Aviva Insurance Limited v The Secretary of State for Work and Pensions

This appeal and cross-appeal raise issues about the compatibility of the Social Security (Recovery of Benefits) Act 1997 (“the 1997 Act”) and regulations made under it, with article 1 of the first protocol (A1P1) of the European Convention on Human Rights and Fundamental Freedoms (“ECHR”), to which domestic effect was given by the Human Rights Act 1998. The 1997 Act made alterations to the scheme for the repayment to the State of benefits made under certificates of benefits issued by the Compensation Recovery Unit (“CRU”). The certificates are issued where claims for compensation have been made by those suffering an accident, injury or disease (“the injured person”). The CRU was originally established by the Social Security Act 1989 (“the 1989 Act”) which Act had made fundamental changes to the scheme established by the Law Reform (Personal Injuries) Act 1948 (“the 1948 Act”).

The proceedings were brought by a claim dated 4 July 2019 by the Claimants Aviva Insurance Limited (“Aviva”) and Swiss Reinsurance Company Limited (“Swiss Re”) against the Defendant, the Secretary of State for Work and Pensions (“the Secretary of State”). Aviva sold employers’ liability insurance policies. These policies covered employers who had acted in breach of common law or statutory duties and were liable for various industrial diseases. Swiss Re provided reinsurance cover for certain of Aviva’s liability for long tail claims.

The complaint made by Aviva and Swiss Re (“the insurers”) is that the 1997 Act and the Regulations made under it require employers’ liability insurers to pay to the CRU amounts equal to certain social security benefits received by claimants in personal injury cases. The complaint is not of the scheme as a whole, which they accept could, with modifications in their favour, be lawful. The challenge is to what the insurers describe “as an unintended but increasingly onerous by-product at the margins of the scheme, which involves obligations imposed on a dwindling number of liability insurers holding long-tail disease legacy policies arising from liabilities for long-tail asbestos-related diseases”. The insurers contend in particular that the effect of the decision of the House of Lords in Fairchild v Glenhaven Funeral Services Limited [2003] 1 AC 32, and other developments in relation to employers’ liability for long-tail diseases has meant that their obligations under the 1997 Act infringe A1P1 of the ECHR.

The claim was heard by Mr Justice Henshaw (“the judge”) in a hearing on 8 and 9 July 2020. Judgment was handed down on 20 November 2020. There was a further hearing on the terms of the order to give effect to the judgment, and a judgment on those consequential matters was handed down on 12 January 2021. The judge declared that the Defendant, the Secretary of State had acted unlawfully by failing to read down the 1997 Act to permit a reduction in the quantum of benefits paid by Aviva or Swiss Re in two situations from 2 October 2000. The situations were first the requirement to pay 100 per cent of the recoverable benefit even where the employee’s own negligence contributed to the damage sustained (“the contributory negligence CRU payments” and “the first situation”), and secondly the requirement to pay 100 per cent of the recoverable benefit even where the employee’s “divisible” disease is in part unconnected with the insured’s wrongdoing (“the divisible disease CRU payments” and “the second situation”).

The judge also held that the Secretary of State had acted unlawfully in the same way in a third situation from 1 January 2003. This situation was where other tortfeasors would, in addition to the employed insured by Aviva, be liable in full for an “indivisible” disease, but where the other tortfeasors could not be traced (“the indivisible disease CRU payments with missing contributors” and “the third situation”). The judge granted liberty to the insurers to apply to quash a CRU certificate issued on 7 February 2019 in the sum of £39,144.50 which related to the case of Lawrence Bainbridge.

The insurers are intending to claim damages in respect of payments they have made under CRU certificates dating back to 2 October 2000 in certain situations and 1 January 2003 for another situation. The judge ordered that the claims for damages should be transferred to the Chancery Division for further case management and determination. The parties had agreed that issues of limitation in relation to individual claims for repayments under CRU certificates should be dealt with during hearings in the Chancery Division of claims for damages brought by Aviva and Swiss Re. This agreement does not appear to have been recorded in any formal order made by the Court below, although it is referred to in the judgment on consequential matters.

The insurers cross-appeal against the refusal of the judge to make a declaration in a fourth situation, namely where the insurers are liable to repay benefits which do not correspond to a head of loss (“the CRU certificates not matching a head of loss” and “the fourth situation”) which they say, on the basis of the judge’s reasoning in his main judgment should have resulted in the same order as was made in the first three situations. It might be noted that the insurers relied on a fifth situation which they accepted could not give rise to any remedy, but which was relevant to the issue of fair balance between the insurers’ rights and the rights of others made by the 1997 Act and the Regulations made under it. This fifth situation was the requirement to pay 100 per cent of the CRU despite the element of compromise present in most settled claims, including claims settled without admission of liability (“the compromised CRU certificates” and “the fifth situation”).

The Secretary of State accepts that the difference drawn by the judge between the first three situations (the contributory negligence CRU payments, the divisible disease CRU payments, and the indivisible disease CRU payments with missing contributors), and the fourth situation loss (“the CRU certificates not matching a head of loss”) was not apparent. It is submitted on behalf of the Secretary of State that this showed an internal inconsistency in the judgment and is said to support the contention that the judgment is wrong. The Secretary of State, however, resists the insurers’ cross-appeal, and appeals on the basis, among other grounds, that the judge was wrong to find that the 1997 Act and the Regulations made under it infringed the insurers rights under A1P1 in any of the five situations.

In order to make sense of the issues raised by the appeal and cross-appeal it is necessary to set out some relevant developments relating to the treatment of state benefits in personal injury and industrial disease claims.

As is well known as a matter of history state benefits were not paid to injured workers by the state before the advent of the welfare state and so there was no question of deciding whether such payments should be made to claimants bringing actions for damages or whether they should be taken into account in the calculation of damages. The common law had decided to ignore sums accruing to the injured claimant paid under policies of insurance, as well as sums paid by the benevolence of third parties motivated by sympathy for the injured claimant’s misfortune, see Hodgson v Trapp [1989] AC 807 at page 819-820.

Sir William Beveridge produced a report in 1942 on Social Insurance and Allied Services. He identified two clear principles, namely that the possible existence of an alternative remedy (and in particular an action for damages) should not prevent an injured person from obtaining immediately the welfare state benefits to which the claimant would otherwise be entitled. The second was that the injured person should not have the same need met twice over. Sir William Beveridge recorded that he could only identify the problem and recommend that possible solutions were considered by technical committees.

A departmental committee reported in 1946 which made a recommendation that a claimant should give credit for state benefits received and to be received. In fact, what the then Attorney General described as a compromise was made in the 1948 Act. This provided that the Claimant should give credit for half of certain listed benefits for a period of five years. The five year period has been retained all the way through to the 1997 Act. It is fair to record that the assessment of damages in personal injury actions in the late 1960’s and early 1970’s was, as the relevant law reports show, a rough and ready exercise without the sophistication of detailed schedules and counter-schedules of damages that are now properly employed on both sides in serious personal injury actions.

With the increasing particularisation of claims for past and future financial losses, greater attention came to be paid to the matching, or correspondence, of heads of loss to state benefits not listed in the 1948 Act which had been received by the claimant. The Courts originally did not take into account those state benefits received by the claimant but which were not listed in the 1948 Act, see Bowker v Rose Court of Appeal, Times 3 February 1978. This was said to be because the purpose of the legislation was to benefit the injured person. As appears below the House of Lords later took a different approach.

In 1973 a Royal Commission on Civil Liability and Compensation for Personal Injury was commissioned to consider, among other matters, the relationship between state benefits and tort damages. The Royal Commission reported in March 1978 (“the Pearson report”). The Pearson report recommended that the fault based system of compensation should be replaced. It did, however, recommend that the relationship between state benefits and tort damages should be altered, and there should be a full offset of all social security damages. The Pearson Committee considered creating a right of subrogation for benefits paid to injured parties, but rejected it because that would require proof of fault which the Committee had recommended should be excluded from the system of compensation for personal injuries. It was apparent from the Pearson report that there were some who objected to the fact that the state was, through the payment of benefits, relieving the tortfeasor and their insurer of their liability to pay part of the compensation.

Following the Pearson report, and a change of Government, further consideration was given to the recovery of state benefits from the tortfeasor and their insurers. There was a consultation which ended in March 1982 which showed mixed views. There seemed to be acceptance of the principle that the victim should not be compensated twice, but there was also support for the Government to take further steps to ensure that benefits deducted were returned to social security funds.

The Comptroller and Auditor General produced a report dated 21 July 1986 about the “Recovery of Social Security Benefits When Damages in Tort are Awarded” (“the Auditor General’s report”). This report recommended, as the full name of the report suggests, that social security benefits should be repaid to the state when damages were awarded. The Auditor General’s report recorded that since the Pearson report Governments had subscribed to the view that those who were responsible for accidents should not expect the state to pay for their wrongdoing, whether in the form of treatment under the National Health Service or in cash benefits under the social security system, and that accident victims should not benefit twice (paragraph 22(c) of the Auditor General’s report). It was recorded that the DHSS had considered various ways of changing the existing system but had not yet conducted a thorough investigation into the feasibility of “a cost effective method of recovering social security benefits from tort damages” (paragraph 22(d) of the Auditor General’s report). The appendix to the report showed the inconsistent treatment of benefits received by the accident victim when claims were made.

On 10 November 1988 the approach taken in Bowker v Rose was reversed by the House of Lords in Hodgson v Trapp [1989] AC 807 which emphasised the fact that the assessment of common law damages for personal injury was intended to be purely compensatory.

The 1989 Act was then enacted. This Act established the CRU which had responsibility to collect prescribed sums, representing state social security benefits paid to injured persons, from those making compensation payments to injured persons. The sums identified in CRU certificates were then deducted from the payments to be made by the paying party from the compensation payment. The statutory purpose of the scheme of the 1989 Act was to recover from those making payments (either the tortfeasor or their insurer) certain of the state benefits paid to those injured persons which were then set off against payments made to the claimants. This was in circumstances where there had been no pre-existing liability of the tortfeasor or their insurer to make that payment. The state benefits which were to be repaid to the state were listed.

There were three features of the statutory scheme established by the 1989 Act which should be noted. First the period for which benefits would be deducted remained at five years. This appears to have been a continuation of the compromise represented in the 1948 Act. If there was an earlier settlement the deduction for benefits would cease as at the date of the payment of the sums due under the compromise to the injured person. Secondly the full amount of the benefits identified in the CRU certificate were deducted from the payment to be made to the injured person. Thirdly if the payments to the injured person was £2,500 or below, it was excluded from the requirements to obtain and pay a CRU certificate.

As many personal injury practitioners will remember aspects of the scheme were the subject of much criticism. In particular the effect of the deduction of the sum set out in the CRU certificate from any compensation paid to the injured person meant that a sum paid to compensate for general damages for pain, suffering and loss of amenity to an injured person could be reduced, or extinguished entirely, by the deduction of the amount of the CRU certificate. This caused particular issues if there was no claim for financial losses, but deductible benefits had been paid to the injured person. In Hassall v Secretary of State for Social Security [1995] 1 WLR 812 at 819 it was suggested that a claim for special damages might be made against the tortfeasor for the effective loss of continuing benefits, where those benefits had been paid both before and after the accident.

The practical effect of the deductions could also mean that a payment for damages for various heads of loss totalling some £40,000 might, in certain circumstances, be exceeded by the amount set out in the CRU certificate. This created an incentive for the injured person and the tortfeasor or insurer to agree a £2,500 compromise, meaning both that the injured person would at least get something for his losses and that the tortfeasor or insurer would not be liable to make any payments under the CRU certificate. Another cause for complaint was the fact that personal injury claimants would have the whole of the CRU certificate set against their claim for damages, even in cases where those damages were reduced for contributory negligence. This could mean that a claim for loss of earnings, of which only 50 per cent was recoverable from the defendant, could result in no payment being made to the claimant, because the remaining losses were exceeded by the amount set out in the CRU certificate.

The scheme set out in the 1989 Act was re-enacted and amended by the Social Security Administration Act 1992 (“the 1992 Act”) but complaints about the operation of the scheme continued. In Stevens and Knight v United Kingdom 9 September 1998 (1999) 27 EHRR 38 the Commission of the European Court of Human Rights held that complaints brought by two injured persons complaining about the compatibility of the 1989 Act and the deductions of the CRU certificate and their property rights protected by article 1 of the first protocol were inadmissible. It is also right to note, in the light of the changes made by the 1997 Act, that part of the reason that the complaint was inadmissible was because the claimants had received payments for their losses, even if it was by way of state benefits.

The continuing complaints about the effect of the 1989 Act led to various consultations and proposals for changes, and ultimately the 1997 Act. It is apparent from the witness statement of Robert Towers, senior policy manager in the Department for Work and Pensions, that there was “a detailed and thorough examination of the public benefit and private interests, as part of which the interests of the insurance industry were considered in detail.” Mr Towers said that a search of the DWP archives was carried out and various documents and minutes were identified, together with extracts of debates from Parliament. These materials are relevant to one of the grounds of appeal advanced on behalf of the Secretary of State and were extensively summarised in the first judgment of the judge. They are referred to below when I turn to the judge’s judgments.

The 1997 Act was enacted. Sections 1, 6 and 22 of the 1997 Act provide:

As appears above section 1(a) and (b) provided that the 1997 Act applies in cases where “a person makes a payment (whether on his own behalf or not) to or in respect of any other person in consequence of any accident, injury or disease suffered by the other” and listed benefits have been or are likely to be paid to that person “in respect of the accident, injury or disease”.

The relevant period for the assessment of the benefits paid was, pursuant to section 3(2) the period of five years “immediately following the day on which the accident or injury in question occurred”, or, in the case of disease, from the date on which the claimant “first claims a listed benefit in consequence of the disease” unless there was an earlier compromise of the claim, see section 3(4). Section 4 required certificates of recoverable benefits to be obtained by the “compensator”.

Section 6 imposed a statutory duty on “a person who makes a compensation payment in any case” to pay “the Secretary of State an amount equal to the total amount of the recoverable benefits”. Provision was made in section 7 to recover benefits if they should have been paid by the compensator but had not been so paid.

Section 8 permitted those who had paid recoverable benefits to deduct them from payments to the injured person “where in relation to any head of compensation listed in column 1 of schedule 2 (a) any of the compensation is attributable to that head, and (b) any recoverable benefit is shown against that head in column 2 of the schedule”. Schedule 2 was headed “Calculation of compensation benefit” and provided for three heads of damage being “compensation for earnings lost during the relevant period”, “compensation for cost of care incurred during the relevant period”, and “compensation for loss of mobility during the relevant period”. Relevant state benefits were listed against each head of damage. For example, “Universal credit” is listed against “earnings lost”, and “attendance allowance” is listed against “cost of care”.

Provision was made for appeals to be made to the First-tier Tribunal against the amounts set out in CRU certificates, but the grounds were very limited. Section 11(1)(b) provided that a ground of appeal was “that listed benefits which have been, or are likely to be, paid otherwise than in respect of the accident, injury or disease in question have been brought into account”. This meant that there was a continuing link between the accident, injury or disease and the quantum of the CRU certificate.

Section 19 made provision for payments by more than one compensator. This was necessary to ensure that there was not over recovery and to deal equally with compensators and others liable who could be identified.

Section 22 provided that if a compensation payment is made in respect of the accident, injury or disease, and the liability is covered to any extent by a policy of insurance “the policy is also to be treated as covering any liability of that person under section 6”. Section 22(2) provided that “liability imposed on the insurer by subsection (1) cannot be excluded or restricted”. Section 22(4) provides that “Regulations may in prescribed cases limit the amount of liability imposed on the insurer by subsection (1)”. No Regulations have been made to limit that liability, and this is the subject of complaint by the insurers in the action. The practical effect of this section was to impose an additional liability on insurers beyond the terms of their contractual liability to their insured.

It is apparent the policy of the 1997 Act was to continue the full recovery of benefits paid to injured persons for the state. However it shifted part of the burden of the recovery of those payments from the injured persons to compensators. This was because the effect of schedule 2 was that deductions from payments made to the injured persons could only be made if the benefits corresponded with a head of loss suffered and claimed by the injured person. For example this meant that if an injured person had received income support by reason of his injury, but did not have a claim for loss of earnings, the liability to make the payment under the CRU certificate remained on the insurer, but the injured person would not lose any element of the claim for general damages for pain, suffering and loss of amenity. It is therefore apparent that the objective of the 1997 Act was to continue the full recovery of state benefits paid to a person who had suffered accident, injury or disease which had been caused by a tortfeasor (which recovery had commenced under the 1989 Act), but to shift the burden of the payment of those state benefits which did not correspond to a loss claimed by the claimant to the compensator, who was either the tortfeasor or their insurer.

The case on behalf of the insurers is that since the passage of the 1997 Act there have been further changes in the common law and statutory regimes which have increased the burdens of the 1997 Act on insurers in industrial cases, particularly in cases where claimants have suffered from silicosis, asbestosis, pneumoconiosis and mesothelioma. The insurers point particularly to the changes effected by the decision of the House of Lords in Fairchild. The cases now distinguish between: “indivisible” diseases where the severity of the disease, once contracted, is not affected by an increase of exposure to the substance which caused the disease; and “cumulative” or “divisible” diseases, where the severity of the disease will increase with any increase in the ingestion of the substance which caused the disease, so that the severity of the disease is sometimes referred to as “dose-related”.

In fact the starting point for the development of the law in Fairchild was probably the decision of the House of Lords in Bonnington Castings Limited v Wardlaw [1956] AC 613. In Bonnington the claimant had been exposed to silica dust which had caused pneumoconiosis. The dust was from a grinder operated in breach of duty and from a pneumatic hammer operated without breach of duty. Medical science could not identify which exposure had caused the injury, but it was held to be sufficient that the dust from the grinder had materially contributed to the injury. The pneumoconiosis in Bonnington was treated as if it were an indivisible disease but later cases have identified that pneumoconiosis is a cumulative disease so that the dust ingested by the claimant, whether in breach of duty or otherwise, contributed to and increased the severity of symptoms. In McGhee v National Coal Board [1973] 1 WLR 1 the claimant developed dermatitis after being exposed to brick dust. One exposure might have caused the dermatitis. It was found that the original exposure at work was not in breach of duty, but the failure to provide showers meant that the claimant cycled home still covered in dust, and that might have caused the dermatitis. The House of Lords held that the defendant’s wrongful failure to provide showers had materially contributed to the risk of injury and that was sufficient to establish causation. These cases pre-dated the enactment of the 1997 Act, but the Courts continued to develop the relevant principles. In Holtby v Brigham & Cowan (Hull) Limited [2000] ICR 1086 the Court concluded that in a divisible asbestos related disease such as asbestosis a defendant would be liable only for the proportion of damages attributable to the disease based upon the amount of exposure for which the defendant was responsible, rather than for 100 per cent of the whole.

These developments were considered by the House of Lords in Fairchild. In that case the claimants had developed mesothelioma following exposures to asbestos, in breach of duty, at various workplaces with different employers. Current medical knowledge shows that mesothelioma is an indivisible disease, meaning that one exposure might have caused the mesothelioma. The claimants had been negligently exposed in various workplaces but were unable, on the present state of medical knowledge, to identify the workplace in which they had been exposed to the asbestos that had caused the mesothelioma. The House of Lords developed a special rule so that the claimant could recover against all the employers because they had materially contributed to the risk of contracting the disease. The principle was refined in Barker v Corus (UK) plc [2006] UKHL 20; [2006] 2 AC 572 where the claimant’s husband had died from mesothelioma after having been negligently exposed to asbestos by the defendant, but had also been exposed to asbestos when working for himself for which he could not claim. The House of Lords held that each employer was only severally responsible for their exposure meaning that the claimant in Barker could not recover the whole of the losses. The result in Barker was then reversed by section 3 of the Compensation Act 2006 for cases of mesothelioma, meaning that the insurers would have joint and several liability for the whole of the loss, subject to issues of contribution and contributory negligence. The insurers do not, in this litigation, challenge the Compensation Act 2006 but complain of the effect of this change on the payments made under CRU certificates. Some of these changes were summarised in Equitas Insurance Limited v Municipal Mutual Insurance Limited [2019] EWCA Civ 718; [2020] QB 488 at paragraph 90.

It should be recorded that there were cases where legal developments were more favourable to employers and their insurers. In Rothwell v Chemical & Insulating Company Limited [2007] UKHL 39; [2008] AC 281 the House of Lords confronted the issue where a negligent exposure to asbestos had caused pleural plaques. The plaques caused no physical symptoms to the claimant, but there was evidence that they caused concern to those suffering from them. Before this decision many cases for claims arising out of pleural plaques had been compromised on the basis that payment for pleural plaques had been made, as appears from the judgment in Axa General Insurance Limited v Lord Advocate [2011] UKSC 46; [2012] 1 AC 868. The House of Lords in Rothwell held that the development of pleural plaques which did not cause physical symptoms were not actionable even when taken together with the risk of future disease and consequential anxiety.

The Scottish Parliament, established by the Scotland Act 1998, was given powers to make laws in respect of Scotland. It enacted the Damages (Asbestos-related Conditions) (Scotland) Act 2009, “the 2009 Scotland Act”. The effect of this was to reverse the decision of the House of Lords in Rothwell and provide that the development of pleural plaques was actionable. Axa General Insurance Company contended that the effect of the 2009 Scotland Act was to infringe rights protected by A1P1 of the ECHR. If that contention was right, it would have meant that the 2009 Scotland Act was beyond the devolved powers of the Scottish Parliament because the Scottish Parliament does not have power to legislate in a way incompatible with the ECHR. In Axa the Supreme Court dismissed the claim that the 2009 Scotland Act infringed the insurers’ rights under A1P1 of the ECHR. Lord Hope relied on the fact that there had been a tort committed by the employer, insured by Axa, and that the insurers had taken the risk of insuring the employers. Lord Hope also noted the past misunderstanding that plaques were actionable.

At about the same time issues had arisen about the meaning of insuring clauses between employers and insurers about whether policy cover extended to, or was “triggered”, when the disease manifested itself many years later. These issues were resolved by the Supreme Court in Durham v BAI (Run Off) Limited [2012] UKSC 14; [2012] 1 WLR 867.

The National Assembly for Wales was established by the Government of Wales Act 2006. The Recovery of Medical Costs for Asbestos Diseases (Wales) Bill (“the Wales Bill”) was passed. It provided that the costs incurred by the National Health Service in treating victims of industrial diseases should be recovered from tortfeasors and their insurers who had caused or contributed to the diseases. Before the Wales Bill had received assent the Counsel General for Wales referred to the Supreme Court the issue of whether the Bill infringed insurers’ rights under A1P1 of the ECHR. In In re Recovery of Medical Costs for Asbestos Diseases (Wales) Bill [2015] UKSC 3; [2015] AC 1016 (the “Welsh Bill case”) the Supreme Court held that the provisions of the Wales Bill infringed the insurers’ rights under A1P1 of the ECHR.

In Heneghan v Manchester Dry Docks Limited [2016] EWCA Civ 86; [2016] 1 WLR 2036, the Court of Appeal held that the Fairchild exception to causation applied to asbestos related lung cancer cases because such lung cancer cases were “indivisible”, in the same way as mesothelioma was indivisible. Barker v Corus was applied so that each defendant’s liability was proportionate to that defendant’s contribution to the deceased’s risk of contracting lung cancer. Carder v University of Exeter [2016] EWCA Civ 790; [2017] ICR 392 concerned asbestosis, which is a divisible disease and dose related disease in that current medical knowledge shows that any exposure will have contributed to the severity of the asbestosis. In that case a former employer who had only been responsible for some 2.3 per cent of the claimant’s total exposure to asbestos dust was held liable for 2.3 per cent of what would have been the full liability for the claim, because the exposure for which the former employer was responsible had made a material contribution to the claimant’s asbestosis. The insurers in that case were responsible for payment of the whole of the CRU certificate.

On 7 February 2019 the CRU certificate for Mr Bainbridge was issued in the sum of £39,144.50. This included industrial injuries disablement benefit under the Social Security Contributions and Benefits Act 1992 in the sum of £16,895.80. Mr Bainbridge was aged 77 years at the time of the settlement and did not advance a claim for loss of earnings against which that sum could be set off. He had been employed for 35.3 per cent of his time with the employer provided insurance and reinsurance by the insurers. He had been employed for 44.53 per cent of his time with another employer who had also exposed him to asbestos dust who was not in business and whose insurer could not be located. The insurers were liable to make the payment to the CRU under the CRU certificate.

These proceedings for judicial review then commenced in July 2019.

The insurers submit on this appeal that the answer to the points made on behalf of the Secretary of State are set out in the judgment below. I will therefore refer to relevant parts of that judgment. Having introduced the parties, the judge summarised the insurers’ claims. The judge said that the insurers’ complaint was that “statutory and common law developments since the 1997 Act, designed for the protection of victims of asbestos-related diseases, have led to a situation where those in the position of the claimants are required to pay to the state amounts equal to the state benefits that do not correspond in any real way to any injury caused by their respective insured”. The judge summarised in paragraph 11 of the judgment the five situations about which particular complaint was made.

The judge set out the changes to the law which had made the insurers’ position more onerous, and noted their reliance on the judgment of Lord Mance in the Welsh Bill case. The judge recorded that the insurers relied on the fact that the number of asbestos claims had increased significantly “well beyond what government expected when enacting the legislation”. In paragraph 15 of the judgment the judge summarised the insurers’ complaints and in paragraph 16 the judge set out some statutory schemes where an appropriate balance had been struck. The judge summarised the Secretary of State’s position at paragraph 17 of the judgment.

The judge set out the legislative background leading up to the 1997 Act from paragraphs 21 to 33 of the judgment. The judge noted that the significant change introduced by the 1997 Act was that compensators could be required to pay the benefits in respect of the accident, injury or disease even though they might not be deducted from the payments to the claimants.

The judge recorded in paragraph 35 the Secretary of State’s submission that the scheme reflected a social policy consensus underpinning a package of measures which sought to respond to a range of social problems arising from workplace injuries, and a consensus that it was fair for the insurance industry and not taxpayers to meet the full costs of tortious injuries for which insured employers were liable, even if they exceeded those agreed by the insurance contract. The judge said that the legislative history materials indicated that the 1997 Act reforms “flowed to a very large degree from two significant problems that had emerged under the 1989/92 scheme”. These were the £2,500 limit which had created a perverse incentive for the parties to settle at just below the limit to the disadvantage of injured persons, and the CRU certificate was deducted against all damages, including general damages for pain, suffering and loss of amenity.

The judge set out Parliamentary materials in paragraphs 37 to 41 and referred to a memorandum from the Association of British Insurers (“ABI”) on the difficulties of working out deductions for contributory negligence. The judge also set out compliance cost assessments which he said showed that the understanding was that additional burdens would be modest. The judge referred in paragraph 45 of the judgment to a speech by Lord MacKay as sponsoring minister in November 1996 in which Lord MacKay referred to the objectives of the then Bill of ensuring that victims retain their compensation for pain and suffering while ensuring that “public funds do not subsidise the negligence of others”, and the decision to apply the scheme to all claims not determined before October 1997 “and those arising subsequently”. The judge referred to other passages of the debates in paragraphs 46 to 52 of the judgment.

The judge referred to part of the debate in which it was apparent from the speech of Viscount Chelmsford, who had been briefed on behalf of the ABI, that “the broad thrust of the proposals was fully agreed by the insurance industry, as was the need to protect awards for pain, suffering and loss of amenity”.

The judge then set out key provisions of the 1997 Act from paragraphs 53 to 65 of the judgment. The judge recorded in paragraph 65 of the judgment that it was true that ever since the 1989 Act the scheme applied to compensation payments due from a compensator who is liable to any extent in respect of the accident, injury or disease. The judge however remarked that “the major statutory and common law developments referred to in paragraph 10 above, hugely extending compensators’ liabilities vis-à-vis injured persons, still lay in the future”.

The judge then set out the legal framework relating to A1P1 from paragraphs 66 to 73 of the judgment. The judge turned to the targets of the insurers’ claim as identified in the Judicial Review claim form. He identified these as being: (1) a failure to read and give effect to provisions of the 1997 Act so as to ensure its compatibility with A1P1 rights of the insurers; (2) a failure to make Regulations under section 22(4) of the 1997 Act to ensure such compatibility; and (3) the certificate in the Bainbridge case.

The judge considered the characterisation of those claims and accepted that he was of the view that the Secretary of State was “correct to characterise the challenge to Decision 1 as being in substance a challenge to the balance struck by the 1997 Act itself, at least in the circumstances to which the Act applies today”.

The judge then dealt with the issue of justiciability in paragraphs 79 to 87 of the judgment. The judge accepted that the Human Rights Act did not apply to conduct before it came into force but accepted that section 22 created “a deemed contractual liability as and when a compensation payment is made following the incurring of a liability by a compensator that is covered (to any extent) by the insurance policy”.

The judge addressed the issue of limitation from paragraphs 88 to 94 of the judgment. The judge recorded in paragraph 88 of the judgment that the Secretary of State accepted that a claim for declaratory relief under section 3 or 4 of the Human Rights Act could be brought at any time and no issue of time bar arose in respect of it. The judge addressed the submission that the claim for damages must ordinarily have been brought within one year of the act complained of, and that time ran from 2 October 2000. The judge held in paragraph 91 that he did not accept the Secretary of State’s contention that all potential claims under section 6 of the Human Rights Act became barred within a year of the entry into force of the Human Rights Act. First this was because the judge concluded that sections 6 and 22 of the 1997 Act interfered with possessions on a continuing basis. Secondly the insurers’ complaint was “in essence that those provisions now fail to strike a fair balance following various legislative and common law developments since 1997, some of which post-date the introduction of the HRA”. The judge recorded that damages claims under section 6 may be prima facie time barred whether the CRU certificate was issued more than a year before the current proceedings commenced, but noted that the insurers’ claims include an alternative claim for restitution on the basis of payment under mistake of law to which the HRA time limit would not apply, citing Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, and the insurers indicated that they wished to reserve the right to contend that the limitation period should be extended pursuant to section 32(1)(c) of the Limitation Act 1980. The judge said that the insurers pointed out that they had not formulated their financial loss claims and sought a transfer to the Chancery Division for an inquiry into the losses that they had suffered, and that the Secretary of State had not taken issue with that approach.

In paragraphs 93 and 94 of the judgment, the judge set out the submission on behalf of the Secretary of State that section 22(4) of the 1997 Act was enacted openly and that the insurers could have asked the Secretary of State to exercise the power to make regulations, and that the claim had not been brought promptly or at any rate within three months after the claim first arose. The judge held that although the 1997 Act had been enacted 23 years ago and that there had been a failure to make regulations under section 22 throughout that time “it is only that, on the claimants’ case, the legislation has begun to infringe their A1P1 rights. It would be difficult to define precisely when that moment occurred.” The judge also held that the failure to make regulations was a continuing act, so that the claim could be brought at any time. The judge recorded that the claim was within three months of the settlement in the Bainbridge case.

The judge addressed whether the insurers were victims for the purposes of the section 7 of the Human Rights Act from paragraphs 95 to 110 of the judgment. The judge held that the insurers needed to show that they are at least persons who could be adversely affected by the matters of which they complain. The judge then addressed the Secretary of State’s argument that Aviva did not qualify as a victim because it had reinsured itself with Swiss Re. The judge recorded that Aviva remained primarily liable to their insured and exposed if Swiss Re could not meet its obligations. As to the argument that Swiss Re reinsured Aviva in the full knowledge of the liabilities imposed by the 1997 Act, the judge considered the arguments based on Aston Cantlow v Wallbank [2003] UKHL 37; [2004] 1 AC 546 and distinguished it.

The judge then turned to consider whether the 1997 Act infringed the insurers’ A1P1 rights in paragraphs 111 to 165 of the judgment. The judge found that the rights and obligations of the insurers under a policy of liability insurance constituted possessions for A1P1 purposes, and that the present case was one of interference with those rights, rather than deprivation.

The judge addressed the legitimate aim of the 1997 Act from paragraphs 115 to 122 of the judgment. The judge considered the legitimate aim formulated in the Secretary of State’s detailed grounds of resistance. The insurers accepted that the objectives of recovering costs attributable to tortious wrongdoing and increasing public resources generally were legitimate aims, but the judge recorded that the insurers argued that the scheme “as is now applies in the light of subsequent developments … goes well beyond those objectives”. The judge did not accept the Secretary of State’s submission that the aims of the scheme were wider. In paragraph 118 the judge held that the legislators’ focus was to deal with problems arising from the small claims limit and the unfairness of deducting state benefits from general damages.

The judge dealt with the issue of rational connection to the aim in paragraphs 123 to 132 of the judgment. The judge accepted in paragraph 127 “with some hesitation” that the contributory negligence CRU payments could be regarded as rationally connected to an aim of recovering from tortfeasors costs attributable to their wrongdoing even though it omitted on practical grounds to carve out benefits attributable to the victim’s own contributory negligence. However the judge held at paragraph 128 that the second feature (“the divisible disease CRU payments”) and the third feature (“the indivisible disease CRU payments with missing contributors”) were not rationally connected to the aim of recovering from tortfeasors costs attributable to their wrongdoing. The judge held “recovery from wrongdoers of the costs occasioned by their wrongdoing would be rationally connected with recovering state benefits in proportion to the extent of the wrongdoing in question, but not with recovering all state benefits without regard to the extent of the wrongdoing”. The judge held that the second and third features could only be justified, if at all, on the basis of being rationally connected to the objective of increasing state resources.

The judge held, in paragraph 131 of the judgment, that the fourth feature (“the CRU certificates not matching a head of loss”) was rationally connected to the aim “because the costs that can fairly be attributable to the insured’s tortious wrongdoing include welfare benefit costs that arise by reason of the wrongdoing, even if they are not themselves recoverable as heads of loss”. The judge rejected the insurers’ submissions that percentage increases in amounts paid broke this link.

The issue of whether the law was no more than is necessary was addressed from paragraphs 133 to 137 and the judge concluded that the first of the five features (“the contributory negligence CRU certificates”) could have been dealt with as contemplated in the Bills introduced in Scotland and Wales. The law therefore failed this test. The second feature (the divisible disease CRU certificate) and the third feature (the indivisible disease CRU certificate with missing contributors) had already been held not to be rationally connected with an aim of recovery of costs fairly attributable to the insured’s wrongdoing, but the judge held if he was wrong about that it would be possible to limit recovery in proportion to the insured’s contribution to the overall exposure. The fourth feature (“CRU certificates not matching a head of loss”) could not be achieved with less intrusive means, and so far as the fifth feature (“the compromised CRU certificates”) was concerned it was accepted that the scheme could not distinguish between compromises which represented an agreed assessment of the claim and other compromises made for commercial reasons.

The judge addressed fair balance from paragraphs 138 to 165 of the judgment. The judge found that the first to third features did not strike a fair balance, and that special justification could not be shown bearing in mind their retrospective effect. The judge said it might be that Parliament could introduce a tax on the insurance industry as a whole to cover the state benefits to which the present claim relates, but that the 1997 Act was not such a scheme and the legality of such a scheme shed no light on the legality of the present scheme. I will address the material parts of the judge’s conclusions when dealing with this in the judgment.

At the end of the judgment the judge dealt with the failure to make regulations under section 22(4) of the 1997 Act from paragraphs 166 to 179 of the judgment. The judge concluded that the insurers’ claim could be cast as one based on failure to make regulations under section 22(4) of the 1997 Act.

The judge agreed that, given the complexity of the matter, he should accede to the proposal from both sides that there should be further submissions. He set out a provisional view that “the contributory negligence CRU payments” were non-compliant from the date that the Human Rights Act came into force but that the “the divisible disease CRU payments” and the “indivisible disease CRU payments with missing contributors” were non-compliant only when the Act began to operate in the circumstances following the decision in Carder and the enactment of the Compensation Act 2006. He noted that considerations of limitation might make those distinctions academic, and he would address them in the light of the submissions.

The judge heard further argument on remedies on 15 December 2020. He circulated a draft judgment to the parties on 21 December 2020 and handed down judgment on 12 January 2021. The judge referred to his provisional view set out in paragraph 181 of his judgment about the date from which the declaration of incompatibility should run. The judge noted the decision in Holtby v Brigham & Cowan (referred to in paragraph 34 above) and stated that this may have an effect on the date of the declaration because he said that it might be that the second feature of the 1997 Act could be viewed as having started from the outset. The judge accepted the submissions that the appropriate date for that part of the scheme was when the Human Rights Act came into force. The third feature became unlawful at the end of 2002 as a result of the judgment in Fairchild which was handed down on 20 June 2002. The judge also set out his reasons for granting the other relief.

The Secretary of State pursues eight grounds of appeal. These are: (1) the Judge erred in finding that Parliament’s decision not to formulate a scheme based upon the insurers’ “matching” principle constituted an unjustifiable interference with their A1P1 rights; (2) the Judge erred in identifying what was the target for the judicial review; (3) the Judge erred in failing to treat the claim as non-justiciable as the relevant interference pre-dated the introduction of the Human Rights Act; (4) the Judge erred in treating the individual insurers each as “victims” for the purpose of the Human Rights Act in light of the relevant commercial arrangements made by them; (5) the Judge erred in concluding that the Court could compel the Secretary of State to introduce new regulations, based upon “matching” principles under section 22(4) of the Act (and also erred in concluding that section 6(6) of the Human Rights Act precluded such a finding in any event); (6) the Judgment contravened article 9 of the Bill of Rights 1689; (7) the Judge erred in his evaluation as to when and how the A1P1 violation arose; and (8) the Judge erred in concluding that section 3 of the Human Rights Act enabled the Scheme to be “read down” so as to replace the actual statutory principles with the insurers’ “matching” principles.

The Secretary of State submits that the judge erred in his approach to the compatibility of the 1997 Act with A1P1. The insurers say that the answer to all the points made on behalf of the Secretary of State is set out in the judgment of the judge, on which they rely to submit that the appeal should be dismissed.

The insurers cross-appeal on the ground that: the Judge erred in failing to hold that, in relation to policies of liability insurance issued before 17 March 1997, the making of demands for repayment of recoverable benefit in amounts in excess of sums for which the Claimant has or expects to receive a credit under a head of loss from the person suffering from the relevant disease amounted to an infringement of the Appellant’s rights guaranteed by A1P1 and the Secretary of State thereby acted unlawfully from 2 October 2000 or a later date. The insurers say that the only error made by the judge in his first judgment was not finding that the fourth situation raised by the cross-appeal was incompatible with their A1P1 rights. The Secretary of State relies on the judge’s own finding in relation to the fourth situation to show that the judgment was internally inconsistent and wrong.

I am grateful to Mr Kent QC and Mr Brown, and their respective legal teams, for their helpful written and oral submissions. It is apparent that many of the Secretary of State’s grounds of appeal overlap. It was also clear that the main issue which divides the parties is whether the 1997 Act infringes the insurers’ rights under A1P1. Before I address that issue it will be necessary to consider the Secretary of State’s submission that the judge has used Parliamentary materials in breach of article 9 of the Bill of Rights. As to this point the insurers point out that it was the Secretary of State who exhibited the materials in witness statements.