust Europe Ltd (“AmTrust”). Accident Exchange acted as claims agent and cover holder for AmTrust.

The insurance

10. The terms of the insurance included the following:

“1. Defi nitions Accident Exchange’s Charges – the amounts

incurred by the Insured in connection with Accident Exchange Limited’s credit services (including vehicle hire charges owed to Accident



CA] [CHRISTOPHER CLARKE LJ


Exchange Limited and any repair costs paid for on behalf of the Insured by Accident Exchange Limited) following an Insured Incident .

. . . Insured Incident – a road traffi c accident . . .

and which is objectively considered by Us as likely to be shown to have been caused by the fault of the Defendant without any fault on the part of You .

. . . Limit of Indemnity – is the maximum sum

that the Underwriters will pay in aggregate in respect of all Legal Costs and Expenses and Accident Exchange’s Charges , being the sum of £100,000.

Period of Insurance – the period which commences on the date of issue of this Policy as shown on the accompanying schedule of cover and ends on the earliest of the following occurrences:

(a) when the legal proceedings in respect of the Claim are concluded in a court of fi rst instance;

(b) when the Claim is concluded by negotiation by the Solicitor ;

(c) when You or the Solicitor give Us notice that the Claim is concluded; or

(d) when We give You notice that the cover is withdrawn in accordance with the terms of the Policy . . . . 2. Cover Following a Policy Claim , the Underwriters

will, subject to the terms and conditions of this Policy , indemnify the Insured against (a) Legal Costs and Expenses and (b) at the end of the relevant credit period and following demand for payment of the same having been made, Accident Exchange’s Charges , in each case, subject to:

2.1 the Policy Claim having been met within the Period of Insurance;

2.2 . . . 2.3 . . . 2.4 The Claim having reasonable prospects

of success; 2.5 the maximum sum the Underwriters

pay not exceeding the Limit of Indemnity : and

2.6 the terms and conditions of this Policy . 3. Policy Conditions The following conditions apply to this Policy :

. . .

3.7.15 notwithstanding any other term of this Policy and as may be requested by Us , diligently pursue a Claim together with the Claim for the costs of doing so in compliance with Our instructions and hold all damages and Legal Costs and Expenses recovered subject to a charge in Our favour in respect of all sums which We have paid out or which We have incurred a liability under this Policy and further immediately reimburse Us all such sums and pay over to Us any recovered costs; and . . . 4. Policy Exclusions The following exclusions apply to this Policy :

. . . 4.9 any claims that You are indemnifi ed for

under any other policy of insurance;”

The hire agreements

11. The hire of the replacement vehicle – a Bentley Continental GT Coupé – lasted from 26 September 2009 until 5 October 2009. The terms and conditions included the following:

“. . . 1.5 AX Charges – together, the Hire Charges

and any Repair Charges 1.6 Claim – Your claim for compensation

for the Hire Charges and any Repair Charges against the Third Party .

. . . 1.9 Hire Charges – the charge set out in the

tariff on the face of this Agreement which You incur in hiring the Vehicle for the Rental Period (which may include charges for extra benefi ts, including but not limited to delivery, collection, rental to additional drivers, rental to high-risk drivers, insurance, or theft, damage or excess waivers).

. . . 1.12 Rental Period – the shorter of the period

for which you have a reasonable need for a Vehicle by reason of the Accident and a period of 85 days from the date of this Agreement.

. . . 2.1 Where You cannot use Your motor vehicle

as a result of an Accident which in Our opinion was the fault of a Third party , We may hire You the Vehicle for the Rental Period , and allow You credit on the AX Charges in accordance with this Agreement.

. . . 3.1 You will pay Hire Charges to Us for the

rental of the Vehicle together with interest during





any period (including the Credit Period ) in which Hire Charges are outstanding.

3.2 You shall pay the Hire Charges together with Interest to Us in full and by a single payment immediately upon the expiry of the Credit Period . It is your duty to ascertain in advance the amount which is due.

. . . 5.1 You grant Us the exclusive right to pursue

the Claim on Your behalf. 5.2 We may instruct an Appointed

Representative in Your name to pursue the Claim, and You authorise such person to provide Us with all the information about the Claim (including copies of all relevant documents) which We reasonably require.

. . . 5.4 You are responsible for the costs of the

Claim (although these may be recoverable in whole or in part from the Third Party ).

5.5 You must inform Us if You receive any settlement proposals from the Third Party in respect of the Claim , and must not respond to such a proposal unless We agree.

5.6 In the event that We or the Appointed Representative receive a cheque in settlement of all or any part of the Claim , You authorise it to be paid to Us , and for it to be paid into Our bank account even if it is made payable to You . Where the sum paid exceeds the amount of the Claim and any Legal Costs, We will pay You the balance as soon as reasonably practicable.

5.7 In the event that You receive any payment in respect of the Claim , You will pay the sum to Us immediately. Save that in no circumstances may you discharge AX Charges in more than three payments.” 12. Mr Sobrany wanted to hire a different

Bentley because the original vehicle had been used by a smoker. So he hired another Bentley – a Bentley Continental Flying Spur – from Accident Exchange from 6 October 2009 to 3 March 2010. This vehicle was also the subject of a third hire agreement (a copy of which was not before the judge) with a rental start date of 5 January 2010. The need for a third hire agreement arose because the rental period under the second hire agreement ended 85 days after its date.

Payment

13. On 16 March 2010 Accident Exchange produced a statement of charges in the sum of £142,751, including VAT, covering the hire of the fi rst vehicle from 26 September 2009 to 5 October 2009 and the second from 6 October 2009 to 3 March 2010. On 21 December 2010 Mr Sobrany

claimed under what he described as “my . . . Insurance Policy”. The insurers, for whom Accident Exchange acted as agents, paid this amount. By documents of 24 December 2010 and 25 February 2011 Accident Exchange acknowledged payment of £100,000 and £42,751.56 respectively.

The pleadings

14. On 16 May 2011 a claim form was issued in which Mr Sobrany was the claimant and UAB Transtira the defendant. The defendant’s insurers had already met the cost of the repairs to the vehicle (£45,850), the costs of recovery and storage fees, and an amount in respect of personal injuries. The claim was only for the hire charges of £142,751.56. The particulars of claim made it clear that the claim was a subrogated claim under a policy of insurance, under which Mr Sobrany had claimed, and that Accident Exchange’s hire charges had been discharged by payments under the policy.

15. A defence and counter schedule was fi led on 10 June 2011 which raised a number of standard issues in cases of this kind such as the need for, and the rate and period of hire.

16. In his fi rst witness statement of 28 October 2011 Mr Sobrany said that he had entered into “a policy of insurance”; that he had made claims “under this policy” on or about 24 December 2010 and 25 February 2011; and that he had received letters confi rming that the charges had been paid and copies of the receipts for the monies paid on those dates. The statement exhibited the claim made by email of 21 December 2010, the two receipts and two accompanying letters from Accident Exchange, in its capacity as claims agent, confi rming that the charges had been paid, and the terms and conditions of the policy.

17. On 18 March 2013 the defendant fi led an updated counter schedule which “noted” that no cancellation notice (ie notice of the right to cancel) had been provided at the time of signing of either the fi rst or the second hire agreement. It averred that, as a result, if the hire charge claim had not been discharged by an insurance company the hire contracts would be irredeemably unenforceable. The claimant was put to proof that he had activated a policy taken out with AmTrust to discharge his liability. The pleading noted that the claimant asserted that there was only one insurance policy albeit he had made two separate claims, and averred that the limit of the policy was £100,000.

18. The defendant’s primary case was said to be that because the policy of insurance was the only policy, and was taken out when Mr Sobrany entered into the fi rst hire agreement, it could only pay out in relation to the fi rst hire agreement “(no separate policy being taken out in respect of the second hire





agreement)”. (This appears to be a contention, for which there is, in fact, no warrant, that the fi rst policy only covered the period of the fi rst hire agreement.) The maximum sum claimed under the fi rst agreement was said to be £9,076.88 and that was said to be the maximum that Mr Sobrany could recover. The second hire agreement was said to fall foul of the Regulations and, since there was no insurance policy in force in relation to that agreement, the latter agreement was irredeemably unenforceable against the claimant and any sum claimed under that contract must fail. Hence there could be no claim for damages for any such sum. Alternatively recovery was limited to £100,000.

The trial

19. The trial began on 14 March 2014 before District Judge Lethem. At the beginning of the trial counsel then acting for Mr Sobrany conceded that he could not recover more than £100,000, being the limit under the only policy which it was the claimant’s case had ever been issued. The judge then turned to consider whether the defendant should be allowed to challenge whether there was any policy of insurance at all, a point which had been put in issue in the defendant’s skeleton argument. He refused to allow it to do so on the ground that that had not been pleaded and would take the claimant by surprise; and that what had been pleaded was that there was only one policy and that, therefore, the indemnity was limited.

20. Mr Sobrany gave evidence. At the beginning of his cross-examination events took an unexpected turn. He said that he remembered receiving the hire agreements of 26 September and 6 October 2009 on those days. Asked what other documentation he signed at the time on those days he said that there was some insurance documentation to go with the hire agreements, which he signed:

“A. . . . mainly because I was concerned I would be left with a huge bill at the end of it.

Q. I understand that. So, there is an insurance agreement with your signature on it kicking around somewhere?

A. Correct, yes. Q. Do you remember only signing one or two

or – A. No, I believe we signed the fi rst one when

they brought the fi rst car. Q. Mm-mh? A. That would have been actually in the

kitchen, I remember sitting there going through the paperwork with them. The second one would have been when they exchanged the car as well.

Q. Yes, and you signed another insurance policy then?

A. I believe so, yes. Q. So there should actually be two insurance

policies under your name kicking around somewhere?

A. Correct. Q. OK. You did not have to pay any money

for those insurance policies, they were just extra documents?

A. No, which is one of the reasons why I asked a lot of information when I was doing it because I was obviously concerned that there would not be any sort of repercussion for whatever cost that was liable, if there was I needed to know about it at the time.

Q. Fair enough, so that is the reason why you can be quite sure that there were two because you went through them fi rst?

A. Yes.” 21. This evidence was contrary: (a) to what

had been pleaded; and (b) to what he had said in his witness statement. Its appearance caused Mr Patrick Kerr, who was then counsel for the defendant, to contend in his fi nal submissions that there were plainly two policies. He submitted that “the policy” envisaged one claim in relation to one hire agreement although that was “not set out . . . explicitly”. The fi rst policy covered only the fi rst hire agreement and the claim against the defendant was made only in respect of what was covered by the fi rst policy. Reference was made to clause 4.9.

22. It is not entirely clear to me from the transcript whether Mr Kerr was intending thereby to submit that there were likely to be two policies of insurance for two separate and different periods; or, as seems to me more likely, that there was an overlap between the fi rst and the second policy in respect of the period beginning on 6 October 2009, and that clause 4.9 meant that there could be no recovery under the fi rst policy in respect of the second period, and that “the subrogation was only in relation to the fi rst hire agreement and not the second”. The judge allowed the point to be taken.

The application to admit new evidence

23. Before us the claimant, now the appellant, has sought to adduce new evidence, which we have considered de bene esse, with a view to showing two things:

(i) That Mr Sobrany had in fact signed a notice of his right to cancel in respect of both hire contracts.

(ii) That he had only ever had a single insurance policy. 24. In respect of (a) the claimant has produced

two notices, apparently signed by Mr Sobrany,





informing him of his right to cancel. No one has suggested that these are not genuine.

25. In respect of (b) the appellant seeks to adduce a witness statement dated 18 November 2014 of Mr Stephen Evans who is the Chief Executive of Accident Exchange. In it he states that there was only one policy, as is the case in relation to every hiring arrangement, however many hire agreements are entered into. He describes the process by which the insurance is provided. This, he says, involves the driver who delivers the car giving the client a sealed envelope containing a schedule of cover, the policy terms and conditions and a letter explaining the cover. He says that the claimant was never handed a second envelope and that Accident Exchange’s IT system is confi gured to generate only one certifi cate per claim irrespective of the number of hire vehicles provided. A check of the database reveals, he says, that there only ever was one policy issued to Mr Sobrany. He suspects that Mr Sobrany’s reference to signing two insurance documents was a reference to signing the “right to cancel” document which accompanies any hire agreement signed at a consumer’s home or workplace on each occasion when a new hire vehicle is supplied. The client has nothing to sign in respect of insurance.

26. He exhibits to his statement: (i) a Schedule of Cover; (ii) the three hire agreements with their terms and conditions; and (iii) two notices of the right to cancel, said to be signed by Mr Sobrany. The Schedule of Cover was not before the judge. It describes Mr Sobrany as the policyholder, and the cover as commencing on 26 September 2009 and expiring “On settlement of the Policyholder’s claim or as otherwise set out in the terms and conditions [sic] Policy”. The fi rst two agreements and the terms were before the judge. The third was not. Neither of the notices was before the judge. They are both dated 26 September 2009 but the second of them has the words “SWAP VEHICLE” in manuscript at the top. There was, according to Mr Evans, no third notice because the agreement was sent through the post so that the Regulations were not applicable.

The judgment

27. In his ex tempore judgment the judge decided that, on the evidence, there was more than one policy. He regarded Mr Sobrany, who himself had very little interest in the outcome of the case, as a dependable witness who, although his recollection was not all that it could be in respect of certain aspects of the case, was, overall, an honest and truthful witness doing his best to recollect events some time ago.

28. The judge held that the likelihood was that there were two policies in identical or substantially

the same terms. He was satisfi ed that the second policy signed on 6 October “create[d] an indemnity such as to engage clause 4.9” and that, accordingly “recovery in this case is limited to the fi rst period of hire alone”. I take that to mean that he accepted the submission made by Mr Kerr that the claim was made on the basis of a single insurance policy and held that if there was, as he found, cover under a second policy, clause 4.9 was engaged so that in respect of the second period from 6 October 2009 there was, by virtue of that clause, no cover under the fi rst policy even if the cover under the fi rst policy extended as a matter of construction to the whole period of hire.

29. As a result the judge decided that Mr Sobrany was only entitled to recover £8,959.38, being the amount due under the fi rst hiring agreement and was held liable to pay the costs of the action. The appellant submits that the judgment was wrong and seeks to claim £101,382.22. That is less than the full fi gure of £142,751.56 because the appellant concedes that, should the appeal succeed, it would be appropriate to apply a 46-day reduction to the hire period as the judge would have done if he had otherwise decided in Mr Sobrany’s favour.

The issues on the appeal

30. As a result there are three issues for decision: (a) whether, as the appellant submits, the judge should not have permitted the defendant to contend that there were two insurance policies; (b) whether we should admit any of the new evidence; and (c) whether, on the assumption that there were two insurance policies, the judge reached the right conclusion.

Issue (i): the two policies point.

31. Mr Christopher Butcher QC on behalf of the appellant submits that the judge was wrong to allow the defendant to contend that there were two policies. The defendant had pleaded that there was one. It then sought to suggest that there were none. The judge refused to allow it to do so because that contention was not pleaded and took the claimant by surprise. He should not then, contrary to the approach rightly taken by him in relation to the proposal to claim that there was no policy at all, have allowed the defendant now to claim that there were two. To allow this to be done as a result of an unexpected answer in cross-examination was unfair. The claimant had come to court to deal with the pleaded case – as the judge recognised in his fi rst ruling. Mr Sobrany might well have been mistaken in evidence which he was giving over four years after the event. No disclosure had ever been given, or sought, in relation to a second policy. AmTrust, the claimant’s subrogated





insurers and Accident Exchange, their agents, who were best placed to know the true position and had the relevant records, had no opportunity for further research into whether or not there was other relevant documentation or to take the matter up with the claimant. No application was made by the defendant to amend its pleadings and no amendment was ever made.

32. Mr Steven Turner for the defendant, who did not appear below, submits that the judge was fully entitled to allow the two policies point to be taken. The evidence given was clear. If the defendant sought to avoid the point being taken counsel should have objected to the line of questioning. He did not do so. Nor did he seek an adjournment.

33. Not without some hesitation I have come to the conclusion that it was within the judge’s discretion to allow the two policies point to be run. There were three options: (i) to refuse to allow reliance on Mr Sobrany’s evidence in this respect; (ii) to permit reliance; and (iii) to adjourn. The third was never sought. In respect of the choice between (i) and (ii) Mr Sobrany’s evidence, which concerned matters wholly within the knowledge of him and Accident Exchange, was clear; and there would have been a degree of unreality in proceeding as if the evidence had not been given. Further there is a difference between allowing a defendant to advance a positive case that is inconsistent with its pleading and allowing it to rely upon the evidence which the claimant had in effect volunteered. I also bear in mind, although I do not regard it as dispositive, that the judge was not asked to rule on whether the point about two policies was open to the defendant, or required an amendment of the pleading, as soon as it surfaced: for the importance of which see Hawksworth v Chief Constable of Staffordshire [2012] EWCA Civ 293, paras 40 and 41. Further, in his submissions, whilst relying on: (a) the fact that there had been no amendment, or interrogation or appropriate disclosure on the issue; (b) that Mr Sobrany might be wrong; and (c) that the second policy might be a duplicate, counsel contended principally that there was no evidence that Mr Sobrany had signed a policy of insurance that undermined the fi rst one . Indeed, at one point he is recorded as saying (in the light of the evidence) that there were two policies.

34. Having accepted Mr Sobrany’s evidence it was, in my view, open to the judge to fi nd that there were, as he said, two policies in the same or substantially the same terms.

Issue (ii): new evidence

35. I would decline to admit the new evidence. As to the notices of the right to cancel, they could have been provided long before the trial and should

have been produced on disclosure. Why that did not happen is a mystery, particularly since: (i) they refer to a vehicle rental agreement and bear the same number as the hire agreements (which is the same in the case of all three); and (ii) according to Mr Evans their production and signature is a matter of routine. If they had been produced the whole issue of the unenforceability of the hire agreements would never have arisen.

36. I have considered whether the requirements of the overriding objective, which in appropriate circumstances might justify the reception of evidence which does not meet the Ladd v Marshall test ([1954] 1 WLR 1489), should cause us to admit the evidence of the notices on the ground that it is for all practical purposes incontrovertible and determinative. I have however concluded that we should not do so. This is in reality a dispute between two insurance companies. The claimant’s insurers had access to the relevant documents which they never produced, although they should have done, for reasons which are unclear. I am not in those circumstances disposed to exercise our discretion to admit the new evidence. If the Ladd v Marshall criteria are to be stretched this is not the case to do it.

37. As to the evidence about whether there were two policies the position is different. The claimant was proofed and his witness statement made clear that he had one policy. There was no reference to a second. The terms and conditions were produced (but not the Schedule). The defi nition of Period of Insurance does not suggest that any new policy would be needed if there was a fresh hire agreement. The defendant noted that there was one policy and was refused permission to argue that there may have been none. The claimant’s insurers and their solicitors could not, if there was only one policy, have expected that he would say that there were two. Those are all factors in favour of admitting the evidence now. But what we have been asked to do is not to order a new trial (which would involve much wasted expenditure) but to admit the evidence and accept it as accurate without Mr Sobrany being questioned again. I do not regard it appropriate to do so, not least because, as will become apparent, the appellant will not suffer any injustice by our declining to take this course.

Issue (iii): was the judge right?

38. I, therefore, proceed on the basis that there were two policies, one incepting on 26 September 2009 and the other on 6 October 2009. On that basis there were two policies in force, but with the same insurer, in respect of the period beginning on 6 October 2009. The Period of Insurance specifi ed under each policy did not, under the terms, end when





the new policy was taken out. I cannot, however, accept that, if there were, as the judge found, two policies, it was right to confi ne the claimant to a claim only in respect of the fi rst period. I say that for a number of reasons.

39. First, the particulars of claim stated that the claim was a subrogated claim under an insurance policy. But the claim was still a claim by Mr Sobrany for the entirety of the hire charges. Whilst that claim might be defeated by virtue of the operation of the Regulations, UAB Transtira was not entitled to defeat it effectively on the basis that Mr Sobrany had no title to sue. He was the only person who could do so, and the claim was manifestly a claim for the whole of the charges. Further, even if, contrary to my view, Mr Sobrany should be confi ned to a claim in respect of one of the hire periods I do not see why he should be confi ned to the shorter of the two.

40. Secondly, on the fi ndings of the judge Mr Sobrany had cover under the fi rst policy for only a small portion of the hire charges, and cover under the second policy (from the same insurer) for the much larger balance. He sought to recover from the insurer in respect of the whole; and he succeeded in doing so because the insurer had paid the whole of the hire charges. Such an insured must be taken, absent some compelling evidence to the contrary, to have claimed and been paid under both policies such that the insurer is subrogated under both and should be treated as claiming as such. It cannot have been right to allow the defendant to rely on the unpleaded contention that there were two policies without allowing the insurer to assert in the claimant’s name a claim against the defendant by virtue of its rights of subrogation under both policies.

41. Thirdly, as to clause 4.9, Mr Butcher QC submitted that the exclusion in respect of “any claims that You are indemnifi ed for under any other policy of insurance” must be narrowly construed so as only to cover claims where the insurers under the other policy have in fact paid out, rather than claims in respect of which they have merely agreed to provide indemnity. Noticeably, he submits, the clause does not use the phrase, found in other authorities “entitled to indemnity under any other policy”. I am not convinced by this. It seems to me that the words are intended to cover claims for which the second policy provides indemnity according to its terms (“that you are indemnifi ed for under any other policy”) whether or not the insurers have honoured those terms.

42. But clause 4.9 cannot be construed so as to mean that there is no cover under the fi rst policy in respect of the period beginning on 6 October 2009 because the second policy provides for an indemnity under that period as well. If that were so

the same would apply in respect of a claim under the second policy in respect of that period, which would be covered by the indemnity provided for in the fi rst policy. As a result AmTrust would not have to pay in respect of the second period under either policy. Such a result is absurd. Not surprisingly, AmTrust has never suggested it. The exclusion must be construed so as not to apply in respect of any other policy which itself contains a term that it is not to apply if there is cover under the fi rst policy.

43. In Weddell v Road Transport and General Insurance Co Ltd (1931) 41 Ll L Rep 69; [1932] 2 KB 563 the plaintiff had a policy which insured a relative or friend whilst driving with his consent, provided that the relative or friend was not entitled to indemnity under any other policy. The plaintiff’s brother was driving the car, with his consent, and had an accident. The brother had insurance under which indemnity was extended to cover him while driving a car not belonging to him if no indemnity was afforded the insured by any other insurance. Rowlatt J held that it was unreasonable to suppose that it was intended that clauses such as these should cancel each other out by neglecting in each case the proviso with the result that “on the ground in each case that the loss is covered elsewhere it is covered nowhere”. The reasonable construction was “to exclude from the category of co-existing cover any cover which is expressed to be itself cancelled by such co-existence, and to hold in such cases that both companies are liable”. I regard that approach as applicable here. No question of apportionment arises because the insurer is the same.

44. That leaves for consideration the applicability of the Regulations and Veolia . The position which I have now reached is that there were two policies and that AmTrust is liable, and has paid out, under both. That payment amounts to a payment by Mr Sobrany of the hire charges. By virtue of clause 3.7.15 Mr Sobrany would be obliged to hold all damages recovered subject to a charge in AmTrust’s favour. There is no question of double recovery.

45. On the judge’s approach, which I do not accept, there were two polices, but AmTrust paid out only under the fi rst. It also paid more than it was bound to pay under the fi rst policy because it could have relied on clause 4.9. Even if, contrary to my view, that was so, AmTrust was not bound to take the thoroughly unmeritorious point that it was not liable for the second period under the fi rst policy although it was under the second – a point which, once the laughter had subsided, would simply have led to a claim under the second policy. If it did not take that point its total payment falls to be regarded as a payment under the fi rst insurance policy. The fact that the insurer did not seek to rely on a policy exclusion did not mean that the sums





paid were not to be regarded as the fruits of the insurance or that the tortfeasor could take them: King v Victoria Insurance Co Ltd [1896] AC 250, pages 254 and 255; and, in the present case, there would be no want of bona fi des in paying the full £142,000 which was less than the total indemnity under both policies.

46. Whilst it is not necessary to decide the point it seems to me that, even on the basis that clause 4.9 was applicable and should have been relied on by AmTrust, the payment by AmTrust amounts to a payment by Mr Sobrany in satisfaction of the hire charges and Mr Sobrany would hold any damages recovered subject to a charge in AmTrust’s favour by virtue of the words “ in respect of all sums which We have paid out or which We have incurred a liability under this Policy”. In Veolia HHJ Mackie QC declined (obiter) to accept that any payment in excess of the £100,000 was a good faith payment under the insurance. But it would still be a payment of the hire charges which the insured was bound to repay if it obtained damages: so that there would be no double recovery.

47. Further, since there are two policies with a limit of £100,000, Mr Sobrany is entitled to recover £101,382.22 and is not limited to £100,000. Counsel’s concession that the claimant could only recover up to the £100,000 limit was plainly made on the basis that there was only one policy. It is not applicable in circumstances where the judge has permitted the defendant to assert that there were two and has found that to be the case.

48. I would, accordingly, allow the appeal and enter judgment for Mr Sobrany in the sum of £101,382.22 together with interest from the dates when the relevant sums were paid by the insurer. I would invite the parties to agree what rate of interest should apply and from what dates and to calculate the amount due.

49. The defendant’s reliance on there being two policies will thus have meant that it will have become liable for slightly more than the £100,000 which was its alternative case. I reach this conclusion with equanimity. The defendant seized the opportunity provided by Mr Sobrany’s unexpected evidence to take a point which no doubt seemed a good idea at the time but which was a bad one. Had there been more time for refl ection its defects might have become apparent. It then sought, successfully, to

exclude evidence which, if accepted, would have shown that there was in truth only ever one policy. The judgment which I propose should be entered is the result of the stance it chose to take. As ye sow, so shall ye reap.

Lord Justice LEWISON:

50. I agree that the appeal should be allowed for the reasons given by Christopher Clarke LJ; and wish to comment on only two points. The fi rst is the judge’s decision to allow the “two policies” point to be taken at all. I have had more diffi culty than Christopher Clarke LJ in regarding the judge’s decision as fair, especially in the light of his earlier ruling based on the pleadings. I think that had I myself been the trial judge I would not have allowed the point to be taken without an amendment of the pleadings, the formality of which would have alerted counsel for the claimant of the possible need for an adjournment. However, it is necessary to say fi rmly that whether to allow the point to be taken was a discretionary decision for the trial judge; and my disagreement with him on the facts is not enough for an appeal against his ruling to succeed.

51. The second point relates to the consequences of the judge’s ruling. In seeking to uphold the judge’s judgment Mr Turner submitted that Mr Sobrany ought to be confi ned to his pleaded case that there was only one policy. That had the consequence that while the defendant was free to advance its legal arguments on the basis that there were two policies, Mr Sobrany had to accept that there was only one. That was, in my judgment, an impossible position. Either the judge’s fi nding of fact bound both parties or it bound neither of them. A case cannot be decided on the basis of one set of facts applying to one party and a different set of facts applying to the other. Reliance on the pleaded case is no answer because the effect of the judge’s ruling was to allow an unpleaded point to form the basis of his decision. All of which goes to show, as Christopher Clarke LJ points out at para 33, that pleadings are still important.

Lord Justice LAWS:

52. I agree with both judgments. I agree also with my Lord Lewison LJ’s gloss on the two policies point.

————————————————–



LAWS LJ] [CA


March 2016

Volume 28 • Number 3

(2016) 28 ILM 3 6

EDITORProfessor R Merkin QC, LLD

Lloyd’s Law ReportsProfessor of Commercial Law, University of Exeter

Special Counsel, DLA Piper, New Zealand (a member of the DLA Piper Group)

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The regime established within the EU for compulsory insurance to provide compensation for motor vehicle injuries pays particular attention to the rights of victims injured while travelling outside their home states. The implementation of the system in the UK, by the Motor Vehicles (Compulsory Insurance) (Information Centre and Compensation Body) Regulations 2003 (SI 2003 No 37), has proved problematic, in that the Regulations as thus far interpreted allow the victim of an uninsured driver the right to recover damages based upon the English measure rather than damages based upon the measure (generally lower) available in the EEA state where the accident occurred. That conflicts with the principle in the Rome II Regulation, effective in England, that in a tort claim the measure of damages is dictated by the law applicable to the tort. Marshall v Motor Insurers’ Bureau and Others [2015] EWHC 3421 (QB), a decision of Dingemans J, was an unsuccessful attempt to secure the higher English measure even though insurance was seemingly in place.

Marshall: the factsIn August 2012 PM and CP, two British nationals, were injured in a road accident in Paris. They were welders working in France, and had been driving a Ford Fiesta with a trailer, registered and insured in Britain by RSA. The trailer had lost a wheel and as a result it had been necessary to stop the Fiesta so that repairs could be effected. A vehicle recovery truck was summoned by the police. PM and CP were standing on the roadside by the vehicle recovery truck, a vehicle registered and insured in France by Generali. A Peugeot, registered in France but uninsured, was being driven by CB, who fell asleep at the wheel. She collided with both PM and CP, who were standing behind the trailer, which was shunted into the Fiesta and that was in turn shunted into the vehicle recovery truck. CP was thrown into the air and landed on the motorway hard shoulder: he had no contact with any vehicle other than the Peugeot. He suffered serious injuries. PM’s head hit the windscreen of the Peugeot, and he was trapped between the Peugeot and the trailer on the Fiesta. He died at the scene.

There were two actions. In the first action, PM’s widow, GM, commenced proceedings against the Motor Insurers’ Bureau in England under the Motor Vehicles (Compulsory Insurance) (Information Centre and Compensation Body) Regulations 2003, SI 2003 No 37, under which the MIB faces liability for injuries suffered elsewhere in the EEA by reason of the tortious driving of uninsured drivers. The MIB denied that the Regulations applied, arguing that the equivalent French compensation body – the Fonds de Garantie (FdG) – would not face liability because liability was imposed by French law upon Generali as the insurer of the truck and also upon RSA as insurer of CP’s use of the

Motor vehicle insuranceCompensation for injuries sustained in the EEA



Ford Fiesta. By an amendment GM added CP as a further defendant to her claim. In the second action, CP claimed against the MIB under the 2003 Regulations, but the MIB denied liability on the ground that Generali as insurers of the truck were the proper defendants.

Three preliminary issues fell to be determined. The first was whether the claim by GM against CP was governed by English law or French law. The second issue was, on the basis that French law applied to the claim, whether – in accordance with French law – the Fiesta and the truck were “involved” in the accident: if they were, then under French law RSA and Generali as respective insurers of the Fiesta and the truck would face liability to GM. The third issue concerned the liability of the MIB. If it was found that the Fiesta and the truck were not involved in the accident under French law then it was common ground that the MIB faced liability because there was no insurance. However, if the Fiesta and the truck were involved in the accident, then there was a dispute as to whether the MIB faced liability in an alternative claim against RSA and Generali: the significance of the point, as explained below, is for the measure of damages.

Applicable lawIn the case of an accident occurring on or after 11 January 2009 the law applicable to a tort is to be determined in accordance with the rules in the Rome II Regulation, European Parliament and Council Regulation 864/2007/EC. Under article 4.1, the law applicable to a tort is “the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur”. However, there are two exceptions. First, under article 4.2: “where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply”. Secondly, under article 4.3: “Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question”.

It was common ground that the damage occurred in France, but with one modification. One claim brought by GM was for loss of dependency under the Fatal Accidents Act 1976, and it was contended by RSA that the loss of dependency was suffered in England and Wales and so the 1976 Act claim was governed by English law. Dingemans J noted that there was conflicting authority on this point: Arden LJ in Brownlie v Four Seasons Holdings Inc [2015] EWCA Civ

665 suggested obiter that a 1976 Act claim involved damage in England, whereas the Advocate General in Lazar v Allianz SpA C-350/14, in an opinion given on 10 September 2015, had been of the view that the damage occurred where the death occurred. However, Dingemans J found it unnecessary to resolve that dispute, because in his view the applicable law issue could be determined by reference to article 4 of the Rome II Regulation, and article 4 pointed to French law.

The judge reasoned as follows. First, the starting point was article 4.1, under which the applicable law was French law. Secondly, that was modified where article 4.2 applied, and that provision was to be construed according to its terms: it was not to be construed narrowly as relevant only where there were just two parties involved, both habitually resident in the same member state. Dingemans J held that the word “person” in article 4.2 was not be construed as meaning that article 4.2 applied only where there was one claimant and one defendant. It followed that GM’s claims against CP were, under article 4.2, governed by English law. Thirdly, however, article 4.2 was to be read subject to article 4.3, so that if there was a manifestly closer connection with another country then the law of that country should apply. In the present case the relevant factors were: both CP and PM were hit by the French car being driven by CB, and claims against her and the FdG (given the absence of insurance) were governed by French law; the collision with CB was the cause of the injuries suffered by CP and PM; and any claims by CP and PM against Generali, the insurers of the truck, were also governed by French law.

The ruling that the tort was governed by French law meant also that the measure of damages was to be assessed under French law. That is the result of article 15(c) of the Rome II Regulation, which states that the applicable law extends to “the existence, the nature and the assessment of damage or the remedy claimed”.

Operation of French lawAs noted above, under French law there is an obligation on a French insurer, or if there is no insurer then the FdG, of a vehicle “involved” in an accident to provide compensation to any person injured in the accident. Dingemans J found as a matter of French law applied to the facts as regards PM: (1) the Peugeot was involved in the accident involving PM because it hit him; (2) the Fiesta was involved in the accident occurring to PM, because he was trapped under the trailer attached to the Fiesta following the collision; and (3) the recovery truck was involved with PM’s accident, because if had not been present then the Fiesta would have travelled further forward and it was prevented from doing so by reason of the presence of the truck. That meant that, as regards PM both RSA (the insurers of the Fiesta) and Generali (the insurers of the truck) were liable under French law. If there was insurance in place, then the FdG was not engaged.



Ford Fiesta. By an amendment GM added CP as a further defendant to her claim. In the second action, CP claimed against the MIB under the 2003 Regulations, but the MIB denied liability on the ground that Generali as insurers of the truck were the proper defendants.

Three preliminary issues fell to be determined. The first was whether the claim by GM against CP was governed by English law or French law. The second issue was, on the basis that French law applied to the claim, whether – in accordance with French law – the Fiesta and the truck were “involved” in the accident: if they were, then under French law RSA and Generali as respective insurers of the Fiesta and the truck would face liability to GM. The third issue concerned the liability of the MIB. If it was found that the Fiesta and the truck were not involved in the accident under French law then it was common ground that the MIB faced liability because there was no insurance. However, if the Fiesta and the truck were involved in the accident, then there was a dispute as to whether the MIB faced liability in an alternative claim against RSA and Generali: the significance of the point, as explained below, is for the measure of damages.

Applicable lawIn the case of an accident occurring on or after 11 January 2009 the law applicable to a tort is to be determined in accordance with the rules in the Rome II Regulation, European Parliament and Council Regulation 864/2007/EC. Under article 4.1, the law applicable to a tort is “the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur”. However, there are two exceptions. First, under article 4.2: “where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply”. Secondly, under article 4.3: “Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question”.

It was common ground that the damage occurred in France, but with one modification. One claim brought by GM was for loss of dependency under the Fatal Accidents Act 1976, and it was contended by RSA that the loss of dependency was suffered in England and Wales and so the 1976 Act claim was governed by English law. Dingemans J noted that there was conflicting authority on this point: Arden LJ in Brownlie v Four Seasons Holdings Inc [2015] EWCA Civ

665 suggested obiter that a 1976 Act claim involved damage in England, whereas the Advocate General in Lazar v Allianz SpA C-350/14, in an opinion given on 10 September 2015, had been of the view that the damage occurred where the death occurred. However, Dingemans J found it unnecessary to resolve that dispute, because in his view the applicable law issue could be determined by reference to article 4 of the Rome II Regulation, and article 4 pointed to French law.

The judge reasoned as follows. First, the starting point was article 4.1, under which the applicable law was French law. Secondly, that was modified where article 4.2 applied, and that provision was to be construed according to its terms: it was not to be construed narrowly as relevant only where there were just two parties involved, both habitually resident in the same member state. Dingemans J held that the word “person” in article 4.2 was not be construed as meaning that article 4.2 applied only where there was one claimant and one defendant. It followed that GM’s claims against CP were, under article 4.2, governed by English law. Thirdly, however, article 4.2 was to be read subject to article 4.3, so that if there was a manifestly closer connection with another country then the law of that country should apply. In the present case the relevant factors were: both CP and PM were hit by the French car being driven by CB, and claims against her and the FdG (given the absence of insurance) were governed by French law; the collision with CB was the cause of the injuries suffered by CP and PM; and any claims by CP and PM against Generali, the insurers of the truck, were also governed by French law.

The ruling that the tort was governed by French law meant also that the measure of damages was to be assessed under French law. That is the result of article 15(c) of the Rome II Regulation, which states that the applicable law extends to “the existence, the nature and the assessment of damage or the remedy claimed”.

Operation of French lawAs noted above, under French law there is an obligation on a French insurer, or if there is no insurer then the FdG, of a vehicle “involved” in an accident to provide compensation to any person injured in the accident. Dingemans J found as a matter of French law applied to the facts as regards PM: (1) the Peugeot was involved in the accident involving PM because it hit him; (2) the Fiesta was involved in the accident occurring to PM, because he was trapped under the trailer attached to the Fiesta following the collision; and (3) the recovery truck was involved with PM’s accident, because if had not been present then the Fiesta would have travelled further forward and it was prevented from doing so by reason of the presence of the truck. That meant that, as regards PM both RSA (the insurers of the Fiesta) and Generali (the insurers of the truck) were liable under French law. If there was insurance in place, then the FdG was not engaged.

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As regards CP, the position was slightly different: (1) the Peugeot was involved in his accident because it hit him; (2) the Fiesta was involved in the accident because, had the trailer not lost a wheel there would not have been a collision, but CP was himself the assured under the RSA policy and he had no claim against RSA for his own injury (as opposed to liability); and (3) the recovery truck was not involved in the accident. It followed, therefore, that there was no insurance in place from either RSA or Generali, and accordingly that CP’s claim could only be against the FdG.

The 2003 RegulationsIt was common ground that FdG’s liability to CP meant that the MIB was liable to CP under the 2003 Regulations. The outstanding issue was GM’s claim against the MIB, and whether such a claim remained good even though GM had a claim against RSA and Generali. The point was crucial, because the measure of damages for any claim against FdG was to be measured in accordance with French law. By contrast, any claim against the MIB would, under the 2003 Regulations, be governed by English law. That dichotomy arose in the following way. Regulation 13(1) of the 2003 Regulations applies where there is a motor accident in the territory of an EEA state, the victim is resident in the UK and the victim has sought but failed to identify an insurer insuring the use of the vehicle. In such a case, Regulation 13(2) allows the victim to claim from the MIB, and the MIB “shall compensate the injured party in accordance with the provisions of Article 1 of the second motor insurance directive as if it were the body

authorised under paragraph 4 of that article and the accident

had occurred in Great Britain”. The Court of Appeal has

held on two occasions that this means that the MIB is liable

to pay the English measure of damages, even though the tort

is governed by a foreign law providing for damages at a lower

level: Jacobs v Motor Insurers’ Bureau [2011] Lloyd’s Rep IR

17; Bloy v Motor Insurers’ Bureau [2014] Lloyd’s Rep IR 75.

Regulation 13 thus overrides the principle in the Rome II

Regulation that the measure of damages is fixed by the law

governing the tor. Subsequently, in Moreno v Motor Insurers’

Bureau [2015] Lloyds’ Rep IR 535 permission was given for

a leapfrog appeal to the Supreme Court on the point, but at

the time of the present action the position was that a claim

against the MIB would give the English measure of damages.

The MIB’s defence to the claim was that Regulation

13(2) required the MIB to provide compensation as if it were

the body authorised under article 1.4 of the Second Motor

Insurance Directive, ie, the FdG. If there was a private insurer

then the MIB could not be liable. Dingemans J agreed. The

decisions in Jacobs and Bloy were concerned only with the

measure of damages, not with the circumstances in which

the MIB faced liability. The scheme of the Regulations was

to impose liability on the MIB as if it was the compensation

body of the EEA state in which the accident occurred. If the

compensation body was not liable, eg, because the uninsured

driver had not committed a wrongful act or because the

liability was insured, then the MIB itself could not be liable.

It followed that GM had no claim against the MIB.


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Documents

Motor Insurance - Informa/media/... · Insurance Ofﬁ ce of New South Wales v King (1960) 104 CLR 93, Government Insurance Ofﬁ ce of New South Wales v Green and Lloyd Pty Ltd (1965)