JUDGMENT
R & S Pilling t/a Phoenix Engineering (Respondent)
v UK Insurance Ltd (Appellant)
before
Lady Hale, President
Lord Wilson
Lord Hodge
Lady Arden
Lord Kitchin
JUDGMENT GIVEN ON
27 March 2019
Heard on 13 December 2018
Appellant Respondent
Graham Eklund QC Colin Edelman QC
Patrick Vincent Richard Harrison
(Instructed by Keoghs
LLP
)
(Instructed by DAC
Beachcroft LLP
)
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LORD HODGE: (with whom Lady Hale, Lord Wilson, Lady Arden and Lord
Kitchin agree)
1. This appeal is concerned with the interpretation of a policy of motor
insurance. The question is whether the policy confers on the insured owner of a
vehicle an indemnity against liability for damage caused to the property of a third
party which was caused by his acts when he was carrying out substantial repairs to
his car in the commercial premises of his employer. The appeal also raises questions
about the meaning of the phrase, “damage … caused by, or arising out of, the use of
the vehicle on a road or other public place” in section 145 of the Road Traffic Act
1988, which defines the compulsory insurance requirements for the use of vehicles
on such places.
The factual background
2. The facts behind this appeal can be stated briefly. In 2010 Mr Thomas Holden
was a mechanical fitter employed by the appellants, R & S Pilling, who traded as
Phoenix Engineering (“Phoenix”). He was the owner of a car and held a motor
insurance policy (“the Policy”) with the respondents (“UKI”). On 11 June 2010 Mr
Holden’s car failed its MOT because of corrosion to its underside. On the following
day, he asked his employer, Phoenix, if he could use the loading bay in its premises
to carry out work on his car in the hope that he could enable it to pass its MOT. He
intended to weld some plates onto the underside of the car to deal with the corrosion.
His employer agreed.
3. He disconnected his car battery to make sure there were no live circuits. He
then used a fork-lift truck to lift the car onto the driver’s side to gain access to the
underside of the vehicle. He first used a grinder to prepare the underside for welding
and then welded a plate under the driver’s side. He then re-connected the battery,
started the car and moved it round the other way before again disconnecting the
battery, and lifting it up to expose the underside on the passenger’s side of the
vehicle. He started welding but then stood up to answer a phone call. When he did
so, he saw flames inside the car: sparks from the welding had ignited flammable
material inside the car, including the seat covers. As the fire spread, it set alight
some rubber mats which were lying close to the car. The fire then took hold in
Phoenix’s premises and in adjoining premises and caused substantial damage before
it was put out.
4. Phoenix was insured against property damage and public liability by AXA
which had to pay out over £2m to Phoenix and the owner of the adjoining premises.
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AXA made a subrogated claim in Phoenix’s name against Mr Holden. Mr Holden’s
only insurance policy which arguably might cover Phoenix’s claim (“the claim”) is
the Policy. As a result, UKI brought an action seeking a declaration that it is not
liable to indemnify Mr Holden against the claim, and AXA, denying this,
counterclaimed for an indemnity. Mr Holden was named as first defendant in the
action but has taken no part in the proceedings because he is not at risk: AXA has
undertaken to limit its recovery to such sum, if any, as it can obtain from UKI.
5. The real dispute is therefore between the two insurance companies. At its
simplest, UKI says that the Policy does not respond to third party claims involving
the car while the car is being repaired on private premises, such as Phoenix’s garage.
Phoenix contends that the Policy covers accidents involving the car off-road and that
in any event the repair of the car can properly be described either as the use of it, or
as arising out of its use, on a road or other public place. The question is the correct
interpretation of the Policy against the background of domestic and EU legislation
which imposes compulsory third party insurance in respect of motor vehicles.
The motor insurance policy
6. The documents which are relevant to Mr Holden’s insurance cover are (a) the
policy set out in UKI’s policy booklet, (b) the certificate of motor insurance (“the
certificate”), (c) the motor insurance schedule (“the schedule”) and (d) the motor
proposal confirmation (“the confirmation”). The policy booklet instructed the
insured that he must read the four documents as a whole.
7. The policy booklet set out in section A the insurance cover in relation to the
insured’s liability to other people. It provided in clause 1a:
“Cover for you
We will cover you for your legal responsibility if you have an
accident in your vehicle and:
you kill or injure someone;
you damage their property; or
you damage their vehicle.”
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Clause 2 provided the following cover for other people:
“We will also provide the cover under section 1a for:
anyone insured by this policy to drive your vehicle,
as long as they have your permission;
anyone you allow to use but not drive your vehicle,
for social or domestic purposes;
anyone who is in or getting into or out of your
vehicle;
…”
The booklet listed what was not covered under section A, including liability for more
than £20m for any claim or series of claims for loss of or damage to property, and
also liability caused by acts of terrorism, unless such cover was compulsory under
the Road Traffic Acts.
8. The booklet contained general exceptions and stated:
“1. Who uses your vehicle
We will not cover any injury, loss or damage which takes place
while your vehicle is being:
driven or used by anyone not allowed to drive it, or
used for any purpose not allowed by the Certificate
of Motor Insurance or Schedule; or
driven by someone who does not have a valid driving
licence or is breaking the conditions of their driving
licence.
This exception does not apply if your vehicle is:
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with a member of the motor trade for
maintenance or repair;
stolen or taken away without your
permission; or
being parked by an employee of a hotel,
restaurant or car parking service.”
The general exceptions also excluded damage caused by war etc “unless we have to
provide cover under the Road Traffic Acts”.
9. The certificate identified Mr Holden as the policy holder and specified the
use limitations as “use for social, domestic and pleasure purposes”. It also contained
a certificate of the Chief Executive of the insurers in these terms:
“I hereby certify that the Policy to which this Certificate relates
satisfies the requirements of the relevant law applicable in
Great Britain and Northern Ireland, the Republic of Ireland, the
Isle of Man, the Island of Guernsey, the Island of Jersey and
the Island of Alderney.”
10. The motor insurance schedule specified among other things the sections of
the booklet which applied to the Policy and the details of the car. The confirmation,
which has no bearing on this appeal, set out in summary form details of the policy
holder, the Policy, the car and method of payment of premium.
The context of compulsory insurance
i) Domestic provision: the Road Traffic Act 1988
11. It has, since 1930, been a statutory requirement that a driver has third party
liability insurance in respect of the use of his or her vehicle on the road and it is a
criminal offence if one does not. The current statute is the Road Traffic Act 1988
(“the RTA”). Section 143 of the RTA provides that it is an offence to 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 security in respect
of third party risks as complies with Part VI of the RTA.
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12. Section 145 of the RTA, which like section 143 falls within Part VI, sets out
the conditions which the policy of insurance must satisfy. It provides, so far as
relevant:
“(1) In order to comply with the requirements of this Part of
this Act, a policy of insurance must satisfy the following
conditions.
…
(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 …” (Emphasis added)
At the relevant time, section 145(4)(b) provided that such a policy was not required
to provide insurance in respect of damage to property of more than £1m.
13. Section 145(3)(a) was amended by the Motor Vehicles (Compulsory
Insurance) Regulations 2000 (SI 2000/726) to add the words “or other public place”
which I have emphasised, in order to comply with the EU directives on motor
insurance, which were later consolidated in the Directive which I describe below.
Section 143 was amended in the same way. The amendments responded to the
decision of the House of Lords in Clarke v General Accident Fire and Life
Assurance Corpn plc and Cutter v Eagle Star Insurance Co Ltd [1998] 1 WLR 1647,
which had held that a “road” did not include a car park or other public place. The
current wording of section 145(3) is to that extent implementing the relevant EU
legislation.
ii) The EU Motor Insurance Directive
14. Directive 2009/103/EC of the European Parliament and of the Council of 16
September 2009 (“the Directive”) consolidates various earlier EU directives and
ensures that civil liability arising out of the use of motor vehicles is covered by
insurance.
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15. Recital (2) of the Directive states:
“Insurance against civil liability in respect of the use of motor
vehicles (motor insurance) is of special importance for
European citizens, whether they are policyholders or victims of
an accident. It is also a major concern for insurance
undertakings as it constitutes an important part of non-life
insurance business in the Community. Motor insurance also
has an impact on the free movement of persons and vehicles. It
should therefore be a key objective of Community action in the
field of financial services to reinforce and consolidate the
internal market in motor insurance.”
16. Article 3, so far as relevant, provides:
“Compulsory insurance of vehicles
Each member state shall, subject to article 5, 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 the measures
referred to in the first paragraph.
…
The insurance referred to in the first paragraph shall cover
compulsorily both damage to property and personal injuries.”
17. Article 12(3) provides:
“The insurance referred to in article 3 shall cover personal
injuries and damage to property suffered by pedestrians,
cyclists and other non-motorised users of roads who, as a
consequence of an accident in which a motor vehicle is
involved, are entitled to compensation in accordance with
national civil law.”
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The prior judgments
18. In a judgment dated 19 February 2016 ([2016] EWHC 264 (QB); [2016] 4
WLR 38) which the Master of the Rolls correctly described as “clear and careful”,
Judge Waksman QC, sitting as a Judge of the High Court (Queen’s Bench Division),
held that UKI was entitled to the declaration which it sought. He interpreted the
Policy as extending beyond roads and public places so that its cover extended to the
location of the accident on private property, if the other requirements of the Policy
were made out. But he concluded that those requirements were not made out because
the accident had not arisen out of the use of the car. The undertaking of the repair of
the car was not using it: it was not being operated but was immobile and partly off
the ground so that it could be worked on (para 63). He also rejected Phoenix’s
argument on causation, that the fire arose out of Mr Holden’s use of the car because
he had been driving it before carrying out the repair or because he would be driving
it after the repair. He held (para 66):
“The fire was caused by and arose out of the allegedly negligent
repair of the car by the use of grinders and welders without
taking any precautions with regard to flammable materials in
the car itself.”
19. The Court of Appeal (the Master of the Rolls, and Beatson and Henderson
LJJ) allowed Phoenix’s appeal ([2017] EWCA Civ 259; [2017] QB 1357). The
Court, recognizing that the wording of clause 1a of the policy booklet was
inadequate and that the policy booklet had to be read together with the certificate,
held that the Policy should be read to cover the requirements of section 145(3) of
the RTA, as the certificate states. The Policy did not have the geographical
limitations of the statutory provision nor was the sum insured restricted to £1m.
Section 145(3) extended the cover of clause 1a without imposing its statutory
geographical limitations and did not require the owner to be in the car at the time of
the accident as the express terms of clause 1a provided. The clause as so extended
covered repairs which were commonplace for drivers. The court accordingly
construed the opening words of clause 1a to mean: “We will cover you for your legal
responsibility if there is an accident involving your vehicle” (emphasis added). This
entailed substituting “there is” for “you have” and replacing the preposition “in” in
the express terms of the clause with the present participle “involving”.
20. As a secondary argument, the Master of the Rolls held that the repairs
amounted to the “use” of the car under section 145(3). He stated that that
interpretation was consistent with the objective of the Directive in the light of the
judgment of the Court of Justice of the European Union (“CJEU”) in Vnuk v
Zavarovalnica Triglav dd (Case C-162/13) [2016] RTR 10, which was to protect
victims of accidents caused by vehicles. He held that a purposive interpretation of
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section 145(3)(a) to cover use of a car consistent with its normal function was
consistent with English authorities which held that there may be “use” of a car when
it is parked or immobilised.
21. The Master of the Rolls set out the following summary in para 68 of his
judgment:
“The following propositions as to the meaning of ‘use of the
vehicle’ in section 145(3)(a) of the RTA can be derived from
the Directive, the CJEU jurisprudence and the English
authorities. (1) ‘Use’ is not confined to the actual operation of
the car in the sense of being driven. (2) There may be ‘use’ of
a car when it is parked or even immobilised and incapable of
being driven in the immediate future. (3) ‘Use’ of a vehicle
includes anything which is consistent with the normal function
of the vehicle. (4) Damage or injury may ‘arise out of’ the use
of the car if it is consequential, rather than immediate or
proximate, provided that it is, in a relevant causal sense, a
contributing factor.”
22. The Master of the Rolls therefore concluded that Judge Waksman had made
an error of principle in holding that the repair of a car is not using it for the purposes
of section 145(3)(a) of the RTA. Henderson LJ agreed with this judgment and added
that he found that Commonwealth authorities from Australia and Canada, some of
which take a broader approach to the interpretation of motor insurance policies, were
also of assistance. Beatson LJ agreed with both judgments.
23. UKI appeals to this court.
Discussion
24. Having regard to the statutory requirements and the terms of the certificate,
the Policy must be construed so that the third party cover meets the requirements of
the RTA. The parties are agreed on that and they are plainly correct, because this
can be done in this case without resort to rectification. So far as relevant to this
appeal, the RTA requires Mr Holden to be insured to cover any liability in respect
of damage to property “caused by, or arising out of, the use of the vehicle on a road
or other public place …”. The principal question in this appeal is whether the Court
of Appeal went beyond the bounds of what is required to be read into the Policy to
achieve this end in holding that clause 1a of section A of the policy booklet should
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be read to state: “We will cover you for your legal responsibility if there is an
accident involving your vehicle”.
25. In support of the view that the Court of Appeal was in error, UKI advances
an argument for the first time in this court. It submits that there is no need to read
any term into clause 1a in order to include the RTA cover because the Policy
provides cover in two strands. First, there is the provision of clause 1a, whose words
should be given their ordinary meaning so as to cover accidents occurring when the
driver is in the vehicle wherever it is located, and, secondly and separately, there is
the promise in the certificate that the Policy satisfies the requirements of the relevant
law in the United Kingdom, which for present purposes is the RTA. Phoenix
challenges that assertion, submitting that the Policy follows a standard structure of
insurance policies, with insuring clauses which define the cover, followed by
exclusions and then by conditions. The reader therefore looks to the insuring clause
to determine the scope of cover before examining the extent of the exclusions and
the conditions of cover. The certificate, it is submitted, is simply a declaration of
compliance and does not operate as an additional insuring clause. Phoenix submits
that Judge Waksman and the Court of Appeal were correct in focusing on the correct
construction of clause 1a.
26. It is necessary therefore, first, to examine UKI’s two strands argument and,
secondly, if it is necessary to read words into clause 1a, to address what they are.
The two strands submission
27. The two strands approach can find some support in the Policy’s opening
statement:
“Your policy is made up of:
the Motor Proposal Confirmation;
this Policy Booklet;
the Certificate of Motor Insurance; and
the Schedule.
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You must read all these documents as a whole.”
The documents must be read as a whole. But what is the role of each document? It
is clear from the certificate which I have quoted in para 9 above that UKI intended
the Policy to meet the terms of the RTA. But is the needed cover provided by the
certificate or by a corrective interpretation of the insuring clause?
28. I am not persuaded by the two strands approach which UKI advocates. The
certificate is relevant to and forms part of the Policy because it alone states the
limitations as to use which the Policy imposes (para 9 above). Thus it is readily
understandable why UKI requires the policy holder to read the four documents as a
whole. But the wording of the Chief Executive’s certificate distinguishes between
the Certificate of Motor Insurance and the Policy when it speaks of “the Policy to
which this Certificate relates”. It certifies the legal effect of the Policy without
purporting to provide additional cover.
29. My concern is also that the two strands approach does not fit in easily with
the provisions of the RTA which draw a distinction between an insurance policy and
an insurance certificate. The certificate is the product of section 147 of the RTA and
the Motor Vehicles (Third Party Risks) Regulations 1972 (SI 1972/1217) as
amended (“the 1972 Regulations”). Section 147 provides that an insurer issuing a
motor insurance policy must deliver to the insured a certificate of insurance in the
form prescribed by the 1972 Regulations. The certificate serves as evidence of the
existence of the policy, because, for example, a driver may be required by a police
constable to produce the certificate (section 165) and a person against whom a claim
is made must give the claimant such particulars of the policy as are specified in the
certificate (section 154). The RTA defines “policy of insurance” in section 161 in a
non-exclusive way, stating that it “includes a covering note”. But the RTA also
speaks of “policy” as something separate from the certificate of motor insurance.
For example, in section 147 the insurer issuing a policy must also deliver the
certificate. In section 144A, which creates the offence of keeping a vehicle which
does not meet the insurance requirements, subsection (3) defines the first condition
of meeting the insurance requirements in these terms:
“The first condition is that the policy or security, or the
certificate of insurance or security which relates to it, identifies
the vehicle by its registration mark as a vehicle which is
covered by the policy or security.”
30. The RTA’s treatment of an insurance policy as a distinct concept from a
certificate of insurance points against the two strands approach. Further, if the
certificate, although distinct, were interpreted as a separate contractual basis for
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insurance cover, questions would arise as to whether an insurer may avoid liability
for a risk covered only by a certificate of insurance in circumstances in which it is
barred from so doing in relation to cover under a policy. Section 151 imposes a duty
on insurers to satisfy judgments obtained against persons insured against third party
risks up to the maximum at the relevant time of £1m (now £1.2m). The section
applies to judgments relating to a liability which section 145 requires to be covered
by insurance and “it is a liability covered by the terms of the policy” (subsection
(2)(a)). In deciding whether the terms of the policy cover the liability the section
disregards any requirement in the policy that the driver have a valid driving licence
(section 151(3)). The obligation to pay exists even if the insurer was entitled to avoid
or cancel the policy or had avoided or cancelled it (section 151(5)). In short, section
151 focuses on the liability covered by the terms of the policy and excludes certain
terms of the policy and the avoidance or cancellation of the policy. It does not
envisage liability covered by the certificate or the avoidance or cancellation of the
certificate.
31. I am therefore not prepared to adopt the two strands approach. But the
outcome of the appeal does not depend upon the two strands submission because I
am persuaded that the Court of Appeal erred in interpreting clause 1a to include the
words “there is an accident involving your vehicle” in place of the phrase “you have
an accident in your vehicle”.
Reading terms into clause 1a
32. Three questions arise in relation to the arguments about the interpretation and
application of clause 1a. First, one must ask what is the extent of the insurance cover
which section 145(3)(a) requires. Secondly, one must ask what words should be read
into the clause 1a. And the third question is whether Mr Holden’s accident falls
within the wording of the clause as so interpreted.
i) What section 145(3)(a) of the RTA requires
33. The first question requires the court to interpret the statutory requirement that
the damage to property has been “caused by, or arising out of, the use of the vehicle
on a road or other public place”. This involves the interpretation of the noun “use”
and also of the causal phrase “caused by, or arising out of”. Both predated the
various EU Motor Insurance Directives and were the subject of English and Welsh
judicial decisions.
34. In English case law “use” has been interpreted to extend beyond driving a
vehicle so that an owner had to have third party insurance if he “had the use of the
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vehicle on a road”. Thus, a person who left his broken-down vehicle on a public
road, without a battery and without any petrol in its tank, was convicted of
unlawfully using the car without there being in force a third party insurance under
section 35(1) of the Road Traffic Act 1930, which is the precursor of section 143(1)
of the RTA: Elliott v Grey [1960] 1 QB 367, 372 per Lord Parker CJ. Similarly, in
Pumbien v Vines [1996] RTR 37, a motorist was convicted under section 143(1) of
the RTA when he parked his vehicle on a public road for over seven months during
which time the rear brakes seized, the tyres deflated and the gearbox ceased to
contain any oil. The statutory concept of “use” in this context is that the owner has
an element of control, management or operation of the vehicle while it is on the
road: Brown v Roberts [1965] 1 QB 1, 15 per Megaw J. The good sense of having a
broad interpretation of “use” in the requirement for compulsory third party insurance
is clear as leaving an immobilised car on a public road may create a hazard for other
road users, for example if the vehicle was left close to a blind corner. Similar
considerations apply to protect members of the public in other places to which the
public have access, such as car parks. The mischief is that an uninsured owner may
not be able to compensate members of the public, who can be expected to be on a
road or at a public place and who suffer personal injury or damage to property as a
result of the presence of the vehicle in that place.
35. It is necessary also to consider the jurisprudence of the CJEU on the Directive
as section 145(3)(a) should be interpreted in the light of the wording and purpose of
the Directive so long as that is not contra legem: see for example, Pfeiffer v
Deutsches Rotes Kreuz (Cases C-397/01 to C-430/01) [2005] 1 CMLR 44, paras
108-114, and Dominguez v Centre Informatique de Centre Ouest Atlantique (Case
C-282/10) [2012] 2 CMLR 14, paras 24 and 25.
36. Both Judge Waksman and the Court of Appeal discussed the CJEU’s
interpretation of the Directive in their reasoning. Judge Waksman concluded that
section 145(3)(a) was not compatible with the Directive; the Court of Appeal gave
what I see as a strained interpretation to “use” to achieve such compatibility.
37. Recent case law of the CJEU has demonstrated a need for Parliament to
reconsider the wording of section 145(3)(a) of the RTA to comply with the
Directive. As the courts below recognized, in Vnuk the CJEU held that the objective
of the First to Third Directives was to protect injured parties to an accident caused
by a vehicle in the course of its use, if that use is consistent with the normal function
of that vehicle (para 56). As a result, the CJEU ruled that the concept of “use of
vehicles” in article 3(1) of the First Directive (which is materially in the same terms
as article 3 of the current Directive) “covers any use of a vehicle that is consistent
with the normal function of that vehicle” (para 59 and the dispositif). In that case,
the accident occurred when a tractor was reversing in a farmyard in order to place a
trailer, to which it was attached, in a barn and the trailer struck a ladder on which
the claimant was standing, causing him to fall. The CJEU, rejecting the contention
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that the article covered only use of a vehicle on a public road, held that article 3(1)
of the First Directive could apply to the manoeuvre of the tractor in the farmyard.
38. Since the judgment of the Court of Appeal was handed down in this case, the
Grand Chamber of the CJEU has revisited the meaning of “use of vehicles” in article
3(1) of the First Directive in Rodrigues de Andrade v Salvador (Case C-514/16), 28
November 2017. The accident in that case occurred when an agricultural tractor,
which had a drum with a herbicide spraying device mounted on its back, was
stationary but its engine was running to drive the spray pump for the herbicide. A
landslip, which was caused by among other things the vibrations of the tractor
engine and the spray, carried the tractor away, causing it to fall down terraces and
crush a worker who was working on the vines below. The Grand Chamber held that
the concept of “use of vehicles” covers “any use of a vehicle as a means of transport”
(para 38). The fact that a vehicle was stationary or that its engine was not running at
the time of the accident did not preclude the use falling within the scope of its
function as a means of transport (para 39). But the concept of “use of vehicles” did
not cover a circumstance in which the tractor’s principal function, at the time of the
accident, was not to serve as a means of transport but to generate, as a machine for
carrying out work, the motive power necessary to drive the pump of a herbicide
sprayer (para 42 and the dispositif).
39. The judgments in Vnuk and Andrade were confirmed in a judgment of the
Sixth Chamber of the CJEU, which concerned article 3 of the Directive, in Torreiro
v AIG Europe Ltd (Case C-334/16) 20 December 2017, [2018] Lloyd’s Rep IR 418,
which affirmed that in EU law the location of the use of the vehicle under the
Directive is not confined to a road or other public place as had been understood in
prior English jurisprudence.
40. I am not persuaded that section 145(3)(a) can be read down to comply with
the jurisprudence of the CJEU. In R (RoadPeace Ltd) v Secretary of State for
Transport [2017] EWHC 2725 (Admin), [2018] 1 WLR 1293, Ouseley J (paras 73
and 99) recorded and accepted the view of the Secretary of State for Transport and
the Motor Insurers’ Bureau that section 145(3)(a) could not be read down and that
there required to be amending legislation. In Lewis v Tindale [2018] EWHC 2376
(QB) Soole J reached the same conclusion (paras 42-58) because reading down
would go against the grain and thrust of the legislation, because it raised policy
ramifications which were not within the institutional competence of the courts, and
because it would necessarily impose retrospective criminal liability under section
143. I agree.
41. It is important to note that EU law does not require a national court, hearing
a dispute between private persons, to disapply the provisions of national law and the
terms of an insurance policy, which follows national law, when it is unable to
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interpret national law in a manner that is compatible with a provision of a directive
which is capable of producing direct effect: see judgment of the Grand Chamber of
the CJEU in Smith v Meade (Case C-122/17) 7 August 2018 (paras 49, 55, 57 and
the dispositif). In that case, the requirement for third party motor insurance cover in
Irish road traffic legislation did not comply with the Directive. A motor insurance
policy, which was a contract between private persons, reflected the Irish legislation.
The CJEU held that the terms of the insurance policy were not to be disapplied,
notwithstanding the failure to provide the cover which the Directive required; the
person disadvantaged by this failure could instead seek compensation from the
member state (para 56). On this basis, it is the cover required by the RTA, and not
the extended cover which the CJEU jurisprudence now requires, which is to be read
into the Policy. The relevant “use” therefore is use “on a road or other public place”.
42. The matter does not stop with the interpretation of the words “use of the
vehicle”. It is also necessary to consider the causal phrase “caused by, or arising out
of” the use of the vehicle on a road or other public place. The addition of the words
“arising out of” after “caused” makes it clear that there can be a causal link between
use of a vehicle on a road and damage resulting from that use which occurs
elsewhere. In Romford Ice and Cold Storage Co Ltd v Lister [1956] 2 QB 180, a
case which concerned the interpretation of identical words in section 36(1) of the
Road Traffic Act 1930, the majority of the Court of Appeal (Birkett and Romer LJJ)
held that an accident which occurred in the yard of a slaughterhouse did not arise
out of use on the road. Romer LJ (pp 211-212) opined that to hold that the accident
arose out of use on a road would be stretching the language of the section beyond
permissible limits. He gave the following example to illustrate his understanding of
the meaning of the statutory words:
“An accident is caused by the use of a vehicle on a road if it
runs over a pedestrian at a zebra crossing; an accident arises
out of the use of a vehicle on a road if it skids off the road and
injures a pedestrian who is walking on the pavement.”
Birkett LJ expressed a similar view (pp 204-205) in rejecting the idea that the
accident arose out of the use of the lorry on the road because the lorry had to be
driven on the road to get to the yard. Denning LJ took a different view, holding that
because the lorry was engaged in operations incidental or ancillary to a journey on
the road, the accident arose out of the use of the vehicle on the road.
43. I agree with the majority in Romford in their interpretation of the relevant
statutory words. Their interpretation was followed in the unanimous judgment of the
Court of Appeal in Inman v Kenny [2001] EWCA Civ 35; [2001] PIQR P18. Were
an accident similar to that in Romford to occur once the RTA has been amended to
comply with the CJEU jurisprudence in Vnuk and Andrade, the result of that case
Page 16
would probably be different. But that does not affect the meaning of the words
“caused by, or arising out of” the use of the vehicle. There must be a reasonable
limit to the length of the relevant causal chain. In Malcolm v Dickson 1951 SC 542,
a case about remoteness of damage in a negligence claim, Lord Birnam stated (p
544):
“It is of course logically possible, as every schoolboy knows,
to trace the loss of a battle, or even of a kingdom, to … the
absence of a nail in a horse’s shoe. But strict logic does not
appear to me to be a safe guide in the decision of questions such
as this.”
I agree.
44. Mr Eklund QC, who appeared for UKI, submitted that Dunthorne v Bentley
[1999] Lloyd’s Rep 560 was wrongly decided. I would not so hold. The case did not
turn on a point of law but on the application of the law to a particular set of facts.
The Court of Appeal held in that case that the trial judge was entitled to conclude
that Mrs Bentley had crossed the road and so caused the accident while she was
seeking help from a colleague to continue her journey, shortly after she had run out
of petrol and had parked her car at the side of the road. The judge was entitled to
conclude that the accident had arisen out of her use of the car on the road. Mr
Dunthorne’s claim was close to the line, as Hutchison LJ recognized, but it is not
apparent to me that the outcome of that borderline case was wrong, having regard to
the close connection in time, place and circumstance between the use of the car on
the road and the accident.
45. In summary, section 145(3) of the RTA must be interpreted as mandating
third party motor insurance against liability in respect of death or bodily injury of a
person or damage to property which is caused by or arises out of the use of the
vehicle on a road or other public place. The relevant use occurs where a person uses
or has the use of a vehicle on a road or public place, including where he or she parks
an immobilised vehicle in such a place (as the English case law requires), and the
relevant damage has to have arisen out of that use.
ii) What term should be read into clause 1a
46. In Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] AC
1101, the House of Lords construed a formal commercial contract to cure a linguistic
mistake. The House, in the leading speech which Lord Hoffmann delivered, stated
that where the context and background of a contract drove the court to the conclusion
Page 17
that something must have gone wrong with the language that the parties had used,
the court did not have to attribute to the parties an intention which a reasonable
person would not have understood them to have had. He emphasised that it required
a strong case to persuade a court that something must have gone wrong with the
language (paras 14-15). For the court to adopt a corrective construction,
“it should be clear that something has gone wrong with the
language and it should be clear what a reasonable person would
have understood the parties to have meant.” (para 25)
47. In this case, there is an apparent contradiction between the terms of clause
1a, if those words are given their ordinary meaning, and the promise in the certificate
(para 9 above) that the Policy satisfies the requirements of UK law, including the
RTA. If, as I have concluded, the certificate is not effective to create the needed
cover, there can be no doubt that it is necessary to interpret the insuring clause in
the Policy so that it meets the requirements of section 145(3)(a) of the RTA by
correcting the mistake in clause 1a. This is one of those rare cases where the mistake
is clear as is the intended meaning, so that a party to the agreement does not need to
apply for rectification of the Policy.
48. The policy booklet is written in plain language for the benefit of the policy
holder and lacks the precision which one might expect from a detailed commercial
contract. For example, the statement in clause 1a that UKI will give cover for the
insured’s liability “if you have an accident in your vehicle” if read strictly would not
cover an accident caused by the insured opening his car door and stepping out of the
car. Yet clause 2, which appears to address the Brown judgment to which I referred
in para 34 above, provides such cover for passengers getting out of the car. It was
not disputed that clause 1a should be construed as covering the insured driver
stepping out of his vehicle. Nor is it disputed that the clause must be construed so
that it meets the requirements of the RTA. But the alteration of the clause which the
Court of Appeal favoured was much more radical.
49. In identifying the needed correction, I derive no assistance from the fact that
the Policy gives extensive first party cover and cover overseas or from the fact that
the maximum sum available under the Policy for third party cover far exceeds the
statutory minimum. The correction which is needed is to enable the cover to extend
beyond what is expressly provided for to that which the RTA requires. If, as is the
case, the express terms of the Policy in some respects exceed what the RTA requires,
those terms must be given effect. Construction of clause 1a to expand its cover to
meet the requirements of the RTA cannot cut back that which is expressly conferred.
But that which is to be added to correct the omission is that which is needed to make
the cover comply with the RTA and no more.
Page 18
50. In my view the Court of Appeal erred in not adopting this approach. Its
formulation did not confine the Policy’s cover to the express terms of clause 1a and
such additions as were needed to meet requirements of RTA. Instead, the
formulation – “we will cover you … if there is an accident involving your vehicle”
– expands the cover significantly beyond both the express terms of the clause and
the requirements of the RTA by removing the statutory causal link between the use
of the vehicle on a road or other public place and the accident. Indeed, the
interpretation which the Court of Appeal favours appears to go beyond that which
EU law currently requires.
51. Dealing briefly with other arguments which Phoenix has raised, I see no basis
for the operation against UKI of the contra proferentem rule in this context. The
necessity for corrective construction arises from the fact that the terms to meet the
legal requirements, which the Chief Executive’s certificate vouched, have not been
expressed in the insuring clause. There is no doubt as to what those terms are as the
statutory provision provides them. Nor do I derive any assistance by reference to the
Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) (“the 1999
Regulations”). The requirement in regulation 7 of the 1999 Regulations (now section
69 of the Consumer Rights Act 2015) that the interpretation most favourable to the
consumer is to prevail where there is doubt about the meaning of a written term of
a contract applies, for example, in the circumstances which I have discussed in para
48 above. But I am not persuaded that it can apply where the court, having
recognized a mistake in the language used, is applying a corrective construction by
reading into the clause words, which have not been expressed, to correct the mistake.
It is important to recall that a corrective interpretation is available only if it is clear
what a reasonable person would have understood the parties to have meant (para 46
above). Nor can the fact that UKI has amended the terms of the Policy to extend its
cover since the events which gave rise to the claim in this case assist the process of
construction of the terms of the Policy.
52. In my view the appropriate corrective construction of clause 1a to give effect
to the requirements of the RTA is to add the words “or if there is an accident caused
by or arising out of your use of your vehicle on a road or other public place”. The
clause would therefore read:
“We will cover you for your legal responsibility if you have an
accident in your vehicle or if there is an accident caused by or
arising out of your use of your vehicle on a road or other public
place and …”
Clause 2 of the Policy, which I quote in para 7 above, extends this cover to the other
people which it specifies, including a person insured by the policy who is driving
with the permission of the insured.
Page 19
iii) Does Mr Holden’s accident fall within clause 1a as so interpreted?
53. In my view, neither English domestic case law nor the jurisprudence of the
CJEU supports the view that the carrying out of significant repairs to a vehicle on
private property entails the “use” of the vehicle. The English case law which
interprets “use” in the RTA as “having the use of” makes good sense in the context
of vehicles which have been left on a road or in a public place, where members of
the public are likely to encounter them, but less sense if applied without qualification
to vehicles located on private property. In ordinary language one would not speak
of a person who is conducting substantial repairs to a stationary vehicle as “using”
that vehicle, but the presence of a vehicle on a road or other public place while the
owner was carrying out such repairs would, in my view, fall within the mischief
which section 145(3)(a) addresses. EU law now requires the extension of
compulsory third party insurance to vehicles on private property to cover use of the
vehicles as a means of transport, a concept which can include parked vehicles. I am
not persuaded that a vehicle which is on its side being repaired on private property,
such as a garage, is being used “as a means of transport” as the CJEU jurisprudence
requires. But it is not necessary to decide that point because, as the CJEU has held
in Smith v Meade (para 55 above) national legislation governs and the repair did not
take place on a road or other public place.
54. Turning to the statutory phrase, “arising out of the use of the vehicle on the
road”, Phoenix’s argument is that Mr Holden’s repairs met the causal requirement
either because the disrepair of the car was the result of its use or because the repair
was a precursor to his getting the car back on the road as a means of transport. The
repairs, Phoenix submitted, were ancillary and incidental to the use of the car and
thus the damage to its property and that of its neighbour arose out of the use of the
car. I do not accept this submission because the causal connection is too remote: viz
my discussion of the Romford case in paras 42 and 43 above.
55. It is likely that the prior use of the car as a means of transport was either a
“but for” cause or (for example, if, without washing the underside after use on a
road, the car was parked on a private driveway or in a garage for a prolonged period)
a contributory cause of the disrepair of the vehicle which necessitated the repairs. I
would accept that the repairs may properly be said to have arisen out of the use of
the car as they were a response to the disrepair of that vehicle. But it does not follow
that the property damage which is the subject of Phoenix’s claim was caused by or
arose out of the use of the vehicle as the RTA requires. In agreement with Judge
Waksman, I consider it to be an artificial analysis to say that the property damage,
which Phoenix and its neighbour suffered, was caused by or arose out of the use of
the vehicle. As he stated (para 66 of his judgment), “[t]he fire was caused by and
arose out of the allegedly negligent repair of the car by the use of grinders and
welders without taking any precautions with regard to flammable materials in the
car itself”. It was Mr Holden’s alleged negligence in carrying out the repairs and not
Page 20
the prior use of the car as a means of transport which caused the relevant damage.
In my view, Phoenix’s claim clearly falls on the wrong side of the line.
56. I have not overlooked the Commonwealth cases to which this court and the
courts below were referred. Some, like Elias v Insurance Corpn of British Columbia
(1992) 95 DLR (4th) 303 and Pilliteri v Priore (1997) 145 DLR (4th) 531, in which
repair was treated as a use of a vehicle, concerned differently worded legislation
which referred to “damage arising out of the ownership, use or operation … of a
vehicle”. The Australian cases, which Judge Waksman analysed in paras 52-57 of
his judgment, appear to turn on their particular facts and two of the cases draw a
distinction between repairs where the car is being prepared for use on the one hand
and, on the other, circumstances in which the car is driven or some part of its
mechanism is used in the course of repairs. Like the Master of the Rolls, I do not
find the Commonwealth cases helpful.
57. Because Mr Holden was not in his car when the accident occurred (as the
express terms of clause 1a require) and because, for the reasons which I have given,
the RTA does not require third party insurance cover in the circumstances of the
accident in this case (with the result that the corrective interpretation does not assist
Phoenix), UKI is entitled to the declaration which Judge Waksman gave in his order
of 8 April 2016.
Conclusion
58. I would allow the appeal.
