Hastings Borough Council v Manolete Partners Plc

Compensation following the exercise of emergency powers under Building Act 1984 section 78 is barred only where the claimant was in default as to the matter which led the authority to act. The court must identify that matter and determine whether the claimant’s default related to it.

“Default” in section 106(1) is not confined to breach of the 1984 Act and may include breach of another legal duty. The necessary connection with the emergency action prevents an unduly wide inquiry. Matters outside the statutory default proviso may nevertheless reduce compensation, potentially to nil, if they would independently have impaired the claimant’s business.

Hastings Borough Council used its emergency power under section 78 of the Building Act 1984 to close Hastings Pier after engineers identified a risk associated with crowd-loading and emergency evacuation. Stylus Sports Ltd, which operated businesses near the pier entrance, claimed compensation under section 106(1). Its claim was later assigned to Manolete Partners Plc.

The Technology and Construction Court declared the council liable: [2013] EWHC 842 (TCC). The Court of Appeal upheld that result: [2014] EWCA Civ 562. Both courts construed “in default” as confined to breach of an obligation under the 1984 Act.

The Supreme Court considered whether Stylus was in default as to the matter in relation to which the emergency power had been exercised and whether “default” was confined to obligations arising under the 1984 Act.

1. The appeal was dismissed unanimously. Lord Carnwath gave the judgment, with which Lady Hale, Lord Kerr, Lord Toulson and Lord Hodge agreed. The lower courts reached the correct result, although their construction of “default” was rejected.

2. Section 106(1) of the Building Act 1984 requires two questions. The court must identify the “matter” in relation to which the authority exercised its statutory power. It must then decide whether the claimant was in default as to that matter. The relevant power here was the emergency power under section 78, rather than the subsequent magistrates’ court order under section 77.

3. The matter which triggered the emergency action was the condition of the pier combined with the risk of crowd-loading during planned events, particularly during an emergency evacuation. Stylus was neither legally responsible for the pier’s structural condition nor responsible for those events. Whatever duties it may have owed to customers or employees, it was not in default as to the matter which led the council to use section 78. It was therefore entitled in principle to compensation.

4. Section 78(7) reinforces the connection between default and emergency action. Even a person in default may claim compensation if the magistrates’ court determines that the authority was unjustified in using emergency powers instead of first seeking an order under section 77. The compensation regime is an important check on a power exercisable without prior objection or recourse to a court.

5. Although unnecessary to the disposition, “default” in section 106(1) is not confined to breach of an obligation imposed by the 1984 Act. The legislative history, the Act’s other uses of “default”, and the earlier authorities did not justify that restriction. Default may arise from another statutory, contractual or common-law duty, provided it relates to the matter which occasioned the exercise of power.

6. The arbitrator determining compensation under section 106(2) may consider the claimant’s statutory and common-law responsibilities and the structural condition of the premises. The council may argue that those matters would independently have restricted the business and that compensation should therefore be substantially reduced, potentially to nil.

1. United Kingdom Supreme Court: The council’s appeal was dismissed by [2016] UKSC 50. The court upheld the result but rejected the lower courts’ conclusion that “default” was confined to breach of the Building Act 1984.
2. Court of Appeal: In [2014] EWCA Civ 562, reported at [2014] 1 WLR 4030, the court upheld the declaration of liability and construed “in default” as meaning breach of an obligation arising under the 1984 Act.
3. Technology and Construction Court: In [2013] EWHC 842 (TCC), reported at [2013] 2 EGLR 17, Ramsey J declared the council liable to pay compensation and rejected its default defence.