A local authority recently lost its appeal over an order that it should pay substantial compensation following the closure of a pier on safety grounds. Samuel Townend looks at the options available to councils when dealing with dangerous structures.
As previously reported on Local Government Lawyer – Borough Council loses appeal over compensation for pier closure – Hastings Borough Council lost its appeal against Manolete Partners PLC’s claim for compensation under section 106 of the Building Act 1984 following the council’s exercise of ‘emergency’ powers under section 78 of the same Act with the effect of closing Hastings Pier to the public during the summer of 2006.
The council had acted over concerns about the structural integrity of the Pier and was entitled to use the ‘emergency’ power without advance notice, in circumstances where the structure was dangerous and required immediate action. Section 106, however, provided that where a local authority exercised this power any person affected was entitled to be paid “full compensation” save if they were deemed “in default”, that is causing the need for the exercise of the power.
An oddity of the case is that Stylus Sports, a tenant of the Pier and owner of an amusement arcade and bingo hall whose businesses were closed to all customers by the council’s closure of the Pier at the relevant time and subsequently in liquidation, sold the claim for compensation to Manolete. By this arrangement both Manolete and the creditors of Stylus Sports stood to share in the proceeds of any success in the claim for compensation.
Manolete, having succeeded on liability (twice), now pursue the quantum claim against the council in private arbitration. This is because the 1984 Act provides that the “fact of damage” and the “amount of compensation” shall be determined by an arbitrator, not the courts.
The council expressed disappointment at the result, but on the Court of Appeal’s analysis it was the way that they dealt with the problem presented by the Pier that caused them this loss (paragraphs 80 and 81 of judgment of Lord Justice Jackson):
“[The council] urges that the local authority should not be obliged to compensate Stylus for being prevented from admitting the public to dangerous premises. Whilst I have some sympathy with that argument, this cannot affect the operation of the statutory scheme. The true culprit, Ravenclaw [the then owner of the Pier], is outside the jurisdiction and effectively beyond the reach of any enforcement procedures. The court is faced with the familiar problem of deciding which of the surviving parties should bear the loss caused by the culprit. The answer to that question is determined by the statutory scheme.
"Stylus has acted responsibly at all stages. It did its utmost to compel the landlord to carry out remedial works. Ultimately it stepped into the breach and did the works itself. If the council wished to avoid liability to pay compensation under section 106, it could have brought proceedings under section 77 of the 1984 Act sooner and thereby avoided the need to take emergency action under section 78.”
The statutory scheme provided that the local authority should pick up the innocent tenant’s losses. There was criticism of the conduct of the local authority in that the Court of Appeal pointed out that had the council in this case acted differently it might have avoided the need to pay compensation.
In fact, though this was not explored with the courts in Manolete (as causation is a matter for the arbitrator), local authorities, when faced with a defective or dangerous building or structure, have an array of actions available to them and can, if they are pro-active, avoid having to exercise emergency-type powers potentially exposing them to claims for compensation. A selection of the range of actions includes the following:
(a) Section 77 of the 1984 Act provides that if it appears to a local authority that a building or structure is dangerous it may apply to a court and the court may make an order requiring the owner to carry out work to obviate the danger. In default of which the local authority may carry out the work themselves and recover it from the owner. There is no exposure to compensation claims under Section 106.
(b) Section 78 of the 1984 Act (the power used in the Manolete case) provides that if it appears that a building or structure is dangerous and immediate action should be taken to remove the danger, the local authority may take such steps as are necessary. The local authority may recover the costs of doing so from the owner (or, on application, another party), except where the court concludes that the local authority might reasonably have proceeded instead under Section 77. Under Section 106 the local authority carries the risk of having pay compensation to any party affected that is not itself in default.
A relevant distinction between Sections 77 and 78 is that the former allows for due process and a determination by the courts, whereas the latter may be exercised by a local authority (as in the Manolete case) without fore-warning and with no right for those affected to object. It is to limit the use of the latter that Parliament created a legislative preference for action under Section 77 rather than under Section 78. If the Section 78 route is chosen it restricts the circumstances within which a local authority may obtain payment of its expenses and the local authority is at risk of having to make payment of compensation to those innocent parties affected.
(c) Section 80 of the Environmental Protection Act 1990 gives a local authority the right to serve an abatement notice for a nuisance caused by a structural defect on the owner of the defective premises or structure (as well as in a number of other circumstances and to a range of parties). If the owner does not appeal to the court within 21 days and fails to abate the nuisance then he commits a criminal offence. There is no related requirement to compensate parties affected.
(d) Section 76 of the 1984 Act gives a local authority a further power without reference to the courts and on short notice (nine days) to the owner or other party responsible for the nuisance, in the circumstances where the local authority could serve an abatement notice for a nuisance under the 1990 Act, to carry out work to remedy the defective state of the premises and claim the expenses incurred from the person responsible. This is subject only to the person responsible serving a counter-notice within seven days of the Section 76 notice and then carrying out the necessary work to abate the nuisance itself within a reasonable time. Again, however, as with the Section 78 power if the local authority acts under this Section the Section 106 compensation provision applies and the local authority risks claims for compensation from parties that are not “in default”. The existence of this risk, again, reflects a legislative preference for the more time-consuming process under Section 80 the 1990 Act, which provides at least the potential for review of the action by the court, rather than the wholly autonomous action of a local authority provided for in the 1984 Act.
(e) Where it carries out Health and Safety Act 1974 responsibilities, a local authority also has the power to issue improvement and prohibition notices under Sections 21 and 22 where, for example, an employer is conducting a business which exposes employees or other workers attending a premises to risks to their health and safety. A recipient of a notice may appeal to the court under Section 24. In the absence of an appeal a contravention of a notice constitutes a criminal offence. There is no relevant provision for compensation to be paid by the local authority to affected parties not committing the offence.
Of course there are a range of other legal options where a local authority is the freeholder or neighbour and informal pressures that may be brought to bear.
The range of possible actions that can be taken by a local authority when faced with a defective or dangerous building or structure within its jurisdiction are vast. With fore-thought early action, albeit involving some initial expense in preparing an application to the courts for a relevant order, avoids the local authority taking the risk of being liable to pay sometimes heavy compensation to parties affected that have not themselves caused the danger to eventuate.
If a local authority, knowing about a defective or dangerous structure, leaves matters until emergency action is required, it has only got itself to blame if it subsequently faces claims for compensation.