A director's failure to ensure that his company had the required employers' liability insurance did not make him personally liable in damages to an employee injured at work, a majority of the UK Supreme Court ruled today.

By three Justices to two, the court upheld a majority decision of the Court of Session that William Campbell, an apprentice joiner employed by Peter Gordon Joiners Ltd, now in liquidation, was unable to claim against the company's director Peter Gordon for an injury he suffered whilst working with an electric saw on 28 June 2006. The company’s employers’ liability policy excluded claims arriving from the use of “woodworking machinery” powered by electricity, and thus excluded any claim arising out of Mr Campbell's accident. The company’s failure to have in place appropriate assurance was a breach of its obligations under s 1(1) of the Employers’ Liability (Compulsory Insurance) Act 1969.

For the majority, Lord Carnwath, with whom Lord Mance and Lord Reed agreed, said there was no authority for the proposition that a person could be made indirectly liable for breach of an obligation imposed by statute on someone else, and it was only possible to pierce the corporate veil to impose liability on a director or other individual through whom the company acted, if it was expressly or impliedly justified by the statute.

In s 5 of the 1969 Act, Parliament imposed a specific and closely defined criminal penalty on a director bearing responsibility for a failure to insure, which was linked to the criminal liability of the company. In determining statutory liability, the court had to pay due respect to the language and structure of the statute, rather than to preconceptions as to what its objectives could or should have been. The imposition of criminal liability was insufficient in itself to render the director civilly liable. The language in s 5 was deliberately chosen and was specifically directed at criminal liability, and accordingly it was difficult to infer an intention to impose a more general liability.

Lord Toulson, dissenting, considered that the imposition of criminal responsibility for a specified act (or omission) carried with it a legal obligation not to act (or omit to act) in such a way. He preferred a functional approach to interpreting the legislation, looking to the objective of the statute, which was employee protection; but the director was in any event guilty in law as a principal of failing to insure. Where legislation was passed to protect employees, a breach would ordinarily give rise to a cause of action, absent a clear statutory intention to the contrary.

Agreeing with Lord Toulson, Lady Hale considered it absolutely clear that in enacting the 1969 Act, Parliament did intend that failure to insure should give rise not only to criminal liability but also to civil liability towards an employee who had been injured by his employer’s breach of duty. Contrary to the view expressed by the Inner House, the law had not been changed by recent House of Lords and Supreme Court decisions.

Click here to view the judgments.