Delaney v Secretary of State for Transport

The exceptions expressly specified in Article 1(4) of the Second Motor Insurance Directive are exhaustive. A Member State may not introduce additional exclusions from its national compensation body's obligation towards victims of uninsured or unidentified drivers.

A breach of EU law is sufficiently serious for state liability where a Member State has little or no relevant discretion, the governing obligation is clear, and the circumstances demonstrate a manifest and grave disregard of that obligation. Seriousness is assessed through a multifactorial evaluation. No single factor is invariably decisive, although one may determine the result where there is little countervailing weight.

The respondent was seriously injured while travelling in a negligently driven car carrying cannabis for drug-dealing. After the driver's insurer avoided the policy, the claim fell within the Uninsured Drivers’ Agreement. In Delaney v Pickett [2011] EWCA Civ 1532, the respondent was denied compensation under clause 6.1(e)(iii), because he knew or ought to have known that the vehicle was being used in the course or furtherance of crime.

He brought a separate damages claim against the Secretary of State, alleging that the exclusion was incompatible with EU motor insurance directives and that the breach was sufficiently serious to establish state liability. Jay J upheld both contentions in [2014] EWHC 1785 (QB).

The Secretary of State appealed on whether Article 1(4) of the Second Motor Insurance Directive permitted exclusions beyond those expressly stated and whether the breach met the seriousness threshold for damages.

1. Appeal dismissed. Article 1(4) of the Second Motor Insurance Directive permits only the exclusions and limitations expressly stated in that provision. Its natural language provides no basis for additional national exclusions. The recital referring to “certain limited exclusions” could not override the operative text or authorise an uncertain number of further exceptions.

2. Derogations from the protection afforded to road-traffic victims must be construed strictly. The exhaustive reading also served the directives’ aims of protecting victims and avoiding disparities between Member States. Although Article 1(4) allows the financial burden on national compensation bodies to be alleviated, the permitted means of doing so are defined by the article itself. That consideration could not be weighed against victim protection to create additional exclusions.

3. Csonka established that the national body is a last resort only for the specified circumstances of an unidentified vehicle or a vehicle for which the insurance obligation has not been satisfied. It did not authorise additional exclusions within those circumstances. The present case fell within Article 1(4) because avoidance of the policy caused the vehicle to be treated as uninsured.

4. Clause 6.1(e)(iii) of the Uninsured Drivers’ Agreement, excluding a passenger who knew or ought to have known that the vehicle was being used in the course or furtherance of crime, was therefore incompatible with Article 1(4). The United Kingdom was in breach of EU law.

5. The conditions for state liability were that the infringed rule conferred rights on individuals, the breach was sufficiently serious, and there was a direct causal link between the breach and the loss. Only seriousness remained disputed. That issue required the multifactorial assessment stated in Factortame (No 5), including the importance and clarity of the rule, the discretion available, excusability, relevant judgments, the infringer’s state of mind and conduct, affected persons, and the position of EU institutions.

6. The breach was sufficiently serious. The United Kingdom had little or no relevant discretion concerning permissible exclusions. The directive clearly defined the national body’s obligation, and Ruiz Bernaldez supplied material support before the offending clause was introduced. It would have been extremely unwise to add the exclusion without legal advice. The Commission’s failure to object carried little weight because its attention had not been directed to the provision.

7. The court left open whether an appellate court must make its own assessment of seriousness or conduct a more limited review. The distinction made no difference because Jay J had directed himself correctly, made no material error or omission, and reached the correct conclusion.

• Court of Appeal (Civil Division): In [2015] EWCA Civ 172, dismissed the Secretary of State’s appeal and upheld the findings that clause 6.1(e)(iii) was incompatible with EU law and that the breach was sufficiently serious to establish state liability.
• High Court, Queen’s Bench Division: Jay J, in [2014] EWHC 1785 (QB), determined preliminary issues in the claimant’s favour and granted permission to appeal.