Poole & Ors v HM Treasury

State liability for failure to implement a directive does not arise merely because implementation would have benefited the claimant or because the directive confers a different right on someone else. The claimant must identify a right which the directive required domestic law to grant to that claimant, identify its content from the directive, and show causal loss from its absence. Regulatory obligations and objectives such as protection of insureds or depositors do not, without more, create a right to damages for defective supervision. An insurer’s asserted right to be regulated, or a right of establishment, cannot support a claim for underwriting losses where the claimant was already established and the complaint concerns internal market regulation.

Insurers or names on the Lloyd’s market appealed from Langley J’s dismissal of claims against HM Treasury. They alleged that the Government had failed to implement Directive 73/239/EEC, including requirements concerning insurance regulation, reserves and solvency, and that this failure caused their underwriting losses.

The proceedings raised a Grant of Rights issue and a limitation issue. The Court of Appeal decided the Grant of Rights issue against the appellants at the close of argument and therefore did not hear argument on limitation. The central question was whether the Directive required domestic law to confer on these insurers a right to protection from regulatory failure, or another right whose absence caused their loss.

The Court of Appeal unanimously dismissed the appeal. Lord Justice Buxton gave the judgment, with Lord Justice Jacob and Lord Justice Moore-Bick agreeing.

1. Francovich conditions. The court applied Francovich [1991] ECR I-5357. A claim for reparation based on failure to implement a directive requires the result prescribed by the directive to entail rights for individuals, the content of those rights to be identifiable from the directive, and a causal link between the breach and the loss.
2. Identity of the right. The first condition concerns the right whose absence caused the claimed loss. It is insufficient that the directive confers another right on the claimant, confers rights on a different class, or merely protects individual economic welfare. Three Rivers DC v Bank of England (No3) [2003] 2 AC 1 and Peter Paul Case C-222/02 supported that approach. Supervisory obligations and a protective purpose do not, without more, confer a right to damages for defective supervision.
3. Application to insurance regulation. The detailed regulatory provisions of Directive 73/239/EEC were directed to the protection of insureds and third parties. They did not confer on insurers a right to be regulated or protected from the incompetence of those administering their insurance business. The appellants could not rely on rights as insureds, third parties or reinsureds: insurers were not third parties to their insurance contracts, the Directive concerned direct insurance, and the claims arose from underwriting losses rather than losses under stop-loss or reinsurance contracts.
4. Establishment. Even assuming that the Directive conferred a right of establishment, the appellants alleged no breach of that right. They had been established and functioning participants in the market. A right to complain about failures of internal market regulation was not necessary to secure freedom of establishment.
5. Reference and disposal. The European jurisprudence gave a clear answer, so no reference to the ECJ was required or permissible. The appeal was dismissed on the Grant of Rights issue; the limitation issue was not reached.

1. Court of Appeal (Civil Division) — dismissed the appeal from Langley J’s decision, holding that the claims failed on the Grant of Rights issue: [2007] EWCA Civ 1021.
2. High Court of Justice, Queen’s Bench Division, Commercial Court — Langley J dismissed the claims on the Grant of Rights issue: [2006] EWHC 2731(Comm).