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On 27 July 2016, the Supreme Court gave its ruling in an appeal concerning judicial interpretation of the Building Act 1984, and more specifically, the phrase “in default” following the emergency closure of an unsafe pier by a local authority.

Background

In 2001, Stylus Sports Ltd took a lease of two units on the Hastings Pier in order to run an arcade and bingo hall.  The freehold of the pier Tom_Pritchard_ph[1]was owned by Ravenclaw Investments Incorporated (“Ravenclaw”).  By the time the claim reached the court of first instance, Stylus had become insolvent and the liquidators assigned the rights to the claim to Manolete Partners plc.

The pier had reached a state of dilapidation and disrepair. In 2004 Stylus became concerned about the structural integrity of the pier and commissioned a full structural engineering survey.  The resulting report was provided both to Ravenclaw and to Hastings Council.  It advised that various works were needed to make the pier safe, some of which were required urgently.  Neither Ravenclaw nor the Council took any action.

The Council became aware that a nightclub on the pier was to have a party with over 500 guests on 17 June 2006.  After unanswered requests to Ravenclaw to close the pier, on 16 June 2006 the Council used the powers granted to it under the 1984 Act, s 78, to enforce an emergency closure pending court review.  On 12 September 2006, the court ordered that the pier be closed pending the completion of the necessary remedial works.

This gave rise to Stylus’ claim against the Council for compensation, pursuant to s 106 of the 1984 Act, for the losses suffered between the emergency closure and the court-ordered closure.

S 106 states, “A local authority shall make full compensation to a person who has sustained damage by reason of the exercise by the authority, in relation to a matter as to which he has not himself been in default, of any of their powers under this Act” (emphasis added).

The Council argued that Stylus wasn’t entitled to compensation due to the fact that it was “in default” of the Occupiers Liability Act 1957 and the Health and Safety at Work Act 1974 (the “1974 Act”), by allowing its workers and the public to enter a dangerous property.

Agreeing with the court of first instance, the Court of Appeal ruled against the Council, deciding that the 1984 Act must be construed narrowly.  In order to be disqualified from obtaining compensation, the breach of duty must relate to an obligation under the 1984 Act (and, therefore, not the 1957 or 1974 Act).  The Council appealed to Supreme Court.

The arguments

The Council furthered its previous argument that “in default” should not be confined to a default under the 1984 Act.  Counsel presented case law that the ordinary meaning of the words and legislative history supported a broad interpretation of the phrase (Hobbs v Winchester Corpn [1910] 2 KB 471, Place v Rawtenstall Corpn (1916) 86 LJKB 90, Clayton v Sale Urban District Council [1926] 1 KB 415 and Neath Rural District Council v Williams [1951] 1 KB 115).  Furthermore, the Council appealed to the judges’ sense of fairness when asking why a tenant who is willing to compromise the safety of its employees and the public should be able to collect compensation from the public purse.

In addition to supporting the previous judgment’s position that a narrow interpretation of the “in default” wording was correct and necessary, Manolete Partners plc also put forward the argument that the appellant had never proven that Stylus were in default of the 1957 or 1974 Acts.

The Supreme Court’s decision

Dismissing both arguments, Lord Carnwath (who gave the sole judgment) rephrased the issue as one of two straight-forward questions:

  1. What was the “matter” that caused the Council to exercise its power?
  2. Is that a matter “as to which” the claimant has been in default?

The answer to the first question was that the Council had closed the pier because of the danger caused by the impending nightclub party.  The nightclub was not owned or operated by Stylus, as such Stylus was not “in default” (regardless of the legislation referenced), and was therefore entitled to compensation.  The fact that Stylus was conducting business in an unsafe manner was not to be commended, but it was not the event that necessitated the emergency closure.

As to the series of cases brought to the Court’s attention in order to persuade that “in default” had been previously interpreted to include related acts, the Court considered that Clayton v Sale Urban District Council was clear authority “that the word ‘default’ in a comparable context was not confined to default under the statute itself“.  Although the decision in Clayton was later doubted in Neath Rural District Council v Williams, the judge “did not doubt the proposition that default could arise from breach of a duty outside the Act itself“.  The other decisions were not considered to be relevant.

Comment

The Supreme Court’s decision to rephrase the issues in the case leads to a neat and concise decision.  Although the Council in this case, despite having acted in the interests of public safety, were held to be liable for compensation, Lord Carnwath emphasised that the arbitrator who would determine the level of compensation was able to take into account the surrounding circumstances, “including the statutory and common law responsibilities of Stylus to its clients and employees“.  The Council could argue that any loss of profit claim must be substantially reduced due to the structural condition of the pier and the implications it would have had for the continuation of its business quite apart from the effects of the emergency notice.

The decision that “in default” is not limited to breaches of the 1984 Act widens the interpretation so that in future local authorities will not become liable merely because of a legal technicality. The focus is now, quite logically, on whether the owner or occupier is in ‘default’ in relation to the matter giving rise to the power exercised.