Faccini Dori v Recreb

The reasons to the contrary given by my noble and learned friend Lord Scott of Foscote command respect and I acknowledge their force. But I do not see them as so forceful as to override the desirability that, where it is possible without distortion, legal instruments entered into by the Government of the United Kingdom should be construed compatibly with relevant European Community law.

It is an established rule that, even where a Community Directive does not have direct effect, it is for a United Kingdom court to construe domestic legislation in any field covered by the Directive so as to accord with the interpretation of the Directive as laid down by the European Court of Justice, if that can be done without distorting the meaning of the domestic legislation: Webb v Emo Air Cargo (UK) Ltd [1993] 1 WLR 49 , 59, per Lord Keith of Kinkel, citing Duke v GEC Reliance Systems Ltd [1988] AC 618 , 639-640, per Lord Templeman. Similarly the Court of Justice has held that when applying provisions of national law the national court must interpret them as far as possible in the light of the wording and purpose of any relevant Directive, even if it does not have direct effect: Faccini Dori v Recreb Srl (Case C-91/92) [1994] ECR I-3325 , 3357, para 26. A helpful discussion and further authorities may be found in Bennion on Statutory Interpretation, 3rd ed (1997), pp 1004-1010.

In relation to enactments the established rule is linked with section 2 (4) of the European Communities Act 1972 . It may be, however, that the rule is properly to be given wider scope extending to contracts entered into by the United Kingdom Government which are manifestly intended to give effect to a European Directive. Whether or not that is so, I think that a relevant Directive must be at least an aid to the interpretation of such a contract. This can conveniently be called the principle of European compatibility.

In a general sense the MIB agreement of 21 December 1988 was clearly intended by the Minister, to the knowledge of the Bureau, to give effect to the Second Council Directive 84/5/EEC of 30 December 1983. It is possible, though, as Lord Scott suggests, that one or both of the parties intended "ought to have known" to include merely negligent ignorance and did so either misapprehending the meaning of "knew" in article 1(4) or without properly considering the point.

But what was in fact in the minds of the parties is speculative, nor is an inquiry into it the usual approach. As normally with questions of contractual interpretation at common law, the approach here should be, in my view, objective. Reading clause 6(1)(e)(ii) of the agreement in the light of the background and the principle of European compatibility, can "knew or ought to have known" fairly be interpreted so as not to extend beyond actual knowledge or a state of mind, such as wilful blindness, so close thereto as not to be justly and realistically distinguished? I think that the answer is "yes". In this particular context a negative answer is not compelled by the undoubted fact that, in ordinary cases where Community law has no bearing, an interpretation including mere negligence is commonly applied.

The principle of European compatibility may have little or no weight in interpreting a contract between private parties only, especially if there is no ground for attributing to them a common intention to contract with reference to European law. The MIB agreement is not in that category. Indeed, if it were, Brian White might not have been able to sue on it successfully: see Halsbury's Laws of England, 4th ed reissue, vol 9(1) (1998), para 764, n 16 and the authorities there collected. Rather it falls into the category described in Wade & Forsyth, Administrative Law, 8th ed (2000) p 777 "Contracts are widely used by public authorities as instruments both of policy and of administration". That work lists the MIB agreement among the specific examples given. Lord Denning MR said that the MIB agreement was "as important as any statute": Hardy v Motor Insurers' Bureau [1964] 2 QB 745, 757. The increasing employment by government at all levels of contractual techniques to achieve regulatory aims is a development well recognised in the courts and by legal writers: see too, for instance, de Smith, Woolf & Jowell, Judicial Review of Administrative Action, 5th ed (1995), para 6-036. Inevitably, it seems to me, this development will have some influence on the interpretation of relevant contracts. The present case may be placed in that setting also.

In short, contractual interpretation is governed generally by the precepts of Lord Wilberforce and Lord Blackburn: see Prenn v Simmonds [1971] 1 WLR 1381, 1383-1384 citing River Wear Commissioners v Adamson (1877) 2 App Cas 743, 763. Consideration is given to the matrix of facts; the circumstances with reference to which the words were used; and the object, appearing from those circumstances, which the persons using them had in view. When to those considerations there is added as an aid to interpretation the principle of compatibility with European Community law, I think that there is full justification for holding "ought to have known" in the MIB agreement to be limited to a state of mind tantamount to actual knowledge.

I have had the advantage of reading in draft the speech of my noble and learned friend Lord Nicholls of Birkenhead. I agree with it, and for the reasons which he has given I too would allow the appeal.

In 1993 the appellant, Brian White, was a passenger in a car being driven by his brother, Shane White. It is not entirely clear to whom the car belonged but it probably belonged to Shane. The car was uninsured. Shane White was uninsured. An accident was caused by the negligence of Shane White. Brian White suffered very serious injuries. He seeks compensation for his injuries from the Motor Insurers Bureau (the "MIB").

Under an agreement dated 21 December 1988 between the Secretary of State for Transport and the MIB, the MIB agreed to provide compensation to persons who suffered personal injuries or damage to property arising out of motor car accidents where the offending vehicle, or the offending driver, was uninsured. The MIB has never put to the test whether its liability under the agreement, or any predecessor agreement, is enforceable against it by the injured third party. It has always honoured its contractual commitment. But it denies that, on the true construction of the agreement, it has any contractual commitment to compensate Brian White.

The agreement contains, in clause 6, an important exception. It is on the true construction of this exception that the MIB's obligation to compensate Brian White depends.

Brian White's compensation claim was tried by Judge Potter. He gave judgment on 13 March 1997. He held, notwithstanding a good deal of evidence from which a contrary conclusion might have been drawn and mainly on the strength of a conversation between the two brothers in 1990 at which they had agreed that their practice of illegal driving should stop and that "it would be very much better for both of them to put themselves into a position where they could drive motor cars legally," that it would be "going too far to say that when he [i.e. Brian] embarked on this journey with [Shane] he knew that [Shane] at that time was not covered by insurance." But the judge held that Brian ought to have known

It is clear that the judge's conclusion was based on a construction of the phrase "ought to have known" in the MIB agreement that included something less than actual knowledge: "he ought to have known, because he ought to have made sure . . ."

Judge Potter's judgment on 13 March 1997 did not dispose of the case. Although his finding that Brian White "ought to have known" the vehicle was uninsured appeared to bring the case within the clause 6(1)(e)(ii) exception, a point on Community law was raised. The point was based on the Second Council Directive 84/5/EEC of 30 December 1983.

The purpose of the Second Council Directive was to remove, or obtain the removal of, disparities between the laws of different member states regarding compulsory insurance cover for damage to persons or property arising out of motor vehicle accidents. Article l(4) of the Directive provided, so far as relevant for present purposes:

A similar exclusion relating to "persons who voluntarily entered the vehicle which caused the damage or injury, when the insurer can prove that they knew the vehicle was stolen" is to be found in Article 2(1).

The agreement of 21 December 1988 was not the first agreement between the Secretary of State and the MIB. There had been a succession of agreements, starting with one dated 17 June 1946, under which the MIB had agreed to provide compensation for third parties injured in motor vehicle accidents where there was no insurance cover. But the agreement of 21 December 1988 was intended to implement the requirements of the Second Directive. The notes to the agreement make that clear. Paragraph 3 of the notes, referring to the requirement that compulsory insurance should cover not only personal injuries but also damage to property, said that:

The point taken before Judge Potter was that since he had found that Brian did not know that the vehicle and the driver, his brother Shane, were uninsured, and notwithstanding that Brian ought to have known, the terms of article 1(4) of the Second Directive covered the case. Article 1(4), it was argued, was capable of direct enforcement by victims of motor vehicle accidents, the MIB was an emanation of the state and, accordingly, Brian White could enforce article 1(4) against the MIB and claim compensation for his injuries.

Judge Potter accepted this argument. In a judgment given on 12 March 1998, nearly a year after his judgment on the facts, he found in favour of Brian White. Some of his remarks in the 1998 judgment elucidate the nature of the factual findings in his 1997 judgment. He said;

The MIB appealed (Sub nom Mighell v Reading ) [1999] 1 CMLR 1251 on the issue of Community law and, also, on the judge's failure to find actual knowledge. As to the latter point, Schiemann LJ said, at p 1258:

As to the Community law issue, the Court of Appeal held:

On the second of these points I am in full agreement with the Court of Appeal. The terms of the Second Directive were not such as to permit direct enforcement. The "body" to be given the task of providing the compensation is not identified in the Directive. Each member state is given the alternative either to set up a new body or to identify an existing body to provide the compensation. There is nothing in the language of the article to prevent a member state from entrusting the provision of the compensation to more than one body. An example suggested in the course of the hearing by my noble and learned friend Lord Mackay of Clashfern was one body to provide compensation for personal injuries and another body to provide compensation for damage to property. The Second Directive has left the form of the arrangements to the member states. In the Francovich case, the European Court of Justice said, in paragraph 11, that:

In the present case it is not the UK Government that is the defendant. It is the MIB. But the MIB is not identified in the Directive and the extent of its liability depends upon arrangements made between the UK Government and itself. If those arrangements do not impose liability on it, then it is not liable. Direct effect cannot, in my opinion, be given to the Directive as against the MIB.

Returning to the first Community law point, the construction point, a sustained argument has been addressed to your Lordships in support of the proposition that, since the MIB Agreement of December 1988 was intended by both parties to implement the Second Directive, the meaning to be attributed to "knew or ought to have known" in clause 6(1)(e)(ii) of the agreement should be the same as the meaning to be attributed to "knew" in article 1(4) of the Second Directive. It is, of course, commonplace to say that an agreement should be construed so as to give effect to the intentions, objectively ascertained, of the parties to it. But the proposition that that commonplace principle of construction can resolve the apparent difference between "knew" and "knew or ought to have known" is not one that I find myself able to accept. I would accept that "knew" in article 1(4) can, and should, be construed so as to cover not only actual knowledge but also imputed knowledge. In a very recent case in your Lordships' House, Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170 , there was an issue as to the meaning of "with the privity of the assured" in section 39 (5) of the Marine Insurance Act 1906 . The trial judge did not find that there had been any actual knowledge on the part of the assured but he found there had been "blind-eye" knowledge, in that the assured "did not want to know". The Court of Appeal [1997] 1 Lloyd's Rep 360 reversed the finding and were upheld in this House. My noble and learned friend Lord Hobhouse of Woodborough agreed with the Court of Appeal that "A finding of negligence to a very high degree did not suffice for a finding of privity" (paragraph 26). In my own judgment, in paragraph 116, at p 209, I tried to express the essentials of "blind-eye" knowledge:

Whatever else may be comprehended in the word "knew" in article 1(4) on its correct construction, the word must surely comprehend blind-eye knowledge as described.

At the other extreme, I would regard it as clear that "knew" does not cover inadvertence. As Lord Hobhouse said in the Manifest Shipping case, a finding of negligence cannot suffice. What then is the meaning of "knew or ought to have known" in the MIB agreement? Can the expression "ought to have known" be construed so as to exclude negligence? In my opinion, it cannot. It is the deliberate contrast between "knew" and "ought to have known" that seems to me to be conclusive. The phrase is contrasting actual knowledge on the one hand with a state of mind involving the absence of actual knowledge on the other hand. The expression "ought to have known" is a very common one in our law. It is used time and time again in a great variety of factual situations and legal claims. I do not think it is in the least ambiguous. It is always, in my experience, taken to connote negligence. Judge Potter took it to mean that. So did the Court of Appeal. A construction of "ought to have known" that excludes negligence would, I respectfully suggest, be incomprehensible to the lawyers up and down the land who have to make our law work. The justification for the construction would be that the agreement was intended to implement the Directive and that "knew" in the Directive did not include negligence. It would be more apt, I suggest, to infer that the parties intended, by using the expression "ought to have known", to include negligence and did so either under a misapprehension as to the meaning to be attributed to "knew" in article 1(4) or without properly directing their minds to the point.

For these reasons I am unable to concur in a construction of the MIB agreement that would allow Brian White, notwithstanding the finding that he ought to have known the vehicle was uninsured, to recover against the MIB.

I would dismiss this appeal.