Employment tribunal claims and the Third Parties (Rights Against Insurers) Act 2010

The latest decision on the Third Parties (Rights Against Insurers) Act 2010 (‘the 2010 Act’) has come from an unexpected source.

In Watson v Hemingway Design Limited (in liquidation)[1]Employment Appeal Tribunal, 16 December 2019., Kerr J decided that an employment tribunal had jurisdiction to make a declaration under the 2010 Act as to the liability of the insurer as well as the liability of the insured. He also concluded that an arbitration clause in the contract of insurance was rendered void by employment and discrimination legislation.

Neither aspect of the decision is likely to be welcomed by insurers.

Employment tribunal jurisdiction

The judge said that the first issue – whether an employment tribunal had jurisdiction to make a declaration under the 2010 Act as to the liability of the insurer as well as the insured – was a question of statutory construction: specifically, whether ‘court’ in the 2010 Act included the employment tribunal. This followed from the fact that the jurisdiction of the employment tribunal was entirely statutory, and s 2 of the Employment Tribunals Act 1996 provided that ‘Employment tribunals shall exercise the jurisdiction conferred on them by or by virtue of this Act or any other Act, whether passed before or after this Act.’ The judge said that, if an employment tribunal fell within the words ‘the court’ in s 2(6) of the 2010 Act, the Act had conferred jurisdiction on the employment tribunal to make a declaration as to the insurer’s liability under s 2(2)(a) of the 2010 Act; and, if that was so, the 2010 Act fell within the words ‘any other Act, whether passed before or after this Act’.

The judge considered various authorities[2]Including Attorney-General v BBC [1981] AC 303, HL, Peach Grey & Co v Sommers [1995] ICR 549, CA, Vidler v UNISON [1999] ICR 746, EAT and Brennan v Sunderland City Council [2012] ICR 1183, EAT. and noted that the employment tribunal had been held to be a ‘court’ for some purposes but not for others. He concluded that the scope of ‘court’ depended on the statutory context, and that the context called for a purposive construction of ‘court’ in the 2010 Act because otherwise the statutory purpose of the 2010 Act in allowing the claimant to bring one claim rather than two would have failed in its application to employment tribunal claims.

Validity of the arbitration clause

The second issue was whether an arbitration clause in the contract of insurance was rendered void by the applicable employment legislation. Although the judge did in fact go on to consider this issue, he said that in his view it was not necessary for him to decide it because, although the insurer had relied on the existence of the arbitration clause in its grounds of resistance (defence), it had only done so ‘further or in the alternative’ to its challenge to the tribunal’s jurisdiction.

This seems questionable: the judge said that it was possible that the arbitration clause might become relevant at the next stage of the proceedings because either party might take steps to have an arbitrator appointed; but in fact the insurer had (as the judge himself found) already invoked the arbitration clause in its pleaded defence. Therefore, as soon as the judge concluded that the employment tribunal had jurisdiction under the 2010 Act, the question of the validity of the arbitration clause arose for decision.

On the second issue, the claimant argued that s 203 of the Employment Rights Act 1996[3]Section 203(1) of the Employment Rights Act 1996 provides: ‘Any provision in an agreement (whether a contract of employment or not) is void in so far as it purports—(a) to exclude or limit the operation of any provision of this Act, or (b) to preclude a person from bringing any proceedings under this Act before an employment tribunal. and s 244 of the Equality Act 2010[4]Section 244(1) of the Equality Act 2010 provides: ‘A term of a contract is unenforceable by a person in whose favour it would operate in so far as it purports to exclude or limit a provision of or made under this Act. rendered the arbitration clause void because it excluded or limited the operation of those provisions and precluded the claimant from bringing proceedings before the tribunal under those sections ‘as against [the insurer] which has inherited [the insured’s] liability[5]At para 25(7)..

In setting out relevant provisions of the arbitration clause, the judge said that the clause applied where there was a ‘difference or dispute’ between the insured and the insurer ‘or any other person insured under this Policy’. The fact that the judge quoted this second phrase suggests that the judge considered that, on a statutory transfer under the 2010 Act, the claimant became a ‘person insured under this Policy’. This fits with his characterisation of the clause[6]At para 59. as ‘requiring the claimant (as statutory transferee of the rights of… the insured) to submit his dispute with [the insurer] to arbitration’.

In fact, the clause does no such thing. The claimant remained free to submit his dispute to the employment tribunal – as, indeed, he had done. Nothing in the arbitration clause affected the progress of the claimant’s claim in the employment tribunal; nor did the claimant suggest that it did.

In finding that the arbitration clause did not bind the claimant, the judge seems in effect to have accepted the claimant’s submission that the insurer had ‘inherited [the insured’s] liability’, and extrapolated from this to treat the claim by the claimant against the insurer as if it were a claim under the employment legislation.

It is of course correct that, once the judge had concluded that, as a matter of construction of the 2010 Act, ‘court’ included the employment tribunal, the binding nature of the arbitration clause deprived the claimant of the procedural advantage of bringing one set of proceedings. This arguably undermines his conclusion on the question of the jurisdiction of the employment tribunal. But in any event his reasoning conflates two things:

  • the claimant’s rights against his former employer – which he was, and remained, entitled to bring in the employment tribunal under s 203 of the Employment Rights Act 1996 and s 244 of the Equality Act 2010; and
  • the employer’s rights against the insurer which were transferred to him under the 2010 Act, which were – and should have remained – subject to the arbitration clause.

Notes   [ + ]

1. Employment Appeal Tribunal, 16 December 2019.
2. Including Attorney-General v BBC [1981] AC 303, HL, Peach Grey & Co v Sommers [1995] ICR 549, CA, Vidler v UNISON [1999] ICR 746, EAT and Brennan v Sunderland City Council [2012] ICR 1183, EAT.
3. Section 203(1) of the Employment Rights Act 1996 provides: ‘Any provision in an agreement (whether a contract of employment or not) is void in so far as it purports—(a) to exclude or limit the operation of any provision of this Act, or (b) to preclude a person from bringing any proceedings under this Act before an employment tribunal.
4. Section 244(1) of the Equality Act 2010 provides: ‘A term of a contract is unenforceable by a person in whose favour it would operate in so far as it purports to exclude or limit a provision of or made under this Act.
5. At para 25(7).
6. At para 59.

The changing face of the Commercial Court

Update

This post was published on 30 June 2019. On 16 July 2019, the appointment of five new judges to the Court of Appeal was announced. This includes three Commercial Court judges: Carr, Phillips and Popplewell JJ.

The Commercial Court recently published its first annual report for some years. Given the pressure on court staff due to the chronic underfunding of the English and Welsh court system – from which the Commercial Court is not immune[1] – it seems likely that the decision to recommence publication of annual reports now is part of the ongoing drive to attract business to the Commercial Court in an increasingly competitive international market.

The Commercial Court Report 2017-2018 reveals changes in the Court’s constitution and its business. Here are a few interesting snippets:

The constitution of the Commercial Court

At the time of publication,[2] the judges of the Commercial Court were Teare J (Judge in Charge of the Commercial Court), Andrew Baker, Bryan, Butcher, Carr, Cockerill, Jacobs, Robin Knowles, Males,[3] Moulder, Phillips, Picken,[4] Popplewell, Waksman and Walker JJ.[5] This means – although the Report does not comment on this – that there are now, for the first time ever, three female Commercial Court judges, and one Commercial Court judge who is a former solicitor.

Recently retired judges who are still authorised to sit in the Court include Sir William Blair, Sir Ross Cranston, Sir Michael Burton and Sir Andrew Smith. The London Circuit Commercial Court Judge (from 1 July 2019, this will be HHJ Pelling QC[6]) and a number of specialist commercial Queen’s Counsel are also authorised to sit as deputy judges in the Court. Deputies are used only when the parties agree, or when the Judge in Charge of the Commercial Court consider that this is appropriate.

Commercial Court judges, as judges of the Queen’s Bench Division, sit on circuit hearing criminal trials for part of the year.[7] They may also hear cases in the general Queen’s Bench list, the Administrative Court and the Court of Criminal Appeal.

Commercial Court business

The balance of work has changed since the last report was published: international insurance and reinsurance disputes, together with shipping disputes, previously dominated the Court’s time. These remain among the larger categories of business, but now alongside commercial fraud, actions arising out of commercial sale and purchase agreements, and claims relating to banking, financial services and securities transactions. ‘Now the Court sees many more banking and financial services disputes than it used to, and disputes (based either in contract or tort) between high net worth individuals from around the world now provide a considerable share of the Court’s business.[8]

Seventy per cent of cases were international.[9] About a quarter of the claim issued related to arbitration: challenges to awards, applications for injunctions or for enforcement of awards, and other applications including for the appointment of an arbitrator.

Eight hundred and sixty-four claim forms were issued in the Commercial Court[10] in 2017-2018 (slightly down on 2016-2017, when 888 claim forms were issued). There were 57 trials (up from 51 in 2016-2017). The settlement rate was 60%. About half of the trials were under a week in length, 30% were one to two weeks, 16% were three to four weeks, and 5% were over four weeks. The largest claim was for US$3bn and there were over a dozen claims worth over £100m. In addition, many arbitration claims concerned awards for extremely substantial sums, sometimes into the billions of pounds.

The workload of the Financial List, established in 2015, remains at about 15 cases a year – apparently in line with predictions.

Alison Padfield QC

  1. The impact of this on the Court features obliquely in the Report’s introduction. This thanks the Court staff for their ‘very hard work and unfailing help’, which ‘has always been given unstintingly and without complaint, despite the pressure and difficult circumstances under which the Court staff have had to work’ (Report, page 5).
  2. On 27 February 2019.
  3. Males J has since moved to the Court of Appeal.
  4. Since January 2018, Picken J has also been the Presiding Judge of the Wales Circuit.
  5. Report, page 6.
  6. See https://www.judiciary.uk/announcements/specialist-circuit-judge-judge-in-charge-of-the-london-commercial-court-pelling-qc/ (accessed 30 June 2019).
  7. An interesting point of distinction between the Commercial Court, as part of the Queen’s Bench Division (of the High Court) and the Chancery Division (of the High Court), whose 15 judges do not go out on circuit to sit in criminal trials.
  8. Report, page 7.
  9. Report, page 9: ‘A domestic case is one in which the subject matter of the disputes between the parties’ concern property or events situated in the United Kingdom and the parties are UK based relative to the dispute. For these purposes a party is “UK based relative to the dispute” if the part of its business which is relevant to the dispute is carried on in the UK, irrespective of whether it is incorporated, resident or registered overseas. All other cases are “international cases.”
  10. This excludes the Admiralty Court, for which separate figures are kept (see the Report at page 12 for details).

Commercial Agents – the worst of both worlds?

I wrote a short article recently with Sophie Belgrove about the impact of certain types of contractual term on termination payments under the Commercial Agents (Council Directive) Regulations 1993.

First published in the New Law Journal in January 2016, the article is reproduced here by kind permission of the NLJ and its brilliant editor and deputy, Jan Miller and Danielle Munroe:

Commercial-Agents-The-worst-of-both-worlds-Belgrove-and-Padfield.

Alison Padfield