Blue Circle Industries Plc v Ministry of Defence

For the purposes of section 7(1)(a) of the Nuclear Installations Act 1965, physical damage is not confined to conventional physical deterioration. Contamination causing an alteration in the physical characteristics of property, reducing its usefulness or value, is sufficient even where there is no health risk.

Once damage is established, compensation may include consequential losses caused by it, including a lost sale opportunity and related losses while the property remains unsaleable. The chain of causation ends when the claimant is free to sell or retain the property. A real and substantial loss of chance may be valued in damages. Interest cannot be awarded on hypothetical proceeds for which judgment has not been given.

Blue Circle owned an estate adjoining the Atomic Weapons Establishment at Aldermaston. Following a storm, radioactive material contaminated part of the estate. The Ministry of Defence delayed disclosure of the contamination, causing a prospective sale to fail. Remedial works were completed in December 1994.

Carnwath J held that the Ministry had breached section 7(1)(a) of the Nuclear Installations Act 1965 and awarded damages, including compensation for the lost chance of sale, diminution in value, running costs and clean-up expenses. The Ministry appealed on liability and quantum. Blue Circle challenged the assessment of damages and interest. The central issues concerned physical damage, recoverable consequential loss, causation, residual stigma, special damages and interest.

1. Disposition. The appeal and cross-appeal were allowed to the extent indicated. The order below was varied. Liability was upheld, but the damages calculation was altered. Leave to appeal to the House of Lords was refused.
2. Liability. Per Aldous LJ, with Simon Brown LJ agreeing and Chadwick LJ concurring in the result, section 7(1)(a) of the Nuclear Installations Act 1965 is not confined to particular forms of physical deterioration. An alteration in the physical characteristics of property, caused by radioactive properties and making it less useful or valuable, constitutes damage. Plutonium had become irreversibly intermixed with the marshland. The resulting reduction in value and need for excavation constituted physical damage. Merlin v British Nuclear Fuels Plc [1990] 2 QB 557 was distinguished on its facts.
3. Compensation. The majority held that section 12 was not limited to the cost of restoring the marshland or its residual value. Ordinary principles of compensation permitted recovery for consequential losses caused by the physical damage, including the lost opportunity to sell the wider estate. Chadwick LJ considered that the statutory language required compensation in respect of damage to the marshland and treated causation, rather than a separate foreseeability requirement, as decisive. That difference in reasoning did not affect the result.
4. Causation and valuation. The loss-of-sale assessment was permissible because there was a real and substantial, rather than speculative, chance of a sale to Sun. The estate remained unsaleable until completion of the remedial works in December 1994. Thereafter Blue Circle was free to sell or retain it. Later market movements and running costs were therefore attributable to its own choice. The December 1994 value was used, post-clean-up running costs were excluded, and the valuation was adjusted to remove the element attributable solely to fear of future contamination. The remaining 25 per cent of the actual contamination stigma was also recoverable.
5. Other heads. Legal and administrative expenses incurred in managing the clean-up, rather than conducting the action, were properly recoverable as special damages. Under section 35A of the Supreme Court Act 1981, interest could not be awarded on hypothetical sale proceeds for which judgment had not been given and no pleaded special-damage claim had been made.

1. Court of Appeal: The appeal and cross-appeal were allowed to the extent indicated, and the order below was varied.
2. High Court: Carnwath J held on 26 November 1996 that the Ministry of Defence had breached section 7(1)(a) of the Nuclear Installations Act 1965 and awarded damages of £6,045,617.65 including interest.