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 Long Road to Reform of the Third Parties (Rights Against Insurers) Act 1930

The Law Commissions’ Command Paper on Third Parties Rights Against Insurers was presented to Parliament in July 2001, just before I started writing the first edition of my book on Insurance Claims. Thinking that this meant that new legislation was imminent, I left the section about the Third Parties (Rights Against Insurers) Act 1930 until last. In fact, the 1930 Act outlasted not only the first edition of my book, but also the second. By 2012, when the third edition of the book came out, the Third Parties (Rights Against Insurers) Act 2010 had finally received Royal Assent.[1] But it is still not in force. Why not?

A drafting error in the 2010 Act meant that a gap needed to be filled, and this required primary legislation: the new Act applied to companies in respect of which an “administration order” was in force, but not those which entered into administration without a court order. (In July 2001 when the Law Commission prepared its draft bill, an administration order was a pre-requisite for administration.)

The Ministry of Justice said in its March 2012 Report on the implementation of Law Commission proposals that implementation of the Act had been “delayed by work on other priorities”, that it had provisionally concluded that some rules of court would be necessary, and that the Act required a small amendment to cover all forms of administration. It concluded that it was unlikely that the 2010 Act would be commenced until 2013.[2]

2013 came and went. So did 2014.

In January 2015, Explanatory Notes published in relation to the Insurance Bill stated that the 2010 Act had not been commenced because it failed to cover “the full range of insolvent or defunct wrongdoers”,[3] and that the draft amendments “clear the way for the 2010 Act to come into force”.[4]

Then, in February, the Insurance Act 2015 was enacted. This filled the gap in the 2010 Act in respect of companies entering administration without a court order. At the same time, a power to change the meaning of “relevant person” was added, enabling the Secretary of State to make regulations adding to the persons to whom the 2010 Act applies (within the broad category of individuals and corporate bodies who have liability insurance and lack control of their assets due to insolvency or dissolution).  The scope of application of the 2010 Act was also enlarged by additions to the transitional provisions.

In its March 2015 Report on the implementation of Law Commission proposals, the Ministry of Justice said:[5]

“The 2013 Implementation Report indicated that the Government was working towards implementation of the 2010 Act but had provisionally concluded that it would have to be amended before it could be commenced.

Some of the necessary amendments were included in… the Insurance Act 2015. The amendments included the creation of a regulation-making power to alter the circumstances in which the 2010 Act applies. To ensure that the application of the 2010 Act is as wide as it ought to be, taking into account the scope of the 1930 legislation and developments in insolvency law, the Government is continuing to work closely with the Commission to draft the regulations with a view to commencing the 2010 Act as amended by the Insurance Act 2015 and the proposed regulations as soon as is reasonably possible.”

The Law Commission’s note on the Insurance Bill provided more detail: it envisaged that regulations would add additional methods of dissolution of a body corporate or of an unincorporated association, and add sector-specific administration procedures, including for financial services, postal and utility companies. Sixteen such sector-specific procedures were identified in the Law Commission’s note.

In July 2015, in its Annual Report 2014-15,[6] the Law Commission said:[7]

“The Insurance Act 2015 adds a new regulation-making power to the 2010 Act to keep it up to date with changes in insolvency law. The intention is to use this power to make regulations early in the 2015-16 parliamentary session so as to bring the 2010 Act into force by the end of 2015.”

Where does that leave us? In short, the gap in relation to administration has been filled, but further amendments have yet to be made by regulations, the timetable for which has slipped again; and there is no further information on the proposed rules of court.

The 2010 Act must surely be brought into force in 2016. But will it be in force by the end of March 2016, which is the deadline for the revised text of my fourth edition? According to my latest information from the Ministry of Justice, there may yet be grounds for optimism.

Alison Padfield

  1. On 25 March 2010.
  2. Paragraph 9.
  3. Paragraph 12.
  4. Paragraph 11.
  5. Paragraphs 34 and 35.
  6. Published on 20 July 2015.
  7. Page 46.