Irwell Insurance Company Ltd v Watson & Ors

The Court of Appeal held that an employment tribunal is within the meaning of "the court" in section 2(6) of the Third Parties (Rights against Insurers) Act 2010, so that a third party who acquires rights under that Act may bring proceedings in an employment tribunal for declarations as to an insured's liability and the insurer's potential liability. The court adopted a purposive construction of the 2010 Act to give effect to its "single forum" policy and rejected formalistic arguments that the Employment Tribunal's lack of inherent declaratory or enforcement powers excluded it from being a "court" for the purposes of s.2(6).

The Court further held that an arbitration clause in the insurer's policy cannot be relied upon to deprive the employee of the exclusive statutory jurisdiction of the employment tribunal to determine unfair dismissal and discrimination claims. To that extent the arbitration clause is inoperative because it would have the effect of excluding or limiting access to the tribunal contrary to the Employment Rights Act 1996 s.203 and the Equality Act 2010 s.144. The appeal against the EAT decision allowing the claimant to proceed in the Employment Tribunal was dismissed.

Background and parties. The claimant, Neil Watson, brought unfair dismissal and disability discrimination claims in the Employment Tribunal against his former employer, Hemingway Design Limited, and its former managing director. Hemingway held an insurance policy with Irwell Insurance Company Limited covering employment tribunal awards but containing a condition requiring prompt advice from Peninsula Business Services and making failure to comply void. Hemingway entered liquidation in December 2017. Irwell had notified Hemingway that coverage would not apply because Peninsula had not been consulted.

Procedural posture. Mr Watson applied to join Irwell as a third respondent under the Third Parties (Rights against Insurers) Act 2010. The Employment Judge (EJ Ahmed) stayed the ET proceedings pending determination in the ordinary courts whether Irwell was liable under the 2010 Act. The claimant successfully appealed to the Employment Appeal Tribunal (Kerr J) which held that the ET had jurisdiction. Irwell obtained permission to appeal to the Court of Appeal.

Relief sought and issues for determination.

• (i) Whether an employment tribunal is within the meaning of "the court" in section 2(6) of the 2010 Act so that a third party may obtain declarations from an ET as to the insured's liability and the insurer's potential liability without first establishing the insured's liability in separate proceedings.
• (ii) Whether an arbitration clause in the insurance contract could be relied upon by the insurer to require resolution by arbitration rather than in the ET, and if so whether that would be effective given statutory protections preserving tribunal jurisdiction (Employment Rights Act 1996 s.203 and Equality Act 2010 s.144).

Court's reasoning. The court conducted a purposive construction of the 2010 Act, emphasising its policy of providing a single forum for recovery against an insurer where the insured is insolvent. It rejected arguments that technical differences in procedure or the ET's lack of certain enforcement or declaratory powers exclude it from being a "court" for s.2(6). The court considered authorities on the meaning of "court" and concluded that, read in context, Parliament must have intended the 2010 Act's single‑forum scheme to apply to claims falling within the exclusive jurisdiction of ETs.

On arbitration the court held that although the 2010 Act generally binds third parties to arbitration clauses in insurance contracts and allows the arbitration to determine both insurer liability and the insured's liability if necessary, that mechanism cannot displace the statutory exclusive jurisdiction of ETs in respect of unfair dismissal and discrimination. To require arbitration in those cases would either deprive claimants of access to the ET or force them into parallel proceedings, defeating the 2010 Act's purpose. The arbitration clause is therefore inoperative to the extent it would exclude or limit ET jurisdiction; the court treated relevant statutory protections in ERA 1996 and EqA 2010 as decisive.

Disposition. The Court of Appeal dismissed Irwell's appeal and ordered Irwell to pay the first respondent's costs of the appeal to the Court of Appeal.

The appeal was dismissed. The Court of Appeal agreed with the Employment Appeal Tribunal that an employment tribunal falls within the meaning of "the court" in section 2(6) of the Third Parties (Rights against Insurers) Act 2010, permitting a third party to seek declarations as to an insured's liability and the insurer's potential liability in the ET. The court further held that an arbitration clause in the insurance policy cannot be relied upon to oust the ET's exclusive jurisdiction over unfair dismissal and discrimination claims, because to allow it would defeat the 2010 Act's single‑forum purpose and would conflict with statutory protections in the Employment Rights Act 1996 and the Equality Act 2010; accordingly the arbitration clause is inoperative to that extent.

Employment Tribunal (EJ Ahmed) stayed proceedings as against Irwell pending determination in the ordinary courts (reserved judgment 4 September 2018) -> Employment Appeal Tribunal (Kerr J) allowed the claimant's appeal (16 December 2019, UKEAT/0007/19/JOJ) -> Permission to appeal to the Court of Appeal granted (order of Lewison LJ dated 11 June 2020) -> Court of Appeal dismissed the appeal ([2021] EWCA Civ 67, 22 January 2021).