Hastings Borough Council v Manolete Partners Plc [2016] UKSC 50

Hastings Borough Council closed Hastings Pier under emergency powers in 2006 due to structural concerns. Stylus, a tenant operating businesses on the pier, claimed compensation under section 106 of the Building Act 1984. The Supreme Court dismissed the council's appeal, holding Stylus was not 'in default'.

Facts

Hastings Pier, originally opened in 1872, had a long history of repairs following fires, bomb damage and general deterioration. By the 2000s, the freehold was owned by Ravenclaw Investments Incorporated (a Panama-registered company), managed by Boss Management UK Ltd. Stylus Sports Ltd occupied two units near the entrance, operating a bingo hall and an amusement arcade under leases dated 2001. Under those leases, Ravenclaw retained responsibility for the structural parts of the pier.

In 2004, Stylus commissioned a structural engineering survey from Hamill Davies Limited (the HDL report), which identified urgent repairs needed and warned of ‘unacceptable risk to the public’ if remaining works were not carried out within a year. The report was shared with Ravenclaw and the council, but limited remedial action was taken.

In April 2006, after a section of tension cord fell from the pier, the council commissioned Gifford engineers to report on structural stability. The Gifford report (June 2006) identified serious structural defects and recommended immediate restrictions on access to areas where crowd-loading was possible. On 16 June 2006, prompted by the prospect of major events booked for the pier ballroom, the council exercised its emergency powers under section 78 of the Building Act 1984 to close the pier from the front facade onwards, including the Stylus units. On the same day it also applied to the magistrates’ court under section 77, which on 12 September 2006 ordered prohibition of public access until remedial works were completed.

Stylus eventually carried out the necessary works itself in May 2007, after obtaining (but being unable to enforce) summary judgment against Ravenclaw. The order was varied on 4 July 2007 to permit access to its premises. Stylus claimed compensation under section 106 of the 1984 Act for losses suffered between 16 June and 12 September 2006. Stylus went into liquidation in late 2011 and the claim was assigned to Manolete Partners Plc.

Issues

The sole issue on appeal was whether Stylus was itself ‘in default’ within the meaning of section 106(1) of the Building Act 1984, so as to preclude its claim for compensation. This raised two related questions:

• Whether the word ‘default’ in section 106 is limited to default under the 1984 Act itself, or extends to breach of obligations under other statutes (such as the Occupiers’ Liability Act 1957 and Health and Safety at Work etc Act 1974) or at common law.
• Whether, on the facts, Stylus was ‘in default’ in relation to the matter that triggered the council’s exercise of its emergency powers under section 78.

Arguments

Appellant (Council)

Mr Gasztowicz QC submitted that ‘default’ should not be confined to default under the 1984 Act. He argued the ordinary meaning of the word and the legislative history supported a broader interpretation. Stylus was in default through breaches of the Occupiers’ Liability Act 1957 and the Health and Safety at Work etc Act 1974 by continuing to invite the public to premises which, on the basis of the HDL report, posed an ‘unacceptable risk’. Although the freeholder bore primary repair responsibility, Stylus had the ability to carry out repairs in default of the landlord.

Respondent (Manolete)

Mr Bowdery QC supported the lower courts’ view that ‘default’ was limited to default under the 1984 Act. He further argued that on the facts, the council could not show Stylus was in breach of any legal obligation under the statutes relied on, and that the motivation for use of emergency powers was the prospect of large crowds at events unconnected with Stylus’s premises.

Judgment

The Supreme Court (Lord Carnwath giving the leading judgment, with whom Lady Hale, Lord Kerr, Lord Toulson and Lord Hodge agreed) dismissed the appeal, but for reasons differing in some respects from those of the courts below.

The proper approach to section 106

Lord Carnwath considered there was a danger of over-complication. Section 106(1) raises two questions: (i) what was the ‘matter’ in relation to which the authority exercised its powers, and (ii) was that a matter ‘as to which’ the claimant has been in default? The relevant power was the emergency power under section 78, and the claim was for loss resulting from that emergency action, limited to the period until the magistrates’ order on 12 September 2006.

Section 78(7) reinforced this analysis: even a claimant ‘in default’ is not precluded from compensation if the court finds the authority was not justified in using emergency powers rather than first seeking a section 77 order. The right to compensation provides an ‘important check on the unbridled use of that emergency power’.

Application to the facts

The matter triggering the council’s action in June 2006 was not the general state of the pier or the specific repairs identified in the HDL report (of which the council had been aware since 2005 without taking action), but the state of the pier combined with fear of possible collapse from crowd-loading during events planned for that month, particularly the risk of overloading during emergency evacuation. Stylus was not legally responsible for the state of the pier, nor for the events that triggered the council’s action. It was therefore not ‘in default’ as to the matter which led to the council’s use of section 78.

Meaning of ‘default’

Although strictly unnecessary, Lord Carnwath addressed the lower courts’ view that ‘default’ was limited to default under the 1984 Act. He rejected this limitation. The legislative history of more than 100 years using the same formula made it unlikely that ‘default’ was tied to particular statutes. Jackson LJ in the Court of Appeal had been forced to accept that the similar formula in the 1875 and 1936 Public Health Acts extended to ‘related’ Acts; but once that extension was accepted, there was no clear reason not to extend it to other forms of legal default.

Lord Carnwath analysed the relevant authorities, including 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. He found Clayton to be clear authority that ‘default’ in a comparable context was not confined to default under the statute itself, and that Neath did not contradict this when read in full.

Scope of arbitrator’s role

Lord Carnwath emphasised that this conclusion did not limit the issues the arbitrator may consider in assessing compensation, including Stylus’s statutory and common law responsibilities to clients and employees. The authority could argue that loss of profit must be substantially reduced due to the structural condition of the pier and its implications for the continuation of business apart from the emergency notice’s effects.

Implications

The decision clarifies the operation of the ‘in default’ proviso in section 106 of the Building Act 1984. The key principle is that to defeat a compensation claim, the default must relate to the specific matter that led the authority to exercise its statutory power. A claimant is not ‘in default’ merely because they may have breached unrelated duties; the default must be tied to the matter triggering the council’s action.

The Supreme Court declined to confine ‘default’ to breach of obligations arising under the 1984 Act itself. Default may, in principle, encompass breaches of obligations arising under other statutes or at common law, provided those breaches relate to the matter giving rise to the authority’s intervention. This is a narrower and more focused inquiry than a wide-ranging review of legal compliance.

The decision is significant for local authorities exercising emergency powers under section 78 and for occupiers and owners of premises subject to such action. It confirms that the compensation provision serves as an important check on emergency powers, particularly given that section 78, unlike section 77, provides no prior right of objection or recourse to the court. Authorities concerned about claims by occupiers of dangerous premises may, where time permits, prefer to seek an order under section 77, which carries no right to compensation.

Importantly, the decision does not preclude consideration of broader factors at the quantum stage. An arbitrator assessing compensation under section 106(2) may take account of the structural condition of premises and other factors which would have affected the claimant’s business in any event, potentially reducing compensation significantly. The decision thus strikes a balance between safeguarding compensation rights against unilateral use of emergency powers and ensuring that compensation reflects the true economic loss attributable to the authority’s action.

Verdict: Appeal dismissed. The Supreme Court held that Stylus was not ‘in default’ within the meaning of section 106(1) of the Building Act 1984, because the default must relate to the matter triggering the exercise of statutory powers, and Stylus was not responsible for the state of the pier or the events (large crowd-loading risks during planned events) that prompted the council’s use of emergency powers under section 78. The council was therefore liable to pay compensation, subject to assessment by the arbitrator.

Source: Hastings Borough Council v Manolete Partners Plc [2016] UKSC 50