Court declares MIB Agreement incompatible with EU law

Posted by Malcolm Johnson on

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The High Court has just declared Clause 6(1)(e)(iii) incompatible with European Directives on Motor Insurance.
The Claimant had a car accident on the 25th November 2006. He was a passenger in a car driven by a friend. Following the acciddent, cannabis was discovered in the Claimant’s jacket although he was never prosecuted. The drug was also found on his friend who was successfully prosecuted. The friend was insured with a firm named Tradewise.

On 4th March 2009 Tradewise obtained an Order to the effect that it was at all material times entitled to avoid its policy of insurance pursuant to section 152(2) of the RTA 1988 on the grounds that the policy was obtained by the non-disclosure of material facts and by the representation of facts which were materially false. The matters that were misrepresented and/or not disclosed by the driver comprised that: (i) he suffered from diabetes; (ii) he suffered from depression; and (iii) he was a habitual cannabis user.

On 23rd April 2009 the Claimant commenced proceedings in the Coventry County Court against his friend and Tradewise. On 25th January 2011 HHJ Gregory dismissed both claims. He held that (i) the Claimant's claim was barred on grounds of public policy (i.e. the defence of ex turpi causa succeeded), and (ii) the Claimant knew or ought to have known that the vehicle was being used in the course or furtherance of crime, namely the transportation of cannabis for the purpose of subsequent supply, and consequently clause 6(1)(e)(iii) of the Uninsured Drivers' Agreement 1999 applied.

On 21st December 2011 the Court of Appeal allowed the Claimant's appeal on the ex turpi causa issue – on the basis that the joint criminality was only the occasion, and not the cause, of the accident - but, by a majority (Ward LJ dissenting), dismissed it on the clause 6(1)(e)(iii) issue.

On 16th November 2012 the Claimant issued proceedings against the government. The claim was for damages "arising as a result of the Defendant being in breach of Article 1(4) of Directive 84/5". The Particulars of Claim alleged that clause 6(1)(e)(iii) was incompatible with Article 1(4) and that, in so far as the Claimant had been unable to obtain compensation from Tradewise by reason of the exclusion under clause 6(1)(e)(iii) of the 1999 Agreement, the United Kingdom was in breach of its Community law obligations under Article 1(4) of the Directive".

In the High Court, Mr Justice Jay considered the governing Legal Framework. The EU legislation concerning motor insurance had now been consolidated into Directive 2009/103/EC.

However, given the date of the Claimant's accident, it was necessary to examine the predecessor directives, which were Directive 72/166/EEC and Directive 84/5/EEC.

It was a well-established principle of the European Court of Justice that the text of a directive, which was the governing set of provisions, had to be read consistently with the recitals (opinion of Advocate-General Trstenjak in RWE Vertrieb AG v Verbraucherzentrale Nordhein-Westfalen e.V, C-92/11, paragraph 37). Jay J said that there was a swathe of ECJ decisions stating that (subject to specified exceptions) any attempt by an insurer to avoid third-party liability was of no effect.

The effect of Article 75 of the Memorandum and Articles of Association of the MIB was that Tradewise became the "Article 75 insurer" notwithstanding that the relevant policy (i) had been avoided for misrepresentation and/or non-disclosure, or (ii) the use of the vehicle was other than that permitted by the policy.

Jay J turned to clause 6(1)(e) of the Uninsured Drivers' Agreement 1999, and clause 6(3) which allowed the MIB to avoid a judgment where the passenger knew or ought to have known that there was no insurance. He referred to the case of White v White [2001] 1 WLR 481, where the House of Lords held that clause 6(1)(e) must be interpreted as requiring actual knowledge or wilful blindness. The exception in clause 6(1)(e)(iii) was inconsistent with, and undermined, the specific exceptions permitted by Articles 1.4 and 2.1 of the Second Council Directive. Jay J said that it was remarkable that no relevant documents existed from the drafting of the 1999 MIB Agreement by the government and the MIB. He would not conclude that the government possessed a deliberate intention to infringe the Community law.

On the other hand, he was a long way from accepting that this was an example of an inadvertent breach. He would hold that the government must be taken to have decided deliberately to run the risk.

The government was guilty of a serious breach of Community law in circumstances where its room for manoeuvre under the Directives was closely circumscribed. It was so serious that, subject to the final issue of causation, it must pay compensation to the Claimant.

However the government had a fall-back position. The Directive still allowed an insurer to avoid liability, where the Claimant knew, or was wilfully blind to the fact, at the time of entering the vehicle, that the vehicle was uninsured for the purposes of the journey he was taking. Jay J said that he would adopt the purposive construction of the clause mandated by White v White, the issue was whether the Claimant had information from which he drew the conclusion that the driver might well be uninsured but deliberately refrained from asking questions for fear that his suspicions would be confirmed; or whether he was simply careless, giving no thought to the question of insurance, even though an ordinary prudent passenger in his position and with his knowledge, would have made inquiries.

In the judgement of Jay J, the Claimant certainly loved cars but that hardly meant that he must be deemed to have understood all relevant legal aspects of driving or insurance. If an issue had arisen in this case concerning the Claimant's actual knowledge of the Highway Code, Jay J would have treated him in the same way as any other reasonably prudent driver. To draw the inference that the Claimant's knowledge of insurance matters was somehow enhanced by his knowledge of cars and their functioning would be to embark on an exercise in speculation. Jay J could reach the inferential conclusion from the available evidence that the Claimant had information from which he drew the conclusion that the driver might well not be insured. The better view, by a considerable margin, is that the Claimant gave no thought to the question. It follows that the Defendant's case on causation failed.

The law was clear, the Defendant was in serious breach of it, and there must be judgment for the Claimant on the issue of liability, with damages to be assessed. It is understood that the government is to appeal this decision.

This judgment demonstrates once again the way in which the 1999 MIB Agreement and the 2003 Untraced Drivers Agreement, simply does not comply with the European Motor Insurance Directives.

On the 27th February 2013, the government published its Review of the MIB’s Uninsured and Untraced Drivers’ Agreements. This was a consultation document, which invited interested parties to respond to proposed changes in the Agreements.[1] The document begins by stressing the importance of compliance with the jurisprudence of Great Britain and the European Union and at the same time, the need to make the Agreements straightforward and easy to understand.

The consultation concluded on the 26th April 2013 and the government published on the 31st July 2013 a “Statement of Intent” on their website announcing that they would set out their response in Autumn 2013. That is still awaited.

Some legal commentators have criticized the MIB’s proposed changes.[2] It is said that the proposed reforms do not address the fundamental flaws in the Agreements, for instance the MIB’s right to refuse to pay certain subrogated claims and certain provisions of the Road Traffic Act 1988 relating to compulsory insurance.

These are issues that are increasingly subject to challenge from the rights contained in the European Directives and more of these challenges can be expected in the future.

[1] Gov UK website: Summary of the responses can be seen.
[2] Nicholas Bevan's blog: A list of suggested reforms.

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About the Author

Malcolm is an Senior Associate in our London office, with nearly twenty years' experience.

Malcolm Johnson
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