Landmark European Court of Justice ruling:
- on the direct
effect of the Motor Insurance Directives and
- the legal status of the Irish
Motor Insurer’s Bureau
Click here to read the judgment in Elaine Farrell v Alan Whitty,Minister for the Environment, Ireland, Attorney General and the Motor InsurersBureau of Ireland (Case C‑413/15) which was delivered today.
The Court of Justice's ruling confirms that national courts should not apply the criteria for direct effect set out in paragraphs 18 and 20 of Foster (C-188/89) as though they are rigid statutory formula. Furthermore it appears to have deliberately refrained from devising an free standing definition of what constitutes an emanation of the state for these purposes. It validates my previously expressed views that the Foster criteria should be applied in the light of the underlying rationale that justifies direct effect as an exception to the basic rule (that directives do not have horizontal effect and so cannot be invoked in claims between private individuals). This exception is intended to prevent member states from taking advantage of their own failure to implement EU law.
This ruling supports much of what I have argued previously concerning the Motor Insurers' Bureau's liability for gaps in the compensatory protection of accident victims within the Road Traffic Act 1988 and the EC Rights Against Insurers Regulations 2002 for several years (albeit with some differences).
The judgment certainly increases the prospects that any properly informed court, applying its ratio, will find the MIB is subject to the direct effect of Article 10 of the Consolidated Directive 2009/103/EC on motor insurance. Article 10 requires every member state to set up or authorise a body to compensate victims of uninsured or unidentified vehicles at least to the standard of the Article 3 motor insurance requirement. The broad and holistic scope of this obligation is much wider than provided for under our national law provision in the UK.
Indeed I have argued elsewhere that any body charged with discharging the public service role of the Article 10 compensating body (for victims of uninsured and unidentified vehicles) is prima facie subject to the direct applicability of Article 10.
The Court of Justice ruled that any organisation or body charged by a state with discharging its obligations under Article 10 is performing a public service and that if it also enjoys special powers for this purpose beyond those enjoyed by ordinary individuals then it to be treated as though it were part of the state and thus subject to the direct vertical effect of Article 10 of the Consolidated Directive 2009/103/EC on motor insurance. It is not necessary to establish that the body is under the control of the state; but where this exists the entity is to be treated as an emanation of state. This contrasts with Flaux J's finding in Byrne v MIB  EWHC 1268 (QB) that the MIB was not an emanation of the state because it was not under the control of the state.
At paragraph 34 the Court of Justice reformulates the criteria indicative of any organisation so closely associated with the state as to warrant liability for the state's failure to implement a directive. Applied to the MIB, all that needs to be established is either (i) it is under the control or authority of the state, presumably not generally but in respect of its public service role it is discharging as the authorised compensating body, or (ii) that in addition to being responsible for a public service it has been given special powers for that purpose.
In Byrne Flaux J found that the although the MIB did discharge a public service, it did not possess any special powers (in addition to not being under the control of the state). I have argued elsewhere that he erred in his findings on the last two points. This (second) preliminary ruling from the Court of Justice in Farrell tells us that it is not necessary to establish all three criteria listed in paragraph 20 of Foster (public service, control by the state and special powers). Clearly, where all three elements are established then it will automatically qualify.However there is ample evidence that not only does the Minister for Transport have ultimate control and influence
The MIB is likely to continue to argue that it possess no special powers, as it succeeded in doing so in Byrne. However, I do not believe that the court was fully acquainted with all the relevant facts and that were a different court properly informed of the MIB's actual powers then this would be readily established.
See my earlier blog: Putting Wrongs To Rights Part 2
It is noteworthy that in Farrell the Court of Justice took the view that the statutory requirement that every Irish motor insurer must be a member of the Irish MIB and also to fund it's compensatory role, effectively conferred it with a special power: to enforce these contributions. The Irish and UK mandatory membership and funding requirements for the compensating body, whilst not identical, are remarkably similar in all important respects. Given that any court will be required to apply this ruling purposely and in keeping with the underlying principle (of preventing the state from exploiting its own failure to fully implement the Directive) then I think it likely that such differences as there are will be deemed to be superficial and so fail to avail the MIB of this defence in future.
The potential implications for the motor insurance industry and individual victims affected by the UK's default are huge. This is due to the extensive number and range of infringements that speckle the UK's transposition of this Directive.
Motor accident victims injured by off-road vehicles that do not conform with the statutory definition in section 185 of the 1988 Act or by motor vehicles on private property or from incidents caused by mechanical or software defects that the user is not responsible for, (which are not subject to compulsory insurance under a conventional construction of s145 of the 1988 Act) should all benefit from this ruling. The MIB will be obliged to step in and compensate instead. There is one important caveat to this though: the EU law doctrine of direct effect along with other EU law remedies look set to lapse on Brexit.