A borough council is facing a payout following the loss of a Supreme Court battle over compensation payable when the local authority used its emergency powers to close a pier.
Hastings Borough Council claimed it had retained “the moral high ground” as a result of the court’s ruling.
The case of Hastings Borough Council v Manolete Partners Plc  UKSC 50 arose out of the council’s exercise in June 2006 of its emergency powers to restrict public access to Hastings Pier. The council took the view that the pier was in a dangerous condition as a result of serious structural defects.
Manolete Partners PLC, the respondent in the Supreme Court, pursued a claim for compensation against Hastings for loss to business as a result of the emergency closure. Manolete had brought the claim as an assignee of Stylus Sports, which went into liquidation in late 2011.
Stylus had leased two units from the freeholder of the pier, Ravenclaw Investments Incorporated, and had operated a bingo hall and amusement arcade.
Two years before the emergency closure, Stylus had commissioned a structural engineering survey of the pier, which advised that urgent and future work, within a year, was required 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 borough council, and 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 local authority used its emergency powers under section 78 of the Building Act 1984, and in September 2006 obtained a court order under section 77, prohibiting public access to the pier until the necessary remedial works had been carried out.
Section 106 of the 1984 Act requires compensation to be paid for loss to a business resulting from emergency action, but only where the owner or occupier of the premises has not been in default.
Hastings BC alleged that Stylus had breached the Occupiers Liability Act 1957, which imposes a duty of care towards visitors, and the Health and Safety at Work Act 1974, which imposes a duty on an employer to ensure the safety of his employees and the safety of the workplace.
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.
The local authority’s defence was rejected by the Technology and Construction Court and the Court of Appeal, on the basis that the reference to “default” was limited to default in respect of obligations imposed by the 1984 Act itself.
Hastings took the case to the Supreme Court. However, the judges this week unanimously dismissed its appeal.
Giving the judgment of the court, Lord Carnwath said section 106 of the 1984 Act gave a right to compensation to a person who had 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”.
The judge said this required firstly, identification of the “matter” in relation to which authority had exercised its powers, and secondly, consideration of whether that was a matter “as to which” the claimant had been in default.
The relevant power was the power to take emergency action under section 78 of the 1984 Act, and the claim for compensation was limited to the period from the date of the council’s emergency closure of the pier until the court order in September 2006.
The “matter” which led Hastings Borough Council to take such emergency action was identified in a 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. Lord Carnwath said that 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, and on that basis, Manolete was entitled to succeed in its claim for compensation.
The Supreme Court went on to address, although this was not strictly necessary to determine the council’s appeal, the issue of whether “default” in section 106 was limited to default under the 1984 Act itself, as this might impact on future cases.
Lord Carnwath found that the legislative history and the authorities under the predecessor statutes supported the conclusion that the default was not limited to the particular provisions of each statute, but extended to other forms of legal default. Concerns as to the wide scope of the factual inquiry did not arise if the inquiry was limited to the two-stage assessment.
The Supreme Court judge said 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 did not limit the issues which could 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, the judge said.
Responding to the ruling, Cllr Peter Chowney, Leader of Hastings BC, said: “Although we are obviously disappointed to lose the appeal, we absolutely believe it was the right thing to do.
“The Supreme Court recognised that the Building Act as interpreted by the ‘lower’ courts was too strict, and they have effectively widened the application of what ‘in default’ means. Although this might seem a technical point, it is an important one and one which will in future help councils faced with the same dilemma.”
Cllr Chowney added: “The judgment also recognises that the council can argue that any compensation must take into account the fact that the pier was in a poor structural condition. We will robustly challenge any large compensation claims, we do not think that the taxpayers of Hastings should have to pay significant sums of public money when all we have ever done is act in the best interests of public safety.
“We believe that we acted entirely correctly when we closed the pier. Our engineers told us it was dangerous with crowd loadings, and it would have been foolhardy to allow large events to go ahead.”
[This article is based in part on the Supreme Court’s press summary of the case]