Mr Atilla Komives v Hick Lane Bedding Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | Mrs Justice May DBE |
| Judgment Date | 24 November 2021 |
| Neutral Citation | [2021] EWHC 3139 (QB) |
| Court | Queen's Bench Division |
| Docket Number | Case No: QA-2020-000124 and QA-2020-000111 |
[2021] EWHC 3139 (QB)
Mrs Justice May DBE
Case No: QA-2020-000124 and QA-2020-000111
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Jeffrey Jupp and James Robottom (instructed by Anti-Trafficking and Labour Exploitation Unit) for the Claimants
Geoffrey Brown (instructed by Kennedys) for the Second Defendant
Hearing dates: 15 October 2021
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an appeal from the decision of Master Davison following a trial of preliminary issues in March 2020. The issues were directed at determining whether the claimants, here the appellants, were entitled to recover pursuant to rights conferred under the Third Party (Rights against Insurers) Act 1930 (“the 1930 Act”) on an Employers' Liability insurance policy issued by the second defendant, here the respondent (“ATE”), in favour of the first defendant (“HLB”) for the year 2011–2012. The Master determined that as ATE had been entitled to avoid the policy, and had reasonably done so, the claimants' claim was bound to fail. I set out the particular preliminary issues, and the specific answers which he gave, in more detail below.
I have been greatly assisted on this appeal by the excellent written and oral submissions of counsel – Jeffrey Jupp and James Robottom for the appellants and Geoffrey Brown for the respondent. I am grateful to them all.
Facts
I take the following summary from the Master's clear and helpful judgment.
The appellants were trafficked into the UK by two men named Janos Orsos and Ferenc Illes. Orsos and Iles sent the appellants and others to work, in conditions amounting to modern slavery, at HLB, a company owned by Mohammed Rafiq. HLB had been a reputable business, with a substantial workforce of regular employees but Rafiq decided to supplement his staff with cheap trafficked labour, supplied to him by Orsos and Illes. Rafiq, Orsos and Illes were subsequently arrested, tried and convicted for their parts in the trafficking and forced labour of the appellants and others.
The first appellant, Mr Komives, worked at HLB from summer 2009 to October 2013. The second appellant, Mr Varhelyi, worked there from January 2009 to June 2013. Both were brutalised by their slave masters and suffered psychiatric injury but in addition Mr Varhelyi was badly injured by an accident at work which occurred on or around 23 May 2012. The forks on a forklift truck which he was driving failed, causing a large and heavy industrial bin to fall onto his left leg. This injury which he sustained ultimately resulted in Mr Varhelyi having to undergo a below-knee amputation.
HLB went into administration on 9 June 2015 and is insolvent. However, during the period 12 July 2011 to 11 July 2012, HLB had employers' liability insurance with ATE (“the EL policy”). Accordingly the appellants sought to make a claim on the EL policy, exercising their rights under the 1930 Act, for the injuries they suffered at work during the period of cover. But by letter dated 22 March 2018 ATE purported to avoid the EL policy ab initio on the ground of material non-disclosure and/or misrepresentation on the part of HLB or its brokers at the time of placing the cover. Having avoided the policy ATE rejected the third party claims of the appellants brought under the 1930 Act.
Preliminary issues
Letters of claim on behalf of the claimants were sent to ATE on 30 August 2017 and 18 January 2018. Claim forms were issued on 31 October 2017 (Mr Varhelyi) and 11 December 2017 (Mr Komives). As indicated above, the letter from ATE avoiding the policy was dated 22 March 2018. ATE thereafter filed a defence denying any liability to the appellants.
By a case management order dated 10 December 2018 the Master ordered a trial of four preliminary issues as follows:
(1) Whether ATE was, and/or is entitled to avoid the policy of insurance issued by it in favour of HLB on the grounds of material non-disclosure and/or misrepresentation as pleaded in the defence of ATE;
(2) If so, whether the policy had been validly avoided by reason of the above;
(3) Whether Mr Komives and/or Mr Varhelyi have a valid claim against ATE under the 1930 Act;
(4) If so, whether there is a right of indemnity under the policy in connection with the claimants' claims for breach of contract quantum meruit, conspiracy by unlawful means, intimidation and/or harassment, and/or in respect of any such claim not arising from bodily injury occurring during the period of insurance and or in respect of the claimants' claims for aggravated damages.
At trial the Master heard factual evidence from James Carroll, an underwriter at ATE, although it had not been Mr Carroll who wrote the EL policy itself. There were no witnesses with direct experience of how and on what information the EL policy came to be placed, although there was documentary evidence produced of contemporaneous reports and surveys. The Master heard expert evidence on underwriting and broking matters from Miles Emblin instructed by ATE and Roger Flaxman for the claimants.
By his judgment, the Master answered the preliminary issues as follows (1) Yes, (2) Yes, (3) No and (4) N/A. Accordingly he dismissed Mr Komives' and Mr Varhelyi's claims against ATE.
By his order dated 14 June 2021 Stewart J granted permission to appeal the Master's decision.
Grounds of Appeal
There is no challenge to the Master's findings of fact nor to his finding that (at least so far as HLB was concerned) ATE was entitled to avoid the EL policy on grounds of non-disclosure and/or misrepresentation. Instead Mr Jupp, for the appellants, argues that the Master erred in his approach to the interpretation and application of rule 8.1.1(3) of the Insurance Conduct of Business Sourcebook (“ICOBS”) (set out at [24] below) as follows:
(1) The question of whether ATE acted unreasonably in avoiding the policy should be assessed objectively and not, as the Master did, viewed solely from the insurer's perspective.
(2) The Master wrongly conflated the reasonableness test with the established grounds for avoidance under insurance contract law.
(3) The Master erred in failing to regard the fact that insurers had made scant enquiries prior to placing the cover as relevant to the reasonableness of avoidance.
(4) The Master further erred by failing to take into account; (a) the statutory scheme for the protection of employees introduced by the Employer Liability (Compulsory Insurance) Act 1969 (b) the nature and circumstances of the appellants' injuries which fall under the protection intended by the statutory scheme (c) the fact that the appellants did not know and had no reason to know of the material non-disclosure/misrepresentation made by HLB (d) the effect of HLB's conduct on the appellants and (e) the circumstances of the appellants as trafficking victims.
The legal background
Avoidance for non-disclosure and/or misrepresentation
As is well-known, a contract of insurance is a contract of the utmost good faith, engaging strict obligations on the insured to make full disclosure of all matters material to the risk which is to be covered. If, after the contract of insurance has been placed, insurers discover matters which should have been disclosed but were not, or if it becomes clear that material aspects of the risk were misrepresented, then insurers may have a right to avoid the policy. If the contract is avoided then it is as if it never existed.
The two-stage test which insurers must satisfy in order to avoid a policy is set out by the House of Lords in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] AC 501:
(1) That the particular facts misrepresented or not disclosed would have influenced the mind of a reasonably prudent underwriter in exercising his underwriting judgement as to whether to write the risk (per Lord Mustill at 550C and Lord Goff at 517E), and
(2) That the underwriter who agreed the risk was induced to do so by the facts misrepresented or not disclosed (per Lord Mustill at 550D and Lord Goff at 517E)
As Mr Brown pointed out in argument, the law relating to non-disclosure and avoidance has been given considerable legislative attention in recent years, particularly in relation to consumers. The Consumer Insurance (Disclosure and Representation) Act 2012 (“the 2012 Act”) and the Insurance Act 2015 (“the 2015 Act”) have introduced important limitations on an insurer's right to avoid, for instance in relation to non-negligent misrepresentations made by consumers or facts that a consumer policyholder could not reasonably have been expected to disclose.
It is to be noted that the policyholder in this case, HLB, was not a consumer but a commercial entity, also that the EL policy upon which the appellants' claim is based pre-dated the coming into force of the legislative amendments referred to above.
Employer's Liability Insurance
The Employers' Liability (Compulsory Insurance) Act 1969 (“the 1969 Act”) made it compulsory for employers to take out insurance covering incidents of liability to their employees, for instance through accidents at work. Under regulations made pursuant to section 1(2) of the 1969 Act insurers are obliged to issue, and employers to display in the workplace, a certificate of Employers' Liability Insurance.
The limitations of the scheme in circumstances where the contract is avoided by reason of the employer's non-disclosure/misrepresentation were highlighted as long ago as 1985 in the case...
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