Compensation to be based on cost of repair

British Coal Corporation v Gwent County Council; Court of Appeal (Lord Justice Glidewell, Lord Justice Hobhouse and Lord Justice Swinton Thomas) 15 June 1995

The proper starting-point for the assessment of compensation payable under section 2(4)(a) of the Coal Industry Act 1975 for subsidence damage caused to buildings by mining was by reference to the reasonable cost of reinstatement and repair of the buildings, not the cost of their replacement. Only if the cost of repairing the damage attributable to mining during the relevant period was likely to exceed the cost of rebuilding could the latter figure be adopted as a basis for the award.

The Court of Appeal allowed an appeal by the British Coal Corporation by case stated against a decision of the Lands Tribunal (Dr T. Hoyes FRICS) on 17 December 1992, on a reference to determine the compensation payable by British Coal to Gwent County Council for damage caused by mining subsidence to the buildings of Oakdale Infants' School, Penmaen, Oakdale, Gwent.

The council applied for pounds 1,158,327, based on the costs of constructing a new school. The tribunal awarded pounds 775,650 plus interest. The court ruled that the tribunal erred in its approach to the assessment of compensation and remitted the case for reconsideration. It also held that the tribunal had no power under the 1975 Act to award interest.

Timothy Charlton QC and Timothy Otty (Nabarro Nathanson) for British Coal; Peter Curry QC and Andrew Clutterbuck (Council Solicitor) for Gwent.

Lord Justice Glidewell said British Coal accepted that between their construction in 1950 and the date of reference the school buildings suffered substantial damage. It was also agreed that while some, perhaps most, of this damage was caused by coal mining, some resulted from other causes such as faults in the design, construction and maintenance of the buildings.

By section 9 of the Limitation Act 1980, a claim for compensation under section 2(4) might only be made for damage occurring within six years preceding the reference. Where damage was known to have occurred before then, the onus was on the claimant to show what damage occurred within the six-year period.

Having heard evidence as to the timing and extent of the damage and the cost of repairing as opposed to rebuilding the school, the tribunal commented that it was plainly not proved that the existing school had been damaged beyond practical repair by events occurring within the limitation period. Dr Hoyes then approached the assessment of compensation on the basis that the cost of rebuilding could fairly be regarded as a starting point or ceiling value, from which deduc- tions should be made to reflect damage not caused by mining within the relevant period and to reflect additional benefits to Gwent from having new buildings rather than repairing the old ones.

In his Lordship's judgment, it was clear that Gwent was entitled in principle to "proper compensation" under section 2(4)(a) of the Act. In an action in tort for damage to a building, the reasonable cost of reinstatement and repair would normally be the proper basis for the assessment of damages, and this was also the primary basis for the assessment of compensation under section 2(4)(a).

If it had been proved that the school could not be repaired, because its defects were so great that it could not be made safe and fit for continued use as a school, the cost of its replacement would have been a proper basis for assessing compensation. But Dr Hoyes concluded that the existing school could be repaired, even though the cost might be high. On normal principles of mitigation of damage, only if the cost of repair exceeded the costs of a new building could the latter figure be the proper basis for compensation.

Moreover, since Gwent could not prove that all the damage had been caused within the limitation period, it was necessary for the tribunal to make a general finding as to what proportion of the damage had been so caused. This did not require separate quantification of every item of damage: an overall assessment, which could be expressed as a fraction or percentage, was required.

Unfortunately, Dr Hoyes made no such finding. A failure to give proper and adequate reasons for a decision was an error of law. On this issue, therefore, the appeal must succeed.

The case should be remitted to the tribunal for further findings as to the extent of the damage to the school within the six-year limitation period and as to what, in the light of this judgment, was the proper basis of and amount of the compensation.

Lord Justice Hobhouse and Lord Justice Swinton Thomas concurred.

Paul Magrath, Barrister