SERVICE ON INSURER ALLOWED WHEN DRIVER COULD NOT BE IDENTIFIED: FACT THAT INSURER HAD AN ORDER DECLARING THE POLICY VOID NOT RELEVANT TO THIS ISSUE

In Farah v Abdullahi & Ors [2018] EWHC 738 (QB) Master Davison rejected an application by an insurer to set aside an order that allowed service of an unnamed driver upon the insurer.  It was irrelevant that the insurer had obtained a declaration that the policy was void.  The insurer also asserted that there had been material non-disclosure when the without notice application was made by the claimant. The Master agreed that there had been non-disclosure, however it was innocent and inadvertent and did not lead to the original order for service being set aside.  The Master also rejected an argument that permission of the court was needed to issue against an unnamed party.

It is also worth noting the procedural issue that arose. The order allowing service should have stated the deemed date of service and the period for filing of acknowledgement. The order did not do so in this case, the Master held that this could be resolved by making a supplementary order.

“It seems to me that it would be both efficacious and consistent with the overriding objective to allow the claim to go forward in that way. The entitlement of a claimant to proceed against an unnamed driver should not depend on the section 151 liability of the insurer being incontrovertibly established”

THE FACTS

The claimant was injured whilst a pedestrian. The driver of one of the cars involved in the incident was never identified. Proceedings were issued with the unidentified driver as the the third defendant but identified as ” the person who had collided with the claimant on 6 September 2014.”  Service on the third defendant was effected on the fourth defendant, the insurer of the car that the third defendant was driving.  An order had been obtained under CPR 6.15 that the claimant be able to serve on the fourth defendant insurer.

THE INSURER’S APPLICATION

The insurer made an application to set aside the order granting permission to serve the third defendant at its offices.  The grounds were that:

1. The insurer had avoided the policy for non-disclosure.
2. The insurer was not, therefore, a section 151 insurer.
3. The ratio in Cameron v Hussain [2017] EWCA Civ 366, did not, therefore, apply.

(The post that considers the decision in Cameron -v- Hussain is available here)

THE MASTER’S DECISION

The Master rejected the insurer’s application.   He held that the principles in Cameron v Hussain [2017] EWCA Civ 366 did apply and there was no reason to disturb the order made.

THE JUDGMENT

1. 1. Section 151 of the Road Traffic Act 1988 provides that insurers must meet judgments in respect of insured third party liabilities even if the insurer is not liable to its insured as a matter of contract. A typical situation would be where the person driving was a partner or friend who was not actually a named driver on the policy. The insurer would have to meet a claim under section 151 in respect of liabilities incurred by such a driver. Indeed, section 151 would even extend to driving by a thief. But there are various “get-outs” for insurers. The relevant one for present purposes is contained in section 152(2). By that sub-section, (paraphrasing it), if a policy has been obtained by misrepresentation or failure to disclose material facts, then, if the insurer obtains a declaration that it is entitled to avoid the policy on these grounds, “no sum is payable … under section 151”. There are time limits to be observed if an insurer wishes to take advantage of section 152(2). The insurer must commence the action for a declaration “before or within three months after the commencement of” the proceedings leading to the judgment in favour of the victim of the road accident.

   2. There is an issue as to whether section 152(2) is compatible with the Sixth Motor Insurance Directive 2009/103/EC. The Directive (which is a consolidating measure) imposes on Member States an obligation to ensure that civil liability in respect of the use of vehicles based in each Member State’s territory is covered by insurance. Only where a vehicle is unidentified or uninsured is the victim of a road accident to be thrown back on to a body of last resort; (in the UK this body is the Motor Insurers’ Bureau). Thus, in Fidelidade-Companhia de Seguros SA v Caisse Suisse de Compensation & Ors Case C-287/16 [2017] RTR 26, the European Court of Justice held that national laws that permitted motor insurers to deny a third party claim on the ground that the policyholder’s misrepresentation rendered it void were contrary to EU law. Fidelidade led to a concession by the government in Roadpeace v Secretary of State for Transport & Anor [2017] EWHC 2725 (Admin) that section 152(2) was no longer compatible with EU law.

   3. The difference between the case before me and Cameron, is that in Cameron there was no issue that the insurer would have to meet the claim under section 151, whereas, in this case, the claimant would first have to make good the claim put forward in paragraph 18 of the Particulars of Claim. That paragraph states that section 152(2) is incompatible with the Directive and that, notwithstanding the declaration that the fourth defendant has obtained, it is still liable to indemnify the third defendant. To put it another way, in Cameron the claimant had an undisputed right to be indemnified whereas in this case the claimant has nothing more than an arguable claim to an indemnity. The submission of Mr O’Sullivan QC for the fourth defendant (supported by Mr Horlock QC for the fifth defendant) was that this made all the difference. They submitted that the existence of an extant, non-avoided insurance policy was “critical” to the exercise of the discretion to permit the claimant to join an unnamed defendant. I was taken to various passages in the judgments, including the following:

“40. In my judgment, in a case such as the present, the court can and should, in accordance with principle, exercise its procedural powers to permit an amendment of the claim form (and the consequent amendment to the particulars of claim) to allow a claimant to substitute an unnamed defendant driver, identified by reference to the specific vehicle which he or she was driving at a specific time and place, and consequently to enable a judgment to be obtained against such a defendant, which an identified insurer is required to satisfy pursuant to the provisions of section 151 of the 1988 Act.” (Gloster LJ) (emphasis added)

86. “It is important to bear in mind that the procedural innovation sought would be limited to cases where the vehicle driven by the tortfeasor was insured and where the insured and the registered owner are identifiable. Moreover, as explained earlier, to proceed against an unnamed party could only be permitted where to do so would be efficacious and consistent with the overriding objective. These considerations suffice to dispel most of the spectres conjured up by Mr. Worthington.” (Lloyd Jones LJ) (emphasis added)

1. 1. The Supreme Court has given the insurer (Liverpool Victoria) in Cameron permission to appeal. The grounds include (i) that the concession that section 151 applied to a person who was unnamed was wrongly made, (ii) that the judgment has rendered the provisions of sections 11 and 14 of the Limitation Act 1980 meaningless and (iii) has also rendered the MIB Untraced Drivers Agreement practically redundant. Mr O’Sullivan QC and Mr Horlock QC urged upon me that in circumstances where Cameron was to be reconsidered, I ought to confine its consequences to cases where the existence of insurance cover was unequivocally established or accepted. Expressed in the language of the judgments, it would be neither “efficacious” nor “consistent with the overriding objective” to allow a claim to go ahead against an unnamed defendant whose insurance cover was, at best, doubtful.

   2. I reject these submissions.

   3. The ratio decidendi of Cameron does not rest on the existence of a section 151 liability. The nub of the argument in Cameron was that the acknowledged power of the court to allow claims for injunctive relief to be made against unknown persons should not be extended to claims for damages because in such a case “no effective relief can be obtained”; see the argument of Mr Worthington QC set out in the judgment of Lloyd Jones LJ at paragraph 74. This argument was rejected as inapplicable to a case where “a judgment for damages obtained against an unknown person may confer a real benefit on the claimant”; see paragraph 76. I consider that that is the underlying basis of the judgments of both Gloster and Lloyd Jones LJJ. The question I have to address is whether the claim against the third defendant in these proceedings is capable of conferring a real benefit on the claimant. The answer to that question is, Yes. There are two reasons:

(1) It was indicated to me that the claimant (and possibly the second defendant, whose interests on this matter are aligned with the claimant’s) may seek to challenge the declaration made in the Cardiff County Court that the policy of insurance covering the use of the Mercedes motor vehicle driven by the third defendant is void ab initio. The precise mechanism for that challenge and the content of the legal arguments that will be deployed are matters for another day. Suffice it to say that, in the light of authorities such as Fidelidade, the claimant would appear to have the prospect of deriving a real benefit from proceedings against the unnamed third defendant pursuant to the provisions of Part VI of the Road Traffic Act 1988. To express that proposition as a negative, I cannot, at this stage, say that such a claim has no real prospect of success.

(2) If the fourth defendant’s avoidance of the policy is upheld, it will still have to indemnify the claimant. This is because the fifth defendant, the MIB, will be liable to satisfy any judgment in the claimant’s favour under clause 5 of the Uninsured Drivers Agreement and pursuant to Article 75 of the MIB’s Articles of Association, that liability falls to be met by the fourth defendant as the “Article 75 insurer”. It seems incontrovertible that by this route also proceedings against the unnamed third defendant are capable of conferring a real benefit on the claimant.

1. 1. I therefore find that the principles set out in Cameron are engaged and that the claimant is prima facie entitled to proceed against the third defendant as an unnamed party. It seems to me that it would be both efficacious and consistent with the overriding objective to allow the claim to go forward in that way. The entitlement of a claimant to proceed against an unnamed driver should not depend on the section 151 liability of the insurer being incontrovertibly established. That would be to draw a somewhat arbitrary distinction between cases where the claimant’s rights rested on section 151 and cases where his rights rested on the Uninsured Drivers’ Agreement / Article 75 (or some combination of the two). It would be arbitrary because both routes offer a remedy of value and both form part of an overall scheme intended to meet the UK’s obligations under the Motor Insurance Directives. Furthermore, given the time limit in section 152(2) and given also the fact that the victim of a road accident cannot know if there are matters that might lead to the avoidance of the insurance covering the vehicle which injured him, at the point of issue and/or service of the Claim Form neither he nor the court can be confident that section 151 will ultimately be engaged. For this practical reason too, it seems to me that the right to proceed against an unnamed defendant should not be confined in the way that Mr O’Sullivan QC and Mr Horlock QC contended.

The fourth and fifth defendant’s procedural objections

1. 1. I can deal with these more shortly. I propose to do so in the order in which they arise within the proceedings.

Permission to issue?

1. 1. Mr O’Sullivan QC and Mr Horlock QC submitted that a claimant who wished to issue against an unnamed defendant had first to seek the permission of the court to do so. No rule explicitly so states. The Practice Direction to Part 7 of the rules provides that the title of the action “should state” the full name of each party (7A PD 4.1(3)) and that to Part 16 provides that the full name should be given “where known” (16 PD 2.6(a)). Both Practice Directions imply that in an appropriate case proceedings may be issued against an unnamed party. On the other hand, there are at least two rules which expressly permit claims against unnamed parties. These are rule 19.7, dealing with representative actions, and rule 55.3(4) dealing with claims against trespassers. These rules, at the very least, reinforce the premise of the Practice Directions to CPR r 7 and r 16, which is that parties should be named.

   2. Whatever steer is taken from the rules, it is a fact that no rule imposes a requirement of obtaining permission before issuing against an unnamed party in circumstances such as the present. Common law jurisdictions have a long tradition dating back to the Middle Ages of permitting claims against a person or persons who cannot be named, where appropriate; see the discussion of Sir Andrew Morritt VC in Bloomsbury Publishing plc v News Group Ltd [2003] EWHC 1205 (Ch) at paragraphs 5 – 14. Despite that long tradition and an interval of 15 years since the Bloomsbury Publishing case, the CPR have not been amended to introduce a requirement of permission and nor has any court – including the Court of Appeal in Cameron itself – indicated that permission is necessary. I agree with the submission of Mr Weir QC for the claimant that this is because it is not the issue of proceedings that confers the jurisdiction of the court over the defendant. It is the service of those proceedings. This, to use Mr Weir QC’s phrase, is the “pinch point”. Upon service, CPR r 11 contains a comprehensive code for disputing the court’s jurisdiction and the orders then available to the court include both setting aside service of the Claim Form and setting aside the Claim Form itself; see CPR r 11(6) (a) & (b).

   3. For these reasons, I find that permission to issue a Claim Form against the unnamed third defendant was not required. (But if it was, it is implicit in Master Eastman’s order of 5 December 2017 that such permission was given – albeit retrospectively.)

Issues relating to service

1. 1. Master Eastman’s order of 5 December 2017 followed the wording suggested by the claimant, which was “that the fourth defendant accepts service of proceedings on behalf of the third defendant through their nominated solicitors, Horwich Farrelly”. Taken in conjunction with the explicit reference to CPR r 6.15 in the preamble, the sense of the order was to permit service on the third defendant to take place by serving the proceedings on the fourth defendant. CPR r 6.15(4) stipulates that the order must specify the date of deemed service and the period for filing acknowledgement of service and an admission or defence. This part of the rule was not complied with; but that is a matter than can easily be rectified by a further order. The real objection of the fourth defendant is that service under CPR r 6.15 should not be allowed in a case such as the present because the basic aim of alternative service is to bring the proceedings to the attention of the defendant in question. In the case of an unnamed defendant that aim could not be achieved. Mr O’Sullivan QC went as far as to say that for this reason, Cameron (which contained no analysis of the problem of service) was decided per incuriam and/or was wrongly decided.

   2. It is unsurprising that Cameron contains no or no lengthy discussion of this point because counsel for the insurer, Mr Worthington QC (a highly experienced and respected insurance silk) had not sought to argue that an order for alternative service on the insurers could not be made; see the judgment of Gloster LJ at paragraphs 44 and 62. That concession was clearly correct and grounded in cases of longstanding such as Murfin v Ashbridge [1941] 1 All ER 231 (CA) and Gurtner v Circuit [1968] 2 QB 587. In Cameron and in this case too, the insurer has a direct and relevant interest in the claim against the unnamed driver and is subrogated to the defence of that claim. In combination with the inability to serve someone whose name is unknown, that is a “good reason” within the meaning of CPR r 6.15 to authorise service on the insurer. It is true that the principal aim of service is to bring the proceedings to the attention of the defendant. But not every aim of procedural rules is attainable and hence, if justice is to be done, there has to be flexibility in the application of them. Here, the choice was between service on the insurer who was the party who actually stood to foot the bill, or to dispense with service altogether, which CPR r 6.16 provides for in “exceptional circumstances”. Plainly, justice in this situation is better served by service on the insurer. And given the insurer’s strong financial interest in defending the proceedings and of seeking contribution or indemnity from the unnamed driver, service on the insurer may also eventually bring the proceedings to the attention of the driver.

   3. For these reasons, I agree in this respect with the order made by Master Eastman and would not set it aside.

Should Master Eastman’s order be set aside on the ground of non-disclosure?

1. 1. This topic sub-divided into two points, which were that (i) the application to Master Eastman should not have been made without notice, but, that having been done, (ii) it was incumbent on the claimant to place all relevant facts before the Master, including facts that were adverse to the relief sought.

   2. Again, there does not appear to me to be much substance in these points. The application of the claimant was placed before Master Eastman by Irwin Mitchell’s outdoor clerk very shortly after it had been issued. Although Box 9 (“Who should be served with this application?”) was left blank, paragraph 17 of the witness statement of Mr Dhaliwal quite clearly invited the Master to consider whether he was prepared to make the order without a hearing or whether he required that a hearing be listed. Although there was not an explicit reference to CPR r 23.8, Mr Dhaliwal had in mind (and Master Eastman would have appreciated) that the question whether a hearing was necessary and appropriate was being left in the hands of the Master. Master Eastman considered that the matter could be dealt with on the papers. He catered for the fact that the fourth defendant had not had notice by annotating on the order that CPR rr 23.9 & 23.10 applied. There were other ways of dealing with it. He could have directed that the application notice be served and the fourth defendant respond in writing. Or he could have directed a hearing be listed. He chose to deal with it under rules 23.8 – 23.10. As an exercise of judicial discretion he was plainly entitled to do that.

   3. As to non-disclosure, by letter faxed on 28 November 2017 Mr Dhaliwal had given notice to the fourth defendant’s solicitors that he proposed to apply for an order for “substituted service” on them; (he was using the old terminology for what is now called service by an alternative method). He received an immediate and full response by letter of the same date and he was careful to exhibit this letter to his witness statement. The letter was directed to the issues relating to service which I have described and dealt with in the immediately preceding part of this judgment. It did not mention the fact that the fourth defendant had obtained a declaration avoiding the policy – even though that had been mentioned in earlier correspondence and has now become the centrepiece of the fourth defendant’s opposition to the order. In those circumstances, should Mr Dhaliwal nonetheless have drawn the point to the attention of the Master? (I mention that the information that the policy had been avoided was contained in the Particulars of Claim. But it is not clear whether the Particulars of Claim were or were not placed before Master Eastman and I have therefore proceeded on the basis that they were not.) The duty on a party who seeks relief without notice is to make full disclosure of all material matters; see e.g. Gee on Commercial Injunctions, 6^th Ed at 9(1). In my view, Mr Dhaliwal should have disclosed this matter because it was plainly material. The duty to do so was not removed or diluted by the fact that he was inviting the Master to decide for himself whether to make an order ex parte or whether to direct that there be an inter partes hearing. The Master could not decide that threshold question in ignorance of a material fact. However, it does not follow that the order of Master Eastman should simply be set aside and that the claimant should be left to make a fresh application from scratch. I have considered the principles applicable to cases of material non-disclosure set out by the Court of Appeal in Brink’s Mat v Elcombe [1988] 1 WLR 1350 and in Gee at 9(4). The dominant considerations in this case appear to me to be as follows. First, the non-disclosure was innocent and arose primarily because Horwich Farrelly, in their letter of 28 November 2017, had chosen not to mention (or, on the face of it, rely upon) the avoidance of the policy. That did not absolve Mr Dhaliwal from his duty of disclosure. But it makes the non-disclosure very understandable. Second, the claimant has obtained no particular advantage from the non-disclosure. Had the matter been brought to Master Eastman’s attention, he would probably still have made the order that he did. But if he had not made that order, he would simply have directed an inter partes hearing and extended the time for service of the proceedings until the application could be determined. The only difference between that and the order that he in fact made is that at the subsequent hearing of the application it would have been for the claimant to make the running, i.e. to open the application to the Master. At Mr O’Sullivan QC’s suggestion, that was, in the event, precisely what I directed should take place. Notwithstanding that it was Mr O’Sullivan QC’s application to set aside Master Eastman’s order, it was Mr Weir QC who (after a few preliminaries) made his submissions first. Third, where the issue is service and where the point of principle lying behind that issue has been fully argued and resolved in favour of the claimant, it makes no sense to require the claimant to make a fresh application. That would be a waste of costs and would not serve the interests of justice.

Conclusion

1. For these reasons, the application to set aside Master Eastman’s order of 5 December 2017 fails and is dismissed. I will leave it to counsel to agree and submit an order reflecting the above.