Emergency Powers Compensation

July 27th, 2016 by James Goudie KC

In Hastings Borough Council v Manolete Partners Plc [2016] UKSC 50 the Council exercised its emergency powers under Section 78 of the Building Act 1984 to restrict public access to Hastings Pier.  The Pier was in a dangerous condition.  It had serious structural defects.  The Council also obtained a Court Order under Section 77 prohibiting public access to the Pier until remedial works had been carried out.  Section 106 required compensation to be paid for loss of business resulting from emergency action, but only where the owner or occupier of the premises has not been “in default”.  The Supreme Court has upheld the decisions of the lower Courts that the owner was not “in default”.

The Respondent, Manolete Partners PLC (“Manolete”) brought the claim for compensation as an assignee of the business Stylus Sports Ltd (“Stylus”). Stylus had leased two units from the freeholder of the pier, Ravenclaw Investments Incorporated (“Ravenclaw”), and had operated a bingo hall and amusement arcade. Two years before the closure of the pier Stylus had commissioned a structural engineering survey of the pier. This advised that urgent and future work, within a year, was required to the structure of the pier to prevent an unacceptable risk to the public. Ravenclaw, which was responsible as landlord for repair and renewal of the pier structure, did not take action to remedy the defects identified. Nor did the Council.  The pier remained open to the public. In April 2006 a section of tension cord fell from the pier. This led the Council to attempt, unsuccessfully, to compel Ravenclaw to take action, and to commission its own structural integrity report, which in June 2006 recommended immediate restrictions on access to the pier. The Council has exercised its emergency powers and in September 2006 obtained the Court Order.

The Council alleged that Stylus had breached the Occupiers Liability Act 1957 and the Health and Safety at Work Act 1974. The Council sought to rely on these alleged breaches to establish a “default”, thereby precluding Manolete from making a compensation claim under the 1984 Act. This defence was rejected by the Technology and Construction Court and the Court of Appeal, on the basis that the reference to “default” was limited default in respect of obligations imposed by the 1984 Act itself.

Upholding the rejection of the defence, Lord Carnwath, with whom the other Supreme court Justices agreed, said that Section 106 of the 1984 Act gives a right to compensation to a person who has sustained damage by reason of the exercise of the authority’s powers under the Act “in relation to a matter as to which he has not himself been in default”. This requires firstly, identification of the “matter” in relation to which authority has exercised its powers, and secondly, consideration of whether that is a matter “as to which” the claimant has been in default.

The relevant power is the power to take emergency action. The claim for compensation is limited to the period from the date of the Council’s emergency closure of the pier until the Court Order. The “matter” which led the Council to take such emergency action was identified in the letter sent by the Council to the tenants at the time, which was the state of the pier combined with fear of possible collapse from crowd-loading during the events planned for that month, in particular the risk of overloading in an emergency evacuation. The trigger was not the general state of the pier or the specific repairs identified in the report commissioned by Stylus. Whatever Stylus’ position towards its clients and employees, it was not “in default” as to the matter which led to the Council’s exercise of its Section 78 powers. On this basis, Manolete was entitled to succeed in its claim for compensation.

Although not strictly necessary to determine the appeal, Lord Carnwath addressed the issue of whether “default” in Section 106 is limited to default under the 1984 Act itself, as this may impact on future cases. Lord Carnwath found that the legislative history and the authorities under the predecessor statutes support the conclusion that the default is not limited to the particular provisions of each statute, but extends to other forms of legal default.

The Court of Appeal’s conclusion that the Council had no defence in principle to the claim for compensation was correct, not because , as they so held, there was no default under the 1984 Act, but because it was not Stylus’ default which led to the Council’s emergency action. Lord Carnwath emphasised that this does not limit the issues which can be taken into account by the arbitrator in assessing the level of  compensation payable. The arbitrator may take account of Stylus’ statutory and common law responsibilities to its clients and employees, the structural condition of the pier and the implications it would have had for the continuation of business quite apart from the effects of the emergency action.

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