Poole & Ors v HM Treasury

The Court of Appeal dismissed the appellants' claim that the United Kingdom's failure to transpose Council Directive 73/239/EEC into domestic law (until implementation by Part XIX of the Financial Services and Markets Act 2000) gave rise to a Francovich-style right to recover damages from the State. The court held that the Francovich test requires that the directive at issue must, by its terms and purpose, entail the grant of identifiable rights to the claimant and that the content of those rights must be ascertainable from the directive so as to establish causation.

The court concluded that Directive 73/239 was directed to the protection of insured persons and third parties and to coordination of national supervisory regimes, not to conferring a right on underwriting insurers to be regulated. Relying on precedent including Three Rivers and the ECJ decision in Peter Paul, the court held that even supervisory duties and objectives of protection do not automatically create enforceable individual rights against the State under Francovich. The appeal was therefore dismissed.

Background and parties:

• The appellants were a substantial number of Lloyd's underwriting members who alleged heavy losses arising from historic unreported liabilities in syndicates, and complained that inadequate market regulation contributed to those losses.
• The defendant was Her Majesty's Treasury. The proceedings followed related litigation against Lloyd's and agents; the present claim sought damages from the State arising from an asserted failure to transpose Council Directive 73/239/EEC (the Insurance Directive).

Nature of the claim and procedural posture:

• The claim invoked the Francovich doctrine to seek state liability for loss caused by a failure to implement a directive. The pleadings alleged that had the Directive been transposed earlier the Lloyd's market would have been subject to adequate requirements on technical reserves, solvency margins and verification, preventing or reducing the appellants' losses.
• The case raised two preliminary issues: (1) the "Grant of Rights" issue under Francovich, and (2) limitation. The Court of Appeal addressed only the Grant of Rights issue, having concluded that the appellants failed on that point; the limitation point was not argued on appeal.

Issues framed by the court:

1. Whether Directive 73/239 entailed the grant of rights to the appellants (or a class including them) such that state liability under Francovich could arise.
2. If so, whether the content of any such rights could be identified from the Directive and whether a causal link existed between non-implementation and the appellants' losses.

Court's reasoning and disposition:

• The court emphasised the tripartite Francovich test: the directive must entail the grant of rights to individuals; the content of those rights must be identifiable from the directive; and there must be a causal link between the breach and the loss.
• The court rejected the appellants' broader formulations that any protective objective or any conferment of rights on others would suffice. It held that it is necessary to identify rights the grant of which is required to achieve the directive's objectives and which are material to the claimant's loss.
• Applying that test, the court concluded that Directive 73/239 was principally aimed at protecting insureds and coordinating supervisory regimes to facilitate freedom of establishment, and did not, on its proper construction, confer enforceable rights on underwriting insurers to be regulated or to be protected from regulatory failings. The court relied on authority including Three Rivers and the ECJ's decision in Peter Paul to support that construction.
• Because the first Francovich condition was not satisfied, the appeal failed and was dismissed.

Appeal dismissed. The Court of Appeal held that Directive 73/239/EEC did not, on its proper construction, entail the grant of identifiable rights to underwriting insurers such that state liability under the Francovich doctrine arose; supervisory objectives and the protection of insureds do not automatically create enforceable individual rights for insurers against the State.

Appeal from the High Court of Justice, Queen's Bench Division, Commercial Court (Langley J) [2006] EWHC 2731 (Comm) to the Court of Appeal (Civil Division), judgment [2007] EWCA Civ 1021. The High Court had determined preliminary issues including the Grant of Rights point in favour of the Treasury; the Court of Appeal dismissed the appellants' appeal on that issue.