What is a “court”?

In Irwell Insurance Company Limited v Neil Watson, Hemingway Design Limited & others [2021] EWCA Civ 67, the Court of Appeal (Bean LJ, Flaux LJ and Males LJ) upheld the EAT decision of Kerr J, confirming that employment tribunals have jurisdiction to determine claims against the insurers of insolvent employers under the Third Parties (Rights Against Insurers) Act 2010 (“the Act”).

When construing section 2(6) of the Act, the Court held that the Act’s purpose of creating a “single forum” for determination of claims under the Act would be defeated if, where a claim is brought by an employee against his insolvent employer’s insurer, the ET is not considered to be a “court” for the purposes of the statute. The Court of Appeal also held that an arbitration clause in the contract of insurance was rendered inoperative by s.203 of the Employment Rights Act 1996 and s.144 of the Equality Act 2010. As such the insurer could not compel the employee to submit their claim against it to arbitration.

The full judgment of the Court of Appeal can be read here.

Background

Mr Watson was an employee of Hemingway Design Limited. In 2017, Mr Watson brought claims against Hemingway in the ET for unfair dismissal and disability discrimination; however, during proceedings, his employer entered a creditors’ voluntary liquidation and by the date of the hearing in the Court of Appeal had been dissolved.

Mr Watson applied to join his former employer’s insurer, Irwell Insurance Company Limited, as a Respondent to his claims before the ET, contending that any liability of his employer had transferred to Irwell on his employer entering liquidation under the Third Parties (Rights against Insurers) Act 2010. The 2010 Act repeals the 1930 Act of the same name and provides that, where a party incurs liability to another party and has a contract of insurance which provides cover in respect of that liability, if the insured party becomes insolvent then the benefit of the insurance cover transfers to the third party. Therefore, the injured third party may bring a claim against the insurer. The Act also permits the third party to bring a single action against the insured and his liability insurer, rather than having to bring an action against the insured and then seek to enforce it in separate proceedings against the insurer, which was the case under the 1930 Act.

Irwell contended that the claim against it was a not a matter falling within the jurisdiction of an employment tribunal. It argued that an employment tribunal was not a “court” under s.2(6) of the Act, which states that:

“Where the court makes a declaration under this section, the effect of which is that the insurer is liable to [a person], the court may give the appropriate judgment against the insurer.”

At first instance

The Claimant employee invited the Employment Tribunal (Employment Judge Ahmed) to interpret the 2010 Act in such a way that it dealt with the mischief which it was designed to address, namely that a third party should not have to bring separate proceedings to enforce an indemnity against an insurer. Irwell argued that because the ET was not a “court” under s.2(6) of the 2010 Act there was no statutory authority conferring jurisdiction on the ET to deal with claims under the Act.

The ET accepted Irwell’s submissions. It found that the issue between Mr Watson and Irwell had “nothing to do with an employment contract but rather a contract of insurance”, that “Irwell was never the Claimant’s employer” and that “There is no contractual nexus between the Claimant and Irwell…”. Accordingly, EJ Ahmed stayed Mr Watson’s claim in the ET, stating that the issues were to be “properly decided by the ordinary courts rather than an Employment Tribunal”.

Mr Watson appealed to the EAT.

On appeal to the EAT

The main issue before Judge Kerr in the EAT was whether EJ Ahmed erred in law by finding that he had no jurisdiction to determine whether Mr Watson could recover compensation from Irwell for any liability of his former employer. Kerr J stated that the “real question” he had to decide was whether an employment tribunal fell within the words “the court” in s.2(6) of the 2010 Act. If it did, this would confer jurisdiction on the ET to make a declaration as to Irwell’s liability under that Act.

Referring to the differences between the 1930 Act and the 2010 Act, Kerr J accepted that the latter was intended to promote a “single forum” route to recovery against an insurer where the insured has become insolvent. Disapproving of Irwell’s contention that insurance contracts were so far out of an employment tribunal’s comfort zone that Parliament could not have intended tribunals to grapple with them, Kerr J stated that “Employment tribunals are required to be versatile, not just to decide complex EU law points worthy of the Supreme Court's consideration and sometimes a reference to the Court of Justice in Luxembourg.”

The EAT noted a line of authorities which suggested that whether an employment tribunal is to be treated as a “court” for the purposes of a statute or rule depends on the context, including Peach Grey & Co v Sommers [1995] ICR 549, in which the Divisional Court held that an industrial tribunal (as employment tribunals were referred to at the time) was an “inferior court” within the meaning of the High Court rules. Applying this authority, Kerr J held that employment tribunals have all the characteristics of a court.

Kerr J noted that the “single forum” statutory purpose of the 2010 Act would be defeated in employment tribunal claims if Irwell’s arguments were accepted. Accordingly, Kerr J disagreed with EJ Ahmed’s conclusion that the ET had no jurisdiction to entertain Mr Watson’s claim as against Irwell and set aside the decision to stay the claim.

Kerr J also heard argument on whether Irwell could rely on an arbitration clause in its contract of insurance, which would require Mr Watson to submit to arbitration. Strictly speaking, the impact of the arbitration clause did not need to be decided at this stage as neither party had sought to invoke it, and Kerr J’s observations were therefore obiter.

Nonetheless, Kerr J noted the position set out in Clyde & Co LLP v Van Winkelhof [2011] EWHC 668 (QB) wherein an arbitration clause in an agreement between a partnership and a member thereof was held to have fallen foul of s.203 of the Employment Rights Act 1996 (“ERA”) and s.144 of the Equality Act 2010 (“EqA”), both of which prevent the enforcement of contract terms that purport to exclude or limit the provisions of those Acts.

Mr Watson had brought claims for unfair dismissal and discrimination in the course of employment. ETs have exclusive jurisdiction in these areas and the insurance contract’s arbitration clause would have limited Mr Watson’s means of pursuing those claims if it was deemed to be valid and he was then compelled to submit to arbitration. Kerr J therefore considered that the arbitration clause must be void for reason of the limits it would impose on the operation of the ERA 1996 and EqA 2010.

Irwell appealed Kerr J’s decision to the Court of Appeal.

On appeal to the Court of Appeal

Two grounds of appeal were argued before Lord Justices Bean, Flaux and Males.

On the principal issue of whether a tribunal was a “court” under s.2(6) of the 2010 Act, the Court of Appeal heard argument from Irwell on the classic authorities concerning statutory interpretation—that if the words of a statute are clear, the Court “must apply them as they stand, however unreasonable or unjust the consequences, and however strongly we may suspect that this was not the real intention of Parliament” (per Lord Reid in IRC v Hinchy [1960] AC 748, cited by Lord Edmund-Davies in Duport Steels Ltd v Sirs [1980] 1 WLR 142).

However, the Court also recognised the approach taken to statutory interpretation by Lord Bingham of Cornhill in R (Quintavalle) v Secretary of State for Health [2003] 2 AC 687:

"Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment."

Bean LJ, giving the lead and unanimous judgment of the Court, agreed that the principal mischief at which the 2010 Act was aimed was the need for a third party such as Mr Watson to have to issue two sets of proceedings in order to make a successful claim against the insurer of an insolvent tortfeasor. He also observed that, while not binding on the Court, the reasons given in Peach Grey v Sommers for holding that an ET should be regarded as a court were of general application and thereby relevant to determining the instant matter.

Rejecting Irwell’s suggestion that Parliament could not have intended ETs to deal with questions of insurance law, Bean LJ stated that “ETs regularly have to deal with difficult questions of law across a variety of topics, not confined to what would be regarded as mainstream employment law.” and that he doubted “whether applications for a declaration that an insurer is liable to meet a judgment in an unfair dismissal claim are even at the top end of the range of difficulty of cases with which employment judges have to grapple.”

The Court of Appeal therefore upheld the decision of Kerr J that a tribunal was a “court” for the purposes of s.2(6) of the 2010 Act, enabling ETs to make declarations under the Act that an insurer is liable to an employee for the acts of their insolvent employer and make awards against the insurer.

The Court also agreed that s.203 of the ERA 1996 and s.44 of the EqA 2010 prevented an arbitration clause from being used to exclude or limit a claimant’s right to claim for unfair dismissal or discrimination in an ET. Although the general rule is that an arbitration clause in an insurance contract binds the third party following transfer of the benefit of cover under the Act, and therefore under s.9 of the Arbitration Act 1996 the insurer is entitled to a stay of any legal proceedings against it, this did not apply in the case of claims brought in an employment tribunal. Parliament had decided that parties could not be compelled to resolve such claims in arbitration. Furthermore, the “single forum” purpose of the Act would be defeated if a stay was granted.

It dismissed Irwell’s appeal accordingly, allowing Mr Watson’s claim to proceed in the ET.

Comment

While the Court of Appeal’s ruling has left unchallenged the view that whether or not a tribunal amounts to a “court” depends on context, the language used by Bean LJ in the matter is clear: “I am in no doubt that an ET is a ‘court’ within the meaning of s 2(6) of the 2010 Act.” [42]

Given the Court of Appeal’s unequivocal judgment, insurers of insolvent employers will not be able to prevent an employee from presenting an employment claim against them in the employment tribunal or joining them as a respondent to existing proceedings. In combination with the Court of Appeal’s decision that Irwell’s arbitration clause had to yield to the exclusive jurisdiction of the ET for claims for unfair dismissal and discrimination, the Court’s judgment should ensure that employees whose employers become insolvent and who receive a transfer of insurance cover under the Act are not confronted with procedural blocks when seeking to enforce their rights under the Act. 

Given the Court’s approval of Peach Grey v Sommers, this authority will continue to guide decisions on when an employment tribunal may be treated as a court of law.

David Gray-Jones (instructed by Lawson West) acted for the first respondent, Mr Watson.

Paul Schwartfeger is a barrister at 36 Commercial, part of The 36 Group. For further guidance, please contact the 36 Commercial team by calling +44 (0)20 7421 8051 or emailing clerks@36commercial.co.uk.