During the August 2011 riots, a fire started by rioters destroyed the Sony DADC warehouse in Enfield and the stock and equipment inside it. Insurers and businesses claimed compensation from the police authority under the Riot (Damages) Act 1886, including for consequential losses such as lost rent and lost profits. The Supreme Court held that the Act compensates only for physical damage to a building and property in it, not for those consequential losses.
The fire and the claims
During the August 2011 riots, a warehouse in Enfield was set on fire. The building and property inside were destroyed.
Claims were made against the Mayor’s Office for Policing and Crime under section 2 of the Riot (Damages) Act 1886. The claimants were the insurers of Sony DADC, the lessees of the warehouse, the insurers of the freehold owner, and customer companies whose stock in the warehouse had been destroyed. The authority first disputed both liability and the amount of compensation. By this appeal, liability to pay compensation was no longer in issue. The question was how far the claims could go.
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Some businesses also lost profits after losing their stock. These claims raised a separate question from the value of the destroyed goods.
The issue and the courts below
Section 2(1) provides that, where a house, shop or building in a police area, or property in it, has been injured, stolen or destroyed by persons riotously and tumultuously assembled together, compensation is to be paid from the police fund to any person who has sustained loss by that injury, stealing or destruction. In fixing the amount, regard must be had to the claimant’s conduct, including precautions, participation in the assembly, or provocation.
In the Commercial Court, Flaux J decided two preliminary issues. On 12 September 2013 he held that the warehouse had been destroyed by persons assembled riotously and tumultuously. The Court of Appeal (Lord Dyson MR, Moore-Bick and Lewison LJJ) upheld that finding on 20 May 2014. On the second issue, Flaux J held that section 2 compensated only physical damage, not consequential loss. The Court of Appeal reversed him. It held that the Act covered every head of loss, including consequential loss, proximately caused by physical damage for which the rioter would be liable at common law, unless the statute excluded it.
The Court of Appeal read the reference to loss sustained by the injury, stealing or destruction as wide enough to include, for example, rent lost while repairs were carried out. It treated earlier cases as showing that the local community stood surety for the rioter, so that the police authority now stood in the rioter’s shoes except where the Act provided otherwise. It also saw an anomaly. An owner who sold a damaged commercial building might recover a fall in value reflecting rent or profit that a buyer would lose during repairs. An owner who repaired the building and suffered that rent or profit personally could not, if consequential loss were excluded. The authority appealed.
Why the words did not create a tort claim
Lord Hodge gave the judgment of the Supreme Court. Lord Neuberger, Lord Clarke, Lord Hughes and Lord Toulson agreed. He treated the appeal as a question of statutory construction, to be answered from the words of the 1886 Act read against the earlier legislation. History, rather than a theory of transferred tort liability, supplied the answer.
The phrase “loss by” the injury or destruction does not itself say whether the claimant is to receive the cost of repair or the fall in value of the property, or also consequential loss such as lost rent or profit. The provisions on claims procedure, machinery and equipment, and claims for churches, schools, hospitals and other public buildings did not resolve that ambiguity.
The limits of the Act were nevertheless clear. It does not expressly compensate personal injury caused by rioters, or damage to property in the street, such as a parked car. No authority was produced for recovering those losses under the Act, even where they resulted from damage to or the collapse of a building. The Act therefore gives only partial compensation. “Sustained loss by such … destruction” is not an open causal test to which the ordinary rules of causation in tort can simply be applied. The direction to reduce compensation by reference to the claimant’s conduct points the same way: this is not an assessment of the rioter’s liability in tort.
The compensation scheme since 1714
Earlier legislation compensated property owners for physical damage caused by rioters. The Court traced the language of that scheme through the subsequent legislation.
The earlier cases did not establish a general right to recover consequential losses.
Lord Hodge accepted the force of the surety statements, but not the use the respondents made of them. The older hue-and-cry laws were different: compensation could extend more widely, and the community could escape liability if the offenders were caught. The principle had not always worked in the same way. More importantly, the legislation after 1714 repeatedly described a limited measure. Acts of 1812 and 1816 allowed recovery of the value of buildings, machinery or other property, or the amount of the damage done to them. The Remedies against the Hundred (England) Act 1827, which consolidated the scheme and remained in force until the 1886 Act, required full compensation for damage to the listed buildings and machinery and for damage done at the same time to fixtures, furniture or goods. Lord Hodge read that wording as confining statutory compensation to physical damage.
Nothing in the 1886 Act removed the limit. Its repealed preamble recorded that inhabitants were liable in certain cases to pay compensation for damage caused by a riotous and tumultuous assembly, and that it was expedient to make other provision for that compensation and the mode of recovering it. It did not suggest a change in the basis of payment. The Act transferred liability from the hundred to the police authority, regulated the claims procedure, required regard to the claimant’s conduct, extended compensation to theft of property inside a building, allowed insurers to claim in their own names, and permitted a dissatisfied claimant to sue for no more than had been claimed. None of those changes extended the measure beyond physical damage.
Consequential loss excluded
A judicial explanation of the scheme could not override the words Parliament used. From 1714, the community has not stood in the offender’s shoes for every kind of loss a riot may cause. A liberal interpretation justified including furniture and household goods damaged in the demolition or during the same riot. It could not change the nature of the scheme or make it expand whenever the law of damages expanded. Lord Hodge was prepared to assume that, by 1886, a claim in tort could in principle include lost rent or lost profit caused by damage to a building. That did not assist unless the Act was intended to mirror the common law. It was not.
Nor was there an anomaly. A claim for lost rent or profit in addition to the cost of restoring or replacing a building is a different head of loss from an estimate of the fall in value of the building itself. The fall in value is a way of measuring compensation for damage to the building, for example if the owner sells it damaged rather than restoring it. If that fall is greater than the cost of restoration, the claim will normally be capped at the cost of restoration. Even if the outcomes looked uneven, the court still had to give effect to the statute.
Verdict: The Court unanimously allowed the Mayor’s Office’s appeal. Compensation under the 1886 Act covered physical damage to property. Claims for consequential loss, including lost profit and rent, fell outside it.
