EUI Ltd v Bristol Alliance Ltd Partnership

The only point of human interest in this appeal on a dry point of law is the background. James Williams was a very unhappy young man. At about 1 am on 12th December 2008 he drove his motor car at times at speeds of about 100 mph from the M32 down Newfoundland Street on the outskirts of Bristol and then deliberately swerved into a low wall which launched his car spinning into the air, bouncing off the roof of a car waiting at the junction with Bond Street South and smashing into the plate glass windows of the House of Fraser store causing over £200,000 of damage to that property. He was seriously injured and very nearly died. In time he was convicted of dangerous driving and of causing criminal damage. The Recorder who sentenced him to 21 months imprisonment said, “It is clear you suffered from serious depression at that time and the purpose of your driving was to kill yourself.” Fortunately he seems to have recovered and although he did not participate in this appeal, he did attend court and took a keen interest in the proceedings.

The issue between the parties arises in this way. The House of Fraser store is one of the units within the Cabot Circus Centre owned by the claimant. The damage to the shop windows was covered by its policy of property insurance and a claim was brought against James by the property insurer by subrogation in the name of the claimant, the owner of the property. James had motor insurance but his policy did not cover damage arising out of his deliberate acts. It is common ground that this damage was caused by a deliberate act. It follows that James had no contractual right to indemnity against his motor insurer in respect of his liability to the property owners. This particular use of the vehicle was, therefore, uninsured and in the usual case this would not matter because damage to property caused by the uninsured use of a motor vehicle on a road would be paid by the motor insurer under the scheme set up by the Motor Insurers’ Bureau (the MIB) for Compensation of Victims of Uninsured Drivers. This, however, is not a usual case. Here an exception in the MIB agreement provides that the scheme does not extend to compensating those who suffer property damage where such damage was insured by the victim’s own insurer who brings a subrogated claim for recovery. Thus battle is joined between the property insurer and the motor insurer. The property insurer contends that upon a proper construction of the policy, the Road Traffic Act 1988, sections 145 and 151 in particular, and the European Directives on Motor Insurance, the motor insurers must cover damage to property whether deliberately caused or not. The motor insurer contends that because the policy expressly excludes damage deliberately caused with the result that this damage is not covered by the motor insurance policy, then upon the proper construction of section 151 they are not obliged to indemnify the claimant.

Faced with these rival contentions, Master Eyre ordered the trial of a preliminary issue defined as follows:

“Is the claimant entitled to recover from the second defendant [the motor insurer] even if the second defendant is right in contending that:

(a)

the damage to the claimant’s premises was the result of a deliberate act by the first defendant [James]; and

(b)

the insurance obtained by the first defendant from the second defendant was set out in paragraphs 8-10 of the second defendant’s defence” [namely, that the insurance policy excluded “any … damage … arising as a result of … deliberate act caused by you …].

On 1st July 2011 Tugendhat J answered that preliminary issue in the affirmative. The motor insurer now appeals with the permission of Rix LJ.

Part VI of the Road Traffic Act 1988 (“the Act”) provides for third-party liabilities and compulsory insurance or security against third-party risk. Section 143 creates an offence of using a motor vehicle without insurance. It provides as follows:

“143 (1) Subject to the provisions of this Part of this Act—

(a)

a person must not use a motor vehicle on a road or other public place unless there is in force in relation to the use of the vehicle by that person such a policy of insurance or such a security in respect of third party risks as complies with the requirements of this Part of this Act, …

(2)

If a person acts in contravention of subsection (1) above he is guilty of an offence. …”

The requirements in respect of policies of insurance are set out in section 145:

“145(1) In order to comply with the requirements of this Part of this Act, a policy of insurance must satisfy the following conditions.

(2)

The policy must be issued by an authorised insurer.

(3)

Subject to subsection (4) below, the policy—

(a)

must insure such person, persons or classes of persons as may be specified 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 …

(4)

The policy shall not, by virtue of subsection (3)(a) above, be required—

(a)

to cover liability in respect of the death, arising out of and in the course of his employment, of a person in the employment of a person insured by the policy or of bodily injury sustained by such a person arising out of and in the course of his employment, or

(b)

to provide insurance of more than £1,000,000 in respect of all such liabilities as may be incurred in respect of damage to property caused by, or arising out of, any one accident involving the vehicle, or

(c)

to cover liability in respect of damage to the vehicle, or

(d)

to cover liability in respect of damage to goods carried for hire or reward in or on the vehicle or in or on any trailer (whether or not coupled) drawn by the vehicle, or

(e)

to cover any liability of a person in respect of damage to property in his custody or under his control, or

(f)

to cover any contractual liability.”

S.147 provides for the issue and surrender of certificates of insurance and of security:

“147(1) A policy of insurance shall be of no effect for the purposes of this Part of this Act unless and until there is delivered by the insurer to the person by whom the policy is effected a certificate (in this Part of this Act referred to as a “certificate of insurance”) in the prescribed form and containing such particulars of any conditions subject to which the policy is issued and of any other matters as may be prescribed.”

S.148 provides for the avoidance of certain exceptions to policies or securities:

“148(1) Where a certificate of insurance or certificate of security has been delivered under section 147 of this Act to the person by whom a policy has been effected or to whom a security has been given, so much of the policy or security as purports to restrict—

(a)

the insurance of the persons insured by the policy, or

(b)

the operation of the security,

(as the case may be) by reference to any of the matters mentioned in subsection (2) below shall, as respects such liabilities as are required to be covered by a policy under section 145 of this Act, be of no effect.

(2)

Those matters are—

(a)

the age or physical or mental condition of persons driving the vehicle,

(b)

the condition of the vehicle,

(c)

the number of persons that the vehicle carries,

(d)

the weight or physical characteristics of the goods that the vehicle carries,

(e)

the time at which or the areas within which the vehicle is used,

(f)

the horsepower or cylinder capacity or value of the vehicle,

(g)

the carrying on the vehicle of any particular apparatus, or

(h)

the carrying on the vehicle of any particular means of identification other than any means of identification required to be carried by or under the Vehicle Excise and Registration Act 1994.”

Section 151 features large in the appeal. It imposes a duty on insurers or persons giving security to satisfy a judgment against persons insured or secured against third-party risk. It is in these terms:

“151(1) This section applies where, after a certificate of insurance or certificate of security has been delivered under section 147 of this Act to the person by whom a policy has been effected or to whom a security has been given, a judgment to which this subsection applies is obtained.

(2)

Subsection (1) above applies to judgments relating to a liability with respect to any matter where liability with respect to that matter is required to be covered by a policy of insurance under section 145 of this Act and either—

(a)

it is a liability covered by the terms of the policy or security to which the certificate relates, and the judgment is obtained against any person who is insured by the policy or whose liability is covered by the security, as the case may be, or

(b)

it is a liability, other than an excluded liability, which would be so covered if the policy insured all persons or, as the case may be, the security covered the liability of all persons, and the judgment is obtained against any person other than one who is insured by the policy or, as the case may be, whose liability is covered by the security.

(3)

In deciding for the purposes of subsection (2) above whether a liability is or would be covered by the terms of a policy or security, so much of the policy or security as purports to restrict, as the case may be, the insurance of the persons insured by the policy or the operation of the security by reference to the holding by the driver of the vehicle of a licence authorising him to drive it shall be treated as of no effect.

…

(5)

Notwithstanding that the insurer may be entitled to avoid or cancel, or may have avoided or cancelled, the policy or security, he must, subject to the provisions of this section, pay to the persons entitled to the benefit of the judgment—

(a)

as regards liability in respect of death or bodily injury, any sum payable under the judgment in respect of the liability …,

(b)

as regards liability in respect of damage to property, any sum required to be paid under subsection (6) below, and

(c)

any amount payable in respect of costs.

(6)

This subsection requires—

(a)

where the total of any amounts paid, payable or likely to be payable under the policy or security in respect of damage to property caused by, or arising out of, the accident in question does not exceed £1,000,000, the payment of any sum payable under the judgment in respect of the liability, together with any sum which, by virtue of any enactment relating to interest on judgments, is payable in respect of interest on that sum,

(b)

where that total exceeds £1,000,000, …

whichever is the less …

…

(9)

In this section—

…

(c)

“liability covered by the terms of the policy or security” means a liability which is covered by the policy or security or which would be so covered but for the fact that the insurer is entitled to avoid or cancel, or has avoided or cancelled, the policy or security.”

Section 152 provides for exceptions for section 151 but they do not seem to affect the outcome of this appeal. S. 154 provides that a person against whom a claim is made must on demand give certain information regarding his policy.

The Motor Vehicles (Third Party Risks) Regulations 1972 provide by regulation 5(1) that:

“(1)

A company shall issue to every holder … of a policy other than a covering note issued by the company:-

(a)

in the case of a policy … relating to one or more specified vehicles a certificate of insurance in Form A …”

Form A requires this information:

“Certificate number … policy number … (optional)

1.

Registration mark of vehicle.

2.

Name of policy holder.

3.

Effective date of commencement of insurance for the purposes of the relevant law.

4.

Date of expiry of insurance.

5.

Persons or classes of persons entitled to drive.

6.

Limitations as to use.

I/We hereby certify that the policy to which this certificate relates satisfies the requirements of the relevant law applicable in Great Britain.

…

Authorised insurers

Note: For full details of the insurance cover reference should be made to the policy.”

There are six Motor Insurance Directives, the last being Directive 2009/103/EC of 16th September 2009 coming into force after the accident with which we are concerned. The first Directive 72/166/EEC of 24^th April 1972 on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles provides by Article 3(1) (now Article 3 of the codified Directive):

“Each Member State shall … 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.”

The second Directive, 84/5/EEC of 30th December 1983, recites:

“Whereas it is necessary to make provision for a body to guarantee that the victim will not remain without compensation where the vehicle which caused the accident is uninsured or unidentified; …

Whereas, however, Member States should be given the possibility of applying certain limited exclusions as regards the payment of compensation by that body and of providing that compensation for damage to property caused by an unidentified vehicle may be limited or excluded in view of the danger of fraud;

Whereas it is in the interest of victims that the effects of certain exclusion clauses be limited to the relationship between the insurer and the person responsible for the accident …”

Article 1 provides:

“1.

The insurance referred to in Article 3(1) of Directive 72/166/EEC shall cover compulsorily both damage to property and personal injuries.

…

4.

Each Member State shall set up or authorize a body with the task of providing compensation, at least up to the limits of the insurance obligation for damage to property or personal injuries caused by an unidentified vehicle or a vehicle for which the insurance obligation provided for in paragraph 1 has not been satisfied. This provision shall be without prejudice to the right of the Member States to regard compensation by that body as subsidiary or non-subsidiary and the right to make provision for the settlement of claims between that body and the person or persons responsible for the accident and other insurers or social security bodies required to compensate the victim in respect of the same accident.”

Article 2(1) provides:

“Each Member State shall take the necessary measures to ensure that any statutory provision or any contractual clause contained in an insurance policy issued in accordance with Article 3(1) of Directive 72/166/EEC, which excludes from insurance the use or driving of vehicles by:

- persons who do not have express or implied authorization thereto, or

- persons who do not hold a licence permitting them to drive the vehicle concerned, or

- persons who are in breach of the statutory technical requirements concerning the condition and safety of the vehicle concerned,

shall, for the purposes of Article 3(1) of Directive 72/166/EEC, be deemed to be void in respect of claims by third parties who have been victims of an accident.”

The preamble to the Fourth Directive, 2000/26/EC of 16th May 2000, is also of some significance:

“(27)

Legal persons who are subrogated by law to the injured party in his claims against the person responsible for the accident or the latter's insurance undertaking (such as, for example, other insurance undertakings or social security bodies) should not be entitled to present the corresponding claim to the compensation body.”

In our case the compensation body is the Motor Insurers’ Bureau.

The first agreement made between the Secretary of State for Transport and the Insurers’ transacting Compulsory Motor Insurance business in Great Britain was made on 31st December 1945. There have been various supplemental agreements since then. In the agreement of 13th August 1999 a “relevant liability” means a liability in respect of which a contract of insurance must be in force to comply with Part VI of the 1988 Act. An “unsatisfied judgment” means a judgment or order (by whatever name called) in respect of a relevant liability which has not been satisfied in full within 7 days from the date upon which the claimant became entitled to enforce it. Clause 5.1 of the Agreement then provides that if a claimant has obtained against any person in a court in Great Britain a judgment which is an unsatisfied judgment then the MIB will pay the relevant sum to, or to the satisfaction of, the claimant or will cause the same to be paid. There are, however, exceptions to this general provision provided for in clause 6.1 which stipulates that clause 5 does not apply in the case of an application made in respect of:

“(c)

A claim by or for the benefit of, a person (“the beneficiary”) other than the person suffering death, injury or other damage which is made either –

(i)

…, or

(ii)

pursuant to a right of subrogation or contractual or other right belonging to the beneficiary.”

Article 75 of the MIB’s Memorandum and Articles of Association provides that the “Article 75 Insurer”, namely the member who at the time of the accident which gave rise to the liability was providing any insurance in respect of the vehicle, even if use of the vehicle is other than that permitted under the policy, must pay the original judgment creditor such sum as is due and outstanding under the Road Traffic Act judgment.

In confirmation of the insurance contract made with James, the underwriters acknowledged:

“We have agreed to indemnify you, subject to the terms, conditions, limitations and exclusions contained in this Document, against such liability, loss, destruction or damage that may occur during any Period of Insurance directly sustained in connection with your car referred to on your current Certificate of Motor Insurance and Policy Schedule.”

The policy contains sections dealing with “Damage to your car in an accident”, with “Fire and theft”, and in section 3 with “Liability to other people”. Section 3 provides:

“1a Driving your car

We will cover you for everything you are legally liable to pay resulting from an accident in your car or an attached trailer and:

•

someone else is killed or injured

•

someone else’s property is damaged …”

Importantly paragraph 5 contains this exclusion:

“5 What is not covered

We will not pay:

•

anyone who has other insurance covering the same liability

…

•

any loss, damage, death or injury arising as a result of a “road rage” incident or deliberate act caused by you or any driver insured to drive your car.”

The policy also includes “General exceptions to your cover”, stating “We will not cover you or be liable for any of the following” and then ten situations are excluded but I need not detail them. There are also “General conditions of your cover” including:

“Avoidance of certain terms and right of recovery

Nothing in this policy will affect the right of any person indemnified or of any other person to recover an amount under or by virtue of the provisions of the law of any country in which this policy operates relating to the insurance of liability to third parties. However you will have to repay to us all sums which we have paid but would not otherwise have paid had the provisions of the laws of such countries not applied.”

The Certificate of Motor Insurance was issued by the insurers as “evidence that you have insurance cover to comply with the law” but it also states that “for further details of your insurance cover refer to your Policy Schedule”. The Certificate contains the information required by the Regulations and Form A in that:

Tugendhat J accepted the submissions of Mr John Ross QC for the property insurers that section 145(3) of the Act requires the policy to cover any liability which may be incurred by the driver in respect of damage to property caused by the use of the vehicle on the road and that would include damage deliberately caused. He referred at length to Charlton v Fisher [2002] QB 578 and said:

“Mr Ross submits that Laws LJ was there expressing the view that, in order to comply with s. 145 of the 1988 Act, the policy must be read to include liability as against the innocent third party arising out of deliberate running down, but can exclude it so that the assured cannot take the benefit where the liability arises out of his deliberate act.”

He concluded:

“54.

In my judgment the submission of Mr Ross, based on the reasoning of Laws LJ in Charlton, is to be preferred. It is consistent with earlier dicta (also obiter) and it gives effect to the policy of the legislation that innocent third parties should be protected so far as money can [do] it from the harm that may be inflicted by dangerous and criminal drivers.

55.

Adopting this interpretation of s. 151 was simply achieved by a direct route that which is already the indirect effect of the MIB Scheme, at least in all but a minority of cases (of which this is one).

56.

There is no strain on the language of the policy in adopting this approach. That is clear from the wording of [the provision in the “General Provisions of Cover” cited at [10] above].”

It followed that he did not need to consider the provisions of EU law but in case he was wrong he did state his conclusions on that part of the case. He found:

“83.

… There is nothing to justify a definition of victim which excludes third parties who have suffered personal injury or damage to property, but who are also insured, and whose insurers exercise their rights of subrogation. On the contrary, such a limitation of the definition of victim appears to be inconsistent with the principle of subrogation. Moreover, the reasoning of the ECJ in Bernaldez is clear, and is not confined to purported exclusion clauses relating to drivers who are intoxicated.

84.

In my judgment, if I am wrong about the effect of English law alone, then, applying Marleasing, Part VI of the RTA must be interpreted as requiring the user of a motor vehicle to be insured under a policy that satisfies the minimum requirements of the Directives. And interpreting the policy in this case, both by reference to the purpose for which it was issued, and having regard to the statements in the Certificate that it provides the cover required by law, the cover it provides does meet those minimum requirements, at least so far as material to this case.”

Zurich General Accident & Liability Insurance v Morrison [1942] 2 KB 53 is one of the earlier cases to which we were referred. There the insurers sought to avoid the policy on the grounds that it was obtained by the non-disclosure of a material fact and the insurer needed to give the plaintiff notice specifying the non-disclosure or false representation on which he proposed to rely. Notice was duly given but the issue arose as to what if any further notice had to be served after the insurer became aware of fresh facts upon which he could rely. Here the insurer failed. The judgment of Goddard LJ is cited for its explanation of the development of the law at that stage and for the policy considerations which underlie it. He said at p. 61:

“Part II of the Road Traffic Act, 1934, was passed to remedy a state of affairs that had become apparent soon after the principle of compulsory insurance against third party risks had been established by the Road Traffic Act of 1930. That Act and the Third Parties’ (Rights Against Insurers) Act, passed in the same year, would naturally have led the public, at least those who were neither lawyers nor connected with the business of insurance, to believe that if thereafter they were, through no fault of their own, injured or killed by a motor car they or their dependents would be certain of recovering damages, even though the wrong-doer was an impecunious person. How wrong they were quickly appeared. Insurance was left in the hands of companies and underwriters who had imposed what terms and conditions they chose. Nor is there any standard form of policy, and any company who could fulfil the not very onerous financial requirements that were necessary for acceptance as an approved insurer could hedge round the policies with so many warranties and conditions that no-one advising an injured person could say with certainty whether, if damages were recovered against the driver of the car, there was any prospect of recovering against the insurers. … It is not surprising therefore, that by 1934 Parliament interfered, and by s. 10 of the Act of that year they took steps towards remedying a position which to a great extent nullified the protection that compulsory insurance was intended to afford. Generally speaking, s. 10 was designed to prevent conditions in policies from defeating the rights of third parties, but insurers were still allowed to repudiate policies obtained by misrepresentation or non-disclosure of material facts. This right, however, was made subject to certain conditions and restrictions contained in sub-s. 3 of s. 10. It seems to me that what the legislature had in mind was that, if an insurer was intending to repudiate a policy, it was only fair that the injured third party should know the grounds on which repudiation was sought before he went to the expense of endeavouring to establish his claim against the assured, who, if not entitled to indemnity, might be able to satisfy a judgment. It was to prevent an injured party incurring further useless expense. Hence the necessity of the notice prescribed by the proviso to the sub-section. The protection afforded is little enough.”

In Hardy v Motor Insurers’ Bureau [1964] 2 QB 745 the driver of the motor vehicle drove off while a security officer was questioning him, dragging Mr Hardy along the road for some distance and causing bodily injury. The driver pleaded guilty to driving a motor vehicle while uninsured and was convicted of maliciously inflicting grievous bodily harm on the plaintiff. The plaintiff obtained judgment for damages against the driver. The question in that appeal was whether the liability of the driver to the plaintiff was a liability which was required to be covered by a policy of insurance under the Act. It was held that the policy of insurance which the motorist is required by statute to take out must cover any liability which may be incurred by him arising out of the use of the vehicle by him. As Lord Denning MR said at p. 760:

“The policy of insurance which the motorist is required by statute to take out must cover any liability which may be incurred by him arising out of the use of the vehicle by him. It must, I think, be wide enough to cover, in general terms any use by him of the vehicle, be it an innocent use or a criminal use, or be it a murderous use or a playful one. … if the motorist is guilty of a crime involving a wicked and deliberate intent, and he is made to pay damages to an injured person, he is not himself entitled to recover on the policy. But if he does not pay the damages, then the insured third party can recover against the insurers under section 207 of the Road Traffic Act, 1960 [the equivalent of our section 151]; for it is a liability which the motorist, under the statute, was required to cover.”

Diplock LJ said at p. 769:

“The whole purpose of this part of the Act is for the protection of the persons who sustain the injury caused by the wrongful acts of other persons who use vehicles on a road, and it was no part of the policy of the Act that the assured’s right to enforce his own contract against the insurers should constitute the sole measure of the third parties’ rights against the insurers, as section 205 shows. The liability of the assured, and thus the rights of the third party against the insurers, can only arise out of some wrongful (tortious) act of the assured. I see no reason in public policy for drawing a distinction between one kind of wrongful act, of which a third party is the innocent victim, and another kind of wrongful act; between wrongful acts which are crimes on the part of the perpetrator and wrongful acts which are not crimes, or between wrongful acts which are crimes of carelessness and wrongful acts which are intentional crimes.”

The correctness of Hardy was challenged in Gardner v Moore [1984] 1 AC 548, another case where the uninsured driver deliberately drove his motor car at the plaintiff leading to his conviction of wounding with intent to cause grievous bodily harm. The MIB were joined as second defendant. The sole question for decision was whether Hardy was correctly decided.

Lord Hailsham of St Marylebone L.C. delivered the speech with which the other members of the House agreed. He said at p. 555:

“Before proceeding further it is perhaps relevant to point out the function of the M.I.B. Agreement and the sister and similar agreement of the same date between the same parties relating to untraced drivers. Part VI of the Road Traffic Act 1972 is designed to protect the innocent third party from the inability to pay of a driver who incurs liability by causing him death or personal injury. This it does partly (sections 143 and 145) [similar to the present sections 143 and 145] by imposing an obligation on all drivers to ensure against third party liability under sanction of the criminal law, and partly by conferring on a successful plaintiff a right of direct recourse in the civil courts against the judgment debtor’s insurers if he is insured in the manner prescribed (e.g. sections 148 and 149) [our sections 148 and 151]. This by itself leaves a gap in the protection afforded to the innocent third party by Part VI since a guilty driver may either be uninsured altogether or turn out to be untraceable so that it is not known whether he is insured or not and if so by whom. It is to fill this gap that the two agreements between the M.I.B and the Secretary of State for the Environment have been voluntarily entered into.”

He then dealt with the construction of Part VI saying at p. 556:

“This was a consolidating Act passed some eight years after Hardy … which was decided under the previous consolidation Act of 1960. The Act of 1972 was thus passed in the light of Hardy’s case and without any attempt to amend the law as therein it was stated to be. Some argument was based on the legislative history underlying the Act of 1972, principally the Road Traffic Act 1930 (which may be read with the Third Parties’ (Rights against Insurers) Act 1930, and the amending Acts of 1934 and (after the consolidation Act of 1960) 1971. In my opinion, however, except as a matter of history these previous Acts do not affect my judgment as to the construction of the present consolidating Act of 1972 …”

As for the later sections of Part VI, he said at p. 561:

“This leads me to point to the light shed on the policy of the Act of 1972 by sections 148 and 149. It is true, of course, that these sections were grafted onto sections 143 and 145 (which, to the extent cited above, were copied from the Act of 1930) but without any apparent belief in the mind of the legislature that the scion was incompatible with the stock. The appellant sought to invoke the doctrine that, since the words of sections 143 and 145 of the Act of 1972 were borrowed from the earlier Act which admittedly did not contain the equivalent of sections 148 and 149, they should be read without them. I do not altogether accept this, but, if I did, I would regard the argument as two-edged since, as I have already pointed out by the words of sections 143 and 145 are sufficiently wide in their literal meaning to dispose of the case in a sense adverse to the appellants. But with the two additional sections the purpose of construction becomes even clearer. Section 149, in particular, imposes on the insurer for the benefit of an innocent third party an obligation to recompense him for the liability incurred by an uninsured third party in respect of a liability for which he should have been insured under sections 143 and 145. The M.I.B. Agreements imposed on the appellants an obligation to underwrite this liability so far as regards uninsured or untraceable tortfeasors. The two agreements were intended precisely to protect the innocent third party either because the insurer did not choose or was not able to discharge his liability under section 149, or where the wrongdoer was not covered by a relevant policy of insurance at all (which is the present appeal) or was untraceable. To invoke, as the M.I.B. now do, the well-known doctrine of public policy that a man may not profit by the consequences of his own wrong doing seems to me to stand the principle of public policy on its head.”

Gardner should be read along with Keeley v Pashen [2004] EWCA Civ 1491, [2005] 1 WLR 1226. In that case the driver used his own car to provide taxi services to the public. He had an altercation with the passengers who left the car but the driver drove at them “to frighten” them but in doing so fatally injured the claimant’s husband. The defendant insurer contended it could not be liable pursuant to section 151 of the Road Traffic Act 1988 to satisfy any judgment obtained because the relevant use of the car did not fall within the permissible use under the policy of insurance which was limited to “use for social domestic and pleasure purposes” when, at the material time, the car was being used for hire or reward which use was expressly excluded. The Court of Appeal held that because his last fare-paying passenger had left the car, he was no longer driving it for hire or reward when he reversed into the deceased. After he had dropped his passengers the essential character of the journey on which he then set out was to drive his car home and this was held to be a social domestic or pleasure purpose covered by the policy. Brooke LJ with whom Jonathan Parker and Keene LJJ agreed, concluded:

“19.

This is a satisfactory conclusion. Under this statutory scheme Parliament intended innocent third parties to be able to recover direct from the driver's insurers, and although in Gardner v Moore … Lord Hailsham of St Marylebone LC overlooked the possibility that under the Act and the Regulations a motor insurer may impose express limitations on the third party cover it provides, the courts should not be astute to interpret any such limitations benevolently in the insurer's favour.”

Finally the case upon which the judge relied, Charlton v Fisher [2001] EWCA Civ 112 [2002] QB 578. Here the insured deliberately reversed his car into the claimant’s vehicle in a hotel car park causing the claimant significant injury. The driver was convicted of criminal damage. The policy complied with the obligation to insure under section 143(1) and 145(3) of the Act and, in relation to liability to third parties, indemnified the user in respect of legal liability “in the event of an accident involving your car”.

The insurer applied for a declaration that it was not liable to indemnify the driver in respect of any liability he may have to the claimant and that since the incident occurred in a car park on private property it was not obliged to indemnify the driver or the claimant pursuant to the 1988 Act. All three members of the Court, Kennedy, Laws and Rix LJJ agreed that the principle that a person may not stand to gain an advantage arising from the consequences of his own iniquity applies in relation to motor insurance contracts as it does elsewhere. Since public policy deprived the driver of any claim under the policy of insurance to be indemnified against a liability arising out of his own intentional criminal act, the driver had no rights under the policy capable of ensuring to the benefit of the claimant. That was conclusive of the appeal. All also agreed that as the incident had not occurred on a road but on private property the claimant had no redress against the insurer either under section 151 of the Act or the Motor Insurers’ Bureau Agreement. Kennedy and Laws LJJ were prepared to give the word “accident” a meaning wide enough to embrace deliberate conduct. Rix LJ preferred to say that the deliberate collision and its natural consequences were no accident and were not within the policy.

I regret that I do not get as much help from this case as Tugendhat J appears to have done. It is immediately obvious that our case is significantly different because here the policy contains an express exclusion with respect to deliberately caused damage. Furthermore no questions of public policy are involved in our appeal nor is the meaning of “an accident” in issue. Our case concerns the proper interpretation of section 151 of the Act and there was no full discussion about it save for the court accepting that if the collision there had occurred on the road the claimant would in one way or another have been able to enforce her judgment against the insurer either directly under section 151 or indirectly as the insurer responsible for meeting the liability under the MIB Agreement.

Tugendhat J drew comfort from paragraphs 30-36 of the judgment of Laws LJ. His starting point in [30] was to have in mind two contrasting propositions, neither of which (taken in isolation) could sensibly be doubted but which would appear at face value to be inconsistent with one another. The first of those propositions identified in [31] was the general rule that an assured is not covered by an insurance contract in respect of loss caused by his own intentional acts. The second proposition set out in [32] was that the user of a vehicle is required by statute (on pain of criminal penalties) to be insured in respect of any liability which he may incur by virtue of the death or personal injury of any person (or damage to property) which is occasioned by the use of the vehicle on a road in Great Britain, and that included the case where the injury was deliberately or criminally caused; see Hardy and Gardner. As he explained in [33] this second proposition is the principle of statute that innocent third parties should be protected as far as money can do it from the harm – sometimes fatal – that may be inflicted by careless, dangerous and criminal drivers on the road. He said:

“33.

… The tension between the two [public policies] arising where the driver's conduct is criminal is resolved by the rule (derived from Hardy v Motor Insurers’ Bureau, confirmed in Gardner's case) that a policy whose words on their face cover liability for death, personal injury or damage to property occasioned by the use of a vehicle on a road is treated – so as to give effect to the second proposition – as still doing so even where the liability arises on the facts from the driver's own criminal act; although in that case – so as to give effect to the first proposition – the insured driver himself cannot take advantage of the policy. …

34.

As it seems to me, with great respect, the reasons advanced by Rix LJ to support the view that here there was no "accident" for the purpose of the relevant policy of insurance rest in large measure upon considerations which favour or promote the truth of the firstproposition. However, although of course the relevant event in this case did not happen on a road, the key question in relation to the word "accident" is surely whether the material terms of the insurance policy in the case fulfil the requirements of section 145(3)(a) of the 1988 Act. This must be so, since section 145(3)(a) is the only route to the second proposition – the only means by which the case may potentially be brought within the class of case in which as a matter of construction a policy of motor insurance may cover the assured against losses caused by his own intentional and criminal act.

35.

In my judgment a policy, such as that in the present case, whose insuring clause contains the word "accident", may readily fulfil the requirements of section 145(3)(a), even in relation to a set of facts where the insured's liability arises from his own deliberate criminal act. …

36.

Moreover, if the court's view of "accident" is conditioned by the force of the first proposition, there at once arises the danger of an approach being taken to the material provisions of the 1988 Act which would undermine the purpose and utility of section 151. As Rix LJ says (paragraph 52) the first proposition – the basic rule – applies whether or not the word "accident" appears in the policy. In theory one might, driven by the first proposition, arrive at a result such as would not allow any policy of motor insurance (whether or not containing the word "accident") to cover the insured's liability for damage caused by his own deliberate criminal act; but that would contradict entirely the second proposition. Once one recognises (a) that in the field of motor insurance the role of the first proposition is only to disable the insured from recovering for his own benefit in a case of deliberate criminal conduct, and (b) that the policy may nevertheless and at the same time be treated as one which for the purposes of sections 143 and 145 insures the driver against liability for death (etc) in just such a case (and that is the effect of Hardy v Motor Insurers’ Bureau … and Gardner v Moore…), it becomes apparent that the presence or absence in the insuring clause of "accident" or its cognates is of little or no significance.”

If assistance is to be gained from this case, I find it in the judgments of Kennedy and Rix LJJ. In this respect they seem to be in agreement. Kennedy said:

“9.

… The obligation imposed by section 143(1)(a) required the first defendant or other user of the vehicle not to use the vehicle on the road unless there was in force “in relation to the use of that vehicle by that person” a policy of insurance which complied with the requirements of the statute. In other words it remained the obligation of the first defendant or other user of the vehicle to restrict the user so as to keep it within the terms of the cover. That necessarily means that a policy can comply with the requirements of section 145(3) which does not insure a person or persons specified in the policy in respect of any liability which may be incurred, but only in respect of any liability which may be incurred whilst the vehicle is being used as permitted by the terms of the policy.”

Rix LJ held:

“63.

… the statutory duty to comply with the requirements in respect of compulsory insurance is upon the driver, not the insurer. (The insurer's separate duty, under section 151, to meet a judgment obtained against a person to whom it has issued a certificate of insurance in respect of third party liability, even in circumstances where the policy would not avail his assured, is something separate.) … although the driver or more strictly the user is required to obtain a policy of insurance which covers him in relation to his use of a motor vehicle on the road, so that whatever use he puts his vehicle to, he is required by statute to be insured for it in respect of third party risks, it is not apparent that there is a similar obligation on his insurer to cover him in respect of any and every use to which the user may put his car.

64.

Section 143 imposes the duty to be insured against third party risks on the user. Section 143(1)(a) puts that duty in these terms: [and he quotes the subsection].

65.

Section 143(2) makes a user who contravenes section 143(1) guilty of an offence. There is no similar or correlative duty imposed on an insurer.” (The emphasis is his. )

Rix LJ went on to say:

“69.

Does this mean that the insurer must provide insurance to the persons specified in the policy in respect of any third party liability caused by or arising out of any use of the vehicle on the road? If so, then it would not be possible for an insurer to limit the use of the vehicle in any way, at any rate so far as third party liability is concerned. It would also mean that in this respect the statute would depart from the structure found elsewhere, which is in general to permit the normal contractual autonomy as between insured and insurer, while making certain exceptions unenforceable so far as third party liability is concerned and giving to the third party a separate cause of action against the insurer which goes beyond the insured's rights against the insurer. I am inclined to the view that section 145(3)(a) does not have the effect queried, which is the effect which Judge Thompson below gave to it, but rather means that the user does not comply with his obligation under section 143(1)(a) not to use a motor vehicle on a road without having in force a policy meeting the requirements of the Act unless the policy covers him in respect of any third party liability arising out of the use to which he puts the vehicle on a road.”

Having set out the background facts and law, I turn to the preliminary issue: is the property insurer entitled to recover from the motor insurer where the damage to the claimant’s premises was a result of a deliberate act by the driver of the vehicle in circumstances where the insurer’s cover excluded any damage arising as a result of a deliberate act?

The respondent has filed a respondent’s notice contending that the judgment ought to be upheld on the additional ground that:

“the wording of the Road Traffic Act policy which the Appellant issued to the First Defendant driver properly construed, does not exclude a claim by a third party (such as the Respondent) directly against the insurer under s. 151 of the 1988 Act, in circumstances where the accident was a occasioned as a result of the insured’s deliberate act.”

The respondent accepts that, because of the exclusion of liability in the case of damage caused by a deliberate act, the assured, the first defendant, will not be entitled to an indemnity from his insurer, the second defendant, in respect of liability he may incur to the claimant, but the respondent contends, nevertheless, that the exclusion clause should not be read as restricting the third party’s rights to recover under section 151. The judge did not deal with this argument perhaps because, like me, he considered it to be completely misconceived. The insurance policy, as such, has nothing at all to do with claims by a third party. The policy is a contract between the assured and the insurer. Although it was quite unnecessary to make the point expressly, the policy does provide for this:

“The parties to this contract are you and us. Nothing in this contract shall create any rights to third parties under the Contract (Rights of Third Parties) Act 1990.”

The proper construction of the policy can, therefore, only affect the rights of the parties to the contract, the assured and the insurers. Whatever rights a third party has to be compensated by the insurer depend not upon the proper construction of the contract of insurance but upon the proper construction of the statutory provision that confers that right upon him. The right to claim damages from the insurer is given by section 151. The parties are, therefore, correct to identify as the crucial issue in this appeal the proper meaning of section 151.

It is common ground that there are four preconditions for the third party victim to satisfy:

It is also common ground that conditions (1) to (3) are satisfied. The dispute centres on condition (4). In a nutshell the vital contentions are these. The appellant contends that because the policy excludes liability for deliberate acts, the liability is not “covered by the terms of the policy” and so this essential precondition for imposing liability on the insurer pursuant to section 151(2)(a) is not satisfied. The respondent denigrates this argument. The purpose of Part VI of the Act is entirely concerned with protecting victims from the financial consequences of an injury caused by a driver that is not the victim’s fault. Thus, submits the respondent, if the appellant is correct, then it is open to an insurer to sell policies to drivers on the basis that they comply with the requirements of the Act and to issue a certificate of insurance to confirm that fact, but then to insert terms in the policy that undercut the minimum terms which ought to ensure the victim’s protection and so to refuse to compensate on that basis. It is a good jury point. The legal foundation upon which it has to rest is that the error in the appellant’s argument is to fail to give proper meaning to the words which followed “covered by the terms of the policy”, namely, “to which the certificate relates”. The certificate relates to a policy that is certified as satisfying the requirements of the relevant law applicable in Great Britain and therefore must include a liability to compensate third parties for damage caused by the assured even when engaged in a criminal or deliberate act.

Since section 151 must be construed in the context of Part VI as a whole, it is necessary to see how this statutory scheme for compulsory motor insurance is designed to operate. Part VI, the forerunner of which goes back to Part II of the Road Traffic Act 1930, is there to provide protection for those who sustain injury or damage caused by the use of a motor vehicle on a road or in a public place and it does so by providing for compulsory insurance in respect of third party risks. Section 143 is the starting point of the legislative scheme. Section 143 prohibits the use of a motor vehicle on a road or in a public place without there being in force “such a policy of insurance as complies with the requirements of this Part of the Act”. To use the vehicle without such insurance is a criminal offence. It is clear that it is the duty of the user to ensure that “there is in force in relation to the use of the vehicle by that person such a policy of insurance as complies with the requirements of this part of the Act.” The important words in section 143 are “in relation to the use of the vehicle”. In other words the user’s duty (and no-one else’s) is to ensure that insurance cover is in place whenever and however he uses the vehicle. If the use is not covered then he is not insured and criminal sanctions will follow that illegal use.

The next question which has to be answered is this: when will the policy of insurance comply with the requirements of Part VI of the Act? The answer is given in section 145. Note how section 145(1) introduces the answer: “In order to comply with the requirements of this Part of this Act, a policy of insurance must satisfy the following conditions.” The respondent is correct in submitting this is a neutral provision: it does not stipulate that the user must take out a policy of insurance complying with the Act nor does it say that the “authorised insurer” has to issue a policy which complies with the Act. (An “authorised insurer” is defined in section 95 of the Act to mean an insurer who is a member of the Motor Insurer’s Bureau.) The purpose of section 145 is to specify what the “requirements in respect of policies of insurance” are. Subject to the exclusions provided by subsection 4, the policy must pursuant to subsection 3 “insure such person, persons or classes of persons as may be specified 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 the road or in a public place.” The respondent properly emphasises the word “any”. “Any” damage would include deliberate damage. If there could be doubt about it, Hardy and Gardner dispel those doubts. Thus a requirement of Part VI of the Act is that deliberate damage to property must be covered by the policy of insurance.

Reading sections 143 and 145 together, the scheme of the Act seems perfectly plain. “Do not use a motor car on the road unless you have insurance covering any liability (including liability for your deliberate acts) which you may incur in respect of damage to property which arises out of your use of the vehicle.” In other words it is the duty of the user to make sure that his use is covered by insurance. That is the effect of the established authority. See Lord Denning in Hardy:

“the policy of insurance which the motorist is required by statute to take out must cover any liability which may be incurred by him.”

So too Kennedy LJ at [9] of Charlton:

“it remained the obligation of the … user of the vehicle to restrict the user so as to keep it within the terms of the cover.”

Then there is paragraph 63 of the judgment of Rix LJ in Charlton:

“… the statutory duty to comply with the requirements in respect of compulsory insurance is upon the driver, not the insurer.”

I agree.

Under the statute not all damage to property has to be covered. Subsection 4 states that the policy shall not be required to provide for, among other things, insurance of more than £1 million in respect of damage to property arising out of any one accident (section 145(4)(b)). Nor shall the policy cover liability in respect of damage to goods carried for hire or reward in the vehicle (section 145(4)(d)). The question is whether this is an exclusive list and whether other forms of liability may be excluded by agreement between insurer and assured. If the list was intended to be all-embracing the statute would surely have said so.

Section 147 introduces the certificate of insurance into the scheme. That the certificate has an important part to play is demonstrated by the fact that the policy of insurance shall be of no effect for the purposes of Part VI unless and until the certificate is delivered by the insurer to the person by whom the policy is effected. The respondent relies upon the fact that the certificate must be in the prescribed form and must contain such particulars of any conditions subject to which the policy is issued and of any other matters as may be prescribed. As set out at [10] above, the 1972 Regulations require the certificate to be in form A and thus to give information as to any limitations as to use. It has, however, never been doubted, so far as I know, from the earliest days of compulsory motor insurance that the certificate of insurance does not trump the terms of the policy. Branson J. was dismissive of the contention to the contrary, saying in Gray v Blackmore [1934] 1 K.B. 95, 103:

“… the defendant issued a certificate of insurance under the Road Traffic Act, 1930, and that certificate is in the prescribed form, and that certificate contains upon the face of it, under the heading “Limitations as to use,” this provision that the policy does not cover the use of the car for any purpose in connection with the motor trade. In view of that express statement upon the face of the certificate, I cannot think there can be anything in the next point taken upon this policy, to wit, a point that some estoppel arises to prevent the defendant from relying upon that limitation against the assured. The suggestion is that, because at the foot of the certificate of insurance there is a certificate that the policy is issued in accordance with the provisions of the Road Traffic Act, 1930, and because it is contended that the policy is not in accordance with the provisions of the Road Traffic Act if it contains any limitations as to the use of the car at all, therefore the defendant is estopped from saying that that the limitation has an operation against the plaintiff. I cannot see how any estoppel can begin to arise in the matter, and I say no more about the matter.”

I agree with that and that is probably enough to sink the respondent but in deference to the sustained arguments advance to us on both sides, I carry on.

Our attention was drawn to the Report of the Committee on Compulsory Insurance presented by the President of the Board of Trade to Parliament in July 1937, the Cassell Report. In its introduction the Committee say:

“9.

… The basis of voluntary insurance is the protection of the insured by means of a contract between himself and the person whom he selects as his insurer; but the person for whose benefit compulsory insurance has been introduced is not a party to the contract of insurance and has no voice in the framing of its terms. It is in the main the securing of protections for a stranger to the contract which has given rise to the problems which we have had to consider.

We have regarded the fact that the Committee was set out up as indicative as a desire that our recommendations should be directed towards removing hardship and securing to the injured third party so far as practicable that payment in all cases of the compensation to which he is entitled and we have endeavoured by the recommendations made in Part III of this report to achieve this object.”

Among the recommendations made in paragraph 153 was this:

“(1)

that no conditions in a policy should be effective as against an injured third party except those specified in Appendix III to this Report.”

Appendix III set out the “Conditions to be permissible in policies” in these terms:

“(i)

As regard use – a condition excluding: -

(1)

Use for business purposes except by the insured or some named individual in person.

(2)

Use for business purposes other than business purposes of the insured.

(3)

Use for the carriage of goods or samples in connection with any trade or business or

(4)

Use for hire for reward.

(5)

Use for organised racing and speed testing.

(6)

Use, in the case of a public service or goods-carrying vehicle, for a purpose not permitted by the licence under which the vehicle is operated

(7)

Use of a motor cycle without side car being attached.”

The respondent points out with some force that using the vehicle deliberately to cause damage is not included but the appellant can equally forcefully point out that this recommendation was not carried into the legislation.

Section 148 is interesting. It provides for the “Avoidance of certain exceptions to policies”. Any attempt to restrict the insurance by reference to a number of matters listed in subsection 2 is of no effect. Those matters include the age or physical or mental condition of the persons driving the vehicle and that would include the physical state of the driver if he is the worse for drink. Once again the inference to be drawn from section 148 is that whereas certain exceptions can be avoided, others will remain effective.

The Cassell Report dealt with this. Dealing with section 12 of the Road Traffic Act 1934, the forerunner of section 148, the Report comments that the conditions there specified as being ineffective against third parties were selected not as representing a precondition which was regarded as unessential but because they were conditions which had, for the most part, been successfully pleaded in practice. The Report said:

“151.

It seems to us that it is preferable to proceed by way of specifying those conditions which alone may be retained than by specifying those conditions which shall not be valid, since it is impossible to be certain that a list of conditions of the latter type is exhaustive, or to find any logical justification for the distinctions which are bound to arise under the existing law. …

152.

It has been suggested that in policies of compulsory insurance no conditions at all should be permitted to be effective as against third parties but we are satisfied on full consideration of the circumstances that the adoption of such a suggestion would render a differentiation of risks practically impossible and would deprive many motorists of the benefit of reduced premiums. … At our request the representatives of the insurers have agreed upon and submitted to us a list of the conditions set out in Appendix III to this Report, the retention of which they regard as indispensable. These conditions appear to us to be reasonable and we recommend that they be adopted.”

Section 12 of the 1934 Act has remained substantially unchanged and now appears, in slightly different form but not any different in substance as section 148. Once again the recommendations of the Committee were not implemented. Mr Ross submits on behalf of the respondent that the history is important in construing the present Act. Since none of these recommendations was enacted, I am not sure what help the respondent gains from the report. In any event, for my part I agree with Lord Hailsham who said in Gardner that:

“except as a matter of history these previous Acts do not affect my judgment as to the proper construction of the present consolidating Act.”

We are about to get to section 151. The scheme of the Act is by now established. There is no exhaustive list of matters which cannot be excluded from the cover of the policy. Other exclusions are effective. Thus the validity of such time-honoured limitations on use, for example, for social, domestic or pleasure purposes have never been doubted. If there is a social domestic or pleasure limitation, then to use the vehicle, insured in that way, for hire or for business would be to use the vehicle illegally because use for hire or for business would not be covered by the policy and the use for that purpose would be uninsured. As I have already said, it is the responsibility of the user to ensure that the use to which he put the vehicle is covered by the terms of the policy taken out in respect of the vehicle he is using. If the policy limits the cover, then it is obvious that the premium would be lower than it would be if each and every use, without exception, had to be covered. The motorist has the freedom to select a policy to match his need and to pay the price accordingly. That has to be good for us all.

That is the context in which section 151 takes its place in the scheme. Section 151 is at the heart of the scheme because it is section 151(5) which “subject to the provisions of this section” imposes on the insurer the liability to pay the innocent third party victim any damages payable under a judgment he has obtained in respect of that damage, in this case, to property. The liability of the appellant therefore depends upon the four preconditions set out in sections 151(1) and (2) being satisfied. As set out at [29] above, this depends on whether the defendant’s liability “is a liability covered by the terms of the policy … to which this certificate relates” as required by section 151(2)(a).

Mr Palmer for the appellant has a short and simple answer to this appeal. Liability for this damage is not covered by the terms of the policy because the terms of this policy expressly exclude any damage caused by the deliberate act of the driver. It is as short and as simple and as attractive as that. One has to acknowledge the seductive attraction of the KISS argument (Keep It Short and Simple) but hard-hearted judges have to steel themselves against its beguiling allure. Before falling for Mr Palmer’s charm, and saying, “Sounds perfectly sensible to me, Mr Palmer”, I have to acknowledge that Mr Ross has a worthy point when he submits that the words “to which the certificate relates” have to be given some meaning: they cannot simply be dismissed as otiose.

These words did not appear when first the legislature gave the injured third party the statutory remedy against the insurer. The original enunciation of the rule was contained in section 10 of the 1934 Act which was in these terms:

“10(1) If, after a certificate of insurance has been delivered under subsection (5) of section 36 of the principal Act to the person by whom a policy has been effected, judgment in respect of any such liability as is required to be covered by a policy under paragraph (b) of subsection (1) of section 36 of the principal Act (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then notwithstanding the insurer may be entitled to avoid or cancel, or may have avoided or cancelled, the policy, the insurer shall, subject to the provisions of this section, pay to the persons entitled to the benefit of the judgment any sum payable thereunder in respect of the liability …”

The meaning is clear enough: the insurer’s liability must not only be of the kind which the Act requires must be covered but it must also actually be covered by the policy. These are two separate preconditions.

Section 207 of the Road Traffic Act 1960 is the first to introduce the words upon which Mr Ross relies and that is repeated in section 149 of the Road Traffic Act 1972. The words in parenthesis are enlarged, with my emphasis added, so as to read “(being a liability covered by the terms of the policy or security to which the certificate relates) …”.

The outcome of the appeal depends upon whether these additional words have made any difference. In my judgment they have not. In the first place, as Lord Hailsham said in Gardner and as I have already pointed out, the history does not affect the construction. Secondly, and in answer to the point made by Mr Ross, these additional words do serve a purpose, namely to link the first requirement (delivery of a certificate of insurance) to the very policy which covers the liability. This is more obvious when, for the first time, the 1988 Act divides section 151 into constituent parts. Let us look at section 151 again. Pursuant to section 151(1) this section applies where, after a certificate of insurance has been delivered to the person by whom a policy has been effected, judgment is obtained. Note the use of the indefinite article. At this stage we do not know exactly what policy that is. The judgment is defined in section 151(2) being a judgment relating to a liability with respect to any matter where liability with respect to that matter is required to be covered by a policy of insurance under section 145. Once again the indefinite article is used and so we are still not yet sure at precisely which policy the section is being aimed. Clarification is given by section 151(2)(a). The liability must be “covered by the terms of the policy to which the certificate relates”. Now we know what we are looking for. We are looking for the policy to which the certificate of insurance relates. A certificate of insurance relating to that policy has to be delivered. Liability has to be covered by the terms of that policy. Thus the necessary identification of the policy and the link to the delivery of the certificate of insurance is provided by the very words Mr Ross wrongly submits are otiose. Section 151(1) and (2) now has coherence. It leaves Mr Ross with no answer to Mr Palmer’s short and simple point.

One should not, however, leave section 151 without considering subsection (3). So much of the policy as purports to restrict the insurance to the driver holding a licence authorising him to drive the vehicle shall be of no effect. Just as was the case under section 148, some limitations on liability are void. Turning the tables on Mr Ross, Mr Palmer submits that this would be quite otiose if, as Mr Ross contends, all exclusions of liability are prohibited. On the respondent’s case, the terms of the policy may dictate the position as between the assured and the insurer so as to deny the assured his right of indemnity from the insurer for any damage the assured may suffer but, says the respondent, as between the third party and the insurer, the minimum requirements prescribed by section 145 can not be undermined. The purpose of section 151 is to secure the third party’s right to recovery whatever the terms of the policy may dictate as between policy holder and insurer. That simply cannot be correct. Mr Palmer must be right in asserting that there would be no need for section 151(3) nor for section 148(4) if the only requirement of section 151 is that the liability is of the kind which ought to have been covered by a policy complying with section 145 even if the actual policy does not cover that particular liability.

The final stake driven into the heart of the respondent’s argument is that it is common ground that section 151 lays down two preconditions for the insurer’s liability, the first being that liability is required to be covered by a policy of insurance which satisfies section 145 and the second that the liability is actually covered by the terms of the policy to which the certificate relates. If, as the respondent contends, section 145 was to impact on the actual policy issued so as to require every liability which has to be covered pursuant to section 145 to be treated as if it were covered by a policy, then there would be no need for this second precondition. All that would be needed to make the insurer liable is that the insurer has issued a policy of motor insurance and the policy holder or an authorised driver has caused the third party to suffer some loss through his use of the vehicle on the road.

Mr Ross had to accept under gentle prompting from me at the start of the second day of this hearing that if the insurance cover was limited to social domestic or pleasure use, then that limitation would be, or should be, noted on the certificate of insurance. If so and the vehicle was used for a business purpose or for hire, then any liability arising from such impermissible use would not be covered by the terms of the policy. He had to accept that in those circumstances the third party would have no claim under section 151 and would be driven to seek his remedy under the MIB Agreement. In other words Mr Ross has to accept that some limitations on use are permissible. He has to say that those limitations are confined to the conventional limitations. He cannot satisfactorily explain to me why a limitation which excludes liability for road rage or deliberate acts is not a limitation to which effect has to be given.

There is, at least in my judgment, another difficulty for the respondent. If the respondent is correct that the exclusion of deliberate damage is a limitation of use which is required by the 1972 Regulations to be disclosed on the certificate of insurance, then, since it was not disclosed, a certificate “in the prescribed form containing such particulars of any conditions subject to which the policy is issued” (the words of section 147) has not been delivered. Consequently the policy will be of no effect – see section 147. If there is no effective policy, the use of the vehicle is uninsured and so the first condition of section 151 is not satisfied. The loss will fall on the MIB. The appellant did not seem keen to embrace this argument and so I say no more about it.

Perhaps Mr Palmer is confident enough to rely on his KISS submission: the short and simple answer is that this being deliberate damage, it is not covered by the terms of the policy and section151(2)(a) is not satisfied. As this lengthy judgment demonstrates, I have not succumbed without a struggle but now the time has come to give in to his blandishments. Mr Palmer’s submissions are correct for the reasons he gives. Properly construed as a matter of domestic law section 151 is not satisfied because the liability of the policy holder is not covered by the terms of his policy.

That leaves only the question of whether a different construction is demanded by the influence of the European jurisprudence.

Two decisions of the European Court of Justice feature prominently in the discussion. The first is case C-129/94 Ruiz Bernaldez [1996] ECR 1-1929. There a driver under the influence of drink caused damage to property. The policy of insurance excluded compensation where the driver was intoxicated. The court held that:

“24.

… without prejudice to the provisions of Article 2(1) of the Second Directive, a compulsory insurance contract may not provide that in certain cases, in particular where the driver of the vehicle was intoxicated, the insurer is not obliged to pay compensation for the damage to property and personal injuries caused to third parties by the insured vehicle. It may, on the other hand, provide that in such cases the insurer is to have a right of recovery against the insured.”

In material parts of the judgment the court said:

“13.

The preambles to the directives show that their aim is firstly to ensure the free movement of vehicles normally based on Community territory and of persons travelling in those vehicles, and secondly of guaranteeing that the victims of accidents caused by those vehicles receive comparable treatment irrespective of where in the Community the accident has occurred …

14.

For that purpose the First Directive, having regard to the agreement between the national insurers’ bureaux, established a system based on the presumption that vehicles normally based on Community territory are covered by insurance (see the eighth recital). Article 3(1) of the First Directive thus provides that Member States are, subject to the derogations in Article 4, to take all appropriate measures to ensure that civil liability in respect of the use of vehicles is covered by insurance.

…

18.

In view of the aim of ensuring protection, stated repeatedly in the directives, Article 3(1) of the First Directive, as developed and supplemented by the Second and Third Directives, must be interpreted as meaning that compulsory motor insurance must enable third-party victims of accidents caused by vehicles to be compensated for all the damage to property and personal injuries sustained by them, up to the amounts fixed in Article 1(2) of the Second Directive.

…

20.

That being so, Article 3(1) of the First Directive precludes an insurer from being able to rely on statutory provisions or contractual clauses to refuse to compensate third-party victims of an accident caused by the insured vehicle.”

The second case is case C-442/10 Churchill Insurance Company Ltd v Wilkinson, a judgment of 1st December 2011. As Advocate General Mengozzi observed, it is common practice in the United Kingdom, unlike most of the other Member States, for a vehicle insurance policy, while including the details of the vehicle insured, to be a personal policy, covering damage caused by the policy holder and by other persons expressly authorised in that policy to drive that vehicle. This case arose because one person was at one and the same time the victim and the insured who had given permission to drive to an unauthorised person who then caused the accident. As victim, he is, as a general rule, entitled to compensation. As an insured person who has given permission to drive to a person who could not properly do so he may, in accordance with the national law, be bound to reimburse the insurer the amount paid to the victim. That means, in actual fact, that he would receive nothing from the insurer for the sum that he must obtain as victim must be set off against the sum he must pay the insurer as a negligent insured. The Court of Appeal asked the Court of Justice whether such a situation could be reconciled with EU law. The Court ruled that Article 1, by the first sub-paragraph, of the third Council Directive and Article 2(1) of the second Council Directive must be interpreted as precluding national rules the effect of which is to omit automatically the requirement that the insurer compensate a passenger who is a victim of a road traffic accident when that accident was caused by the driver who was not insured under the insurance policy and when the victim, who was a passenger in the vehicle at the time of the accident, was insured to drive the vehicle himself but who had given permission to the driver to drive it.

In the course of the judgment the points made in Bernaldez were reiterated:

“33.

With regard to the rights granted to those third parties who have been victims of an accident, it must be borne in mind that the Court has held that Article 3(1) of the First Directive precludes an insurer from relying on statutory provisions or contractual clauses in order to refuse to compensate third parties who had been victims of an accident caused by the insured vehicle …

34.

The Court has also held that the first sub-paragraph of Article 2(1) of the first Directive simply repeats that obligation, with respect to provisions or clauses in an insurance policy referred to in that Article excluding from the cover provided by insurance against civil liability in respect of the use of motor vehicles, damage or injury suffered by third parties who have been victims of an accident caused by the use or driving of an insured vehicle by persons not authorised to drive the vehicle, persons not holding a driving licence, or persons in breach of the statutory technical requirements concerning the condition and safety of the vehicle.”

The Court also said this:

“41.

… The payment of compensation by a national body is considered to be a measure of last resort, provided for only in cases in which the vehicle that caused the injury or damage is uninsured or unidentified or has not satisfied the insurance requirements referred to in Article 3(1) of the first Directive.”

Mr Ross submits that Bernaldez, reinforced by Churchill Insurance, make it clear that the list of exclusions contained in Article 2 of the second Directive is illustrative but not exhaustive. As the Advocate General put it in Churchill Insurance:

“27.

… The Court’s case-law teaches us that, unless one of the exceptions laid down by the Directive is applicable, the victims of an accident are always entitled to be compensated by the insurer”, his emphasis.

As a result the domestic court is required by Marleasing SA v La Comercial Internacional de Alimentacion SA C-106/89 [1990] ECR 1-4135 to interpret the national law so far as possible in the light of the wording and the purpose of the Directive in order to achieve the result pursued by the Directive and thereby comply with the provisions of the Treaty. Mr Ross submits that without straining the language or reading anything into it, the words “the terms of the policy to which the certificate relates” must mean the terms of the policy which was certified in the certificate of insurance to satisfy “the requirements of the relevant law applicable in Great Britain”, namely the minimum requirements for such insurance prescribed by section 145. Consequently liability for deliberately damaging property cannot be excluded. I see the force of this submission.

Mr Palmer counters it firstly by submitting that the property insurer is not a victim whom the Directive aims to protect. He is wrong about that. The claimant is the property owner and it is first and foremost his right to seek satisfaction from the motor insurer. The rules of subrogation place the insurer in his shoes. If the property owner has a good claim, the property insurer is entitled to the benefit of it.

Mr Palmer seeks to distinguish these two cases. I am not sure that much turns on the distinction he draws with Churchill Insurance where section 151(2)(b) and section 151(8) were in play whilst they are of no consequence in our appeal. He may, however, be on surer ground when he points out that Bernaldez was concerned with the inability to exclude liability for the damage caused by an intoxicated driver. Section 148(2)(a) complies with the European law in that respect. The question is whether Bernaldez should be read to be of general application so as to compel a Marleasing meaning to be given to section 151(2)(a) read with section 145. This seems to me to be the crucial issue.

If Mr Ross is correct, then the way the Road Traffic Act combined with the MIB scheme has always operated is not compliant with the Directives. It has never been doubted (and Mr Ross has not questioned it) that a limitation for social, domestic or pleasure purposes is effective in our domestic law. Consequently if the vehicle is used for hire, the use is treated as uninsured. But if the Directives preclude the insurer being able to rely on that limitation to refuse to compensate the victim, and if the victim must be compensated, then section 143 loses its teeth. Collins J refused to accept that argument in R v Solihull MBC, ex parte Singh [2007] EWHC 552 (Admin) and in my judgment he was right to do so. Collins J held that to use the vehicle for hire in contravention of the limitation on use for social, domestic or pleasure purposes meant that there was no insurance within the terms of the Act and the criminal offence was made out. The fact that the victim of any accident will be compensated either by the insurer concerned under section 151 or by the insurer but this time through the MIB does not affect the existence of such criminal liability. He found in the course of his judgment:

“28.

These Directives were also considered by the Court of Appeal in Silverton v Goodall, a decision of 26th March of 1997. The judgment of the court in that case was given by Sir Ralph Gibson. I should say that that, as its name suggests, was a civil claim and the argument concerned whether the plaintiff could recover against the Motor Insurers' Bureau because it was said she had failed to comply with the obligations to give notice to the Motor Insurers' Bureau within the relevant time limit and the point of European law raised under the directives was an endeavour to show that. Because of the directives, and particularly because of Bernaldez, the third party victims had to be enabled to recover compensation and the insurers precluded from being able to rely on the contractual clauses to refuse to compensate third party victims of an accident caused in the member state's territory. It seems clear that the wide application of Bernaldez, which has been relied on by Mr Gibbons in this case, was raised in that case. Sir Ralph Gibson said this, on the last page, penultimate paragraph, of his judgment:

“As to the point of European law, based on Directive 72/166/EEC, and the following Directives, the plaintiff cannot, in my judgment, succeed upon it. It seems to me to be impossible to hold, according to any principle of European law to be derived from these directives, that exclusion of liability under Clause 5 could be held to be invalid against the plaintiff [clause 5 being the time clause in the MIB agreement]. The structure of our statute law under the Act of l988, together with the terms of the MIB Agreements, provide, in my judgment, laws, regulations and administrative provisions which satisfy the requirements of the Directives. … the structure of law, including the terms of the MIB Agreement, are not such that there has been a failure to comply with the substance of the Directives. …

29.

While that does not directly apply to the criminal liability such as is in issue in this case, it does give support to the contentions of Mr Watkin on behalf of the Council that the decision in Bernaldez does not have the wide effect that is suggested but that the provisions of our law are compatible with, and indeed comply with, the requirements of the Directives. That being so, there is no reason why criminal liability should not apply in accordance with our domestic legislation under the Road Traffic Act 1988. But even if there is some possible validity in the more general argument raised by Mr Gibbons, the purpose of the Directives is clearly to provide for the protection of victims of road traffic accidents. It has nothing to do with any possible criminal liability of the drivers who do not comply with the policies of insurance which they have. Our domestic legislation prevents such policies from containing some exclusions of liability. Those provisions comply with what is required in particular in the Third Directive but go to a degree beyond that and it is in my judgment apparent that no offence under section 143 is committed in relation to a breach of one of those excluded conditions.”

Another valuable decision at first instance is Axa Insurance UK PLC v Norwich Union Insurance Ltd [2007] EWHC 1046 (Comm) where Andrew Smith J said:

“32.

Thus, it seems to me that the approach of European Directives – except in cases specifically covered, including that of passengers with which article 1 of the Third Directive is concerned – has been to leave it to Member States to determine the extent of compulsory insurance cover in respect of civil liabilities arising from motor accidents. While it must be recognised in light of Bernaldez that this is subject to limitations upon exclusions from policies and while it could properly be said that this creates some uncertainty about how far this impinges upon that freedom of Member States to determine the extent of compulsory cover, I cannot accept that this affects the fundamental approach of European law that Member States determine the extent of compulsory insurance.”

There is higher authority on the question. In Clarke v Kato [1998] 1 WLR 1647 the plaintiff was knocked down in a car park and it was held that the car park was not a road as defined in the Act. In the only speech in the House of Lords, Lord Clyde said of the first Directive at p. 1657:

“It seems to me that while in this Directive it is certainly required that there be in each country an insurance against civil liability in respect of the use of motor vehicles, recognition is being paid to the fact that there may be differences in the precise cover which national laws may impose in the different member States.”

At p. 1658 he said:

“The scope or extent of the cover required in different member States may be greater or smaller than in others, but the policy must secure that the greater cover is available in respect of those States where the greater cover is required by its domestic law.”

At p. 1659 he said:

“In connection with the sufficiency of the implementing legislation in Great Britain it appears that vehicle insurance has been the subject of discussion with the Commission and that no action has been taken either further to amend the British legislation or to challenge its terms.”

Thus in my judgment the scheme of the Act coupled with the MIB arrangements satisfy the aim and the spirit of the Directive to “enable third party victims of accidents caused by vehicles to be compensated for all damage to property and personal injuries sustained by them” as set out in [18] of Bernaldez. There is no suggestion that the United Kingdom has failed to implement the Directive. In those circumstances there is no justification for reading Bernaldez in such a way as to preclude the insurer relying on the exclusion clause. The fact is that the exclusion of liability in our case means that the driver was uninsured, but the Directives allow for such uninsured losses to be paid under the MIB scheme even if that is the measure of last resort. If our domestic law complies with the European Directives, Bernaldez can be interpreted restrictively as Mr Palmer contends and thus does not compel us to give any other interpretation to section 151 than that which the plain and ordinary meaning of the words compels.

I am satisfied, therefore, that the liability is not covered by the terms of the policy, that the use of the vehicle was, therefore, uninsured, that section 151 gives the claimant no right of recovery directly against the insurer with the result that the claimant would ordinarily seek its recourse under the provisions of the MIB Agreement. Had the property owner not made a claim under its property insurance and there was no question of subrogation, the motor insurer would have to satisfy the liability as the Article 75 insurer under the MIB scheme and there would be no question of not complying with the Directives. It is only because of the subrogation that liability can be denied.

The rule is that the insurer must be placed in the position of the assured. So the property insurer can assert the claim the claimant would have against the Motor Insurance Bureau. But that claim has to be regulated by the terms of the MIB Agreement. Paragraph 6 precludes a claim being made pursuant to a right of subrogation. The property insurer cannot recover through the property owner for the loss the property owner has suffered by this use of a motor vehicle. That is wholly understandable. The insurance industry is fully entitled to provide, and sensibly does provide, what is in effect a knock-for-knock arrangement. One way or another the objective of the Directives, which seek to ensure that there is some compensation for losses caused by motor vehicles, is satisfied. It was the second Directive that stipulated the need “to set up or authorise a body with the task of providing compensation … for damage to property caused by … a vehicle for which the insurance obligation provided for in paragraph 1 has not been satisfied.” That is the MIB. What should be noted is the preamble to the fourth Directive:

“(27)

Legal persons who are subrogated by a law to the injured party in his claims against the person responsible for the accident or the latter’s insurance undertaking (such as, for example) other insurance undertakings or social security bodies) should not be entitled to present the corresponding claim to the compensation body.”

That accords with the MIB Agreement. No argument has been addressed to us that the exclusion of a subrogated claim is not effective.

The conclusion must be that the answer to the preliminary issue is that the claimant is not entitled to recover from the motor insurers. I would allow the appeal accordingly.

I agree.

I also agree.