Consequential Losses, Rioting and the Riot (Damages) Act 1886
Mitsui Sumitomo Insurance Co and Others v The Mayor's Office for Policing and Crime
12 September 2013
The facts of the case stem from the destruction by fire and the looting of the Sony Distribution Warehouse in Enfield on the night of 8 August 2011, at the time of the widespread civil disorder and rioting over that period. Total claims of c. £60 million were presented under the Riot (Damages) Act 1886 ("RDA") by the insurers of Sony, the insurers of the owners of the warehouse, and the owners of stock held in the warehouse.
Section 2(1) of the RDA provides that:
...Where a house, shop, or building in a police area has been injured or destroyed, or the property therein has been injured, stolen, or destroyed, by any persons riotously and tumultuously assembled together, such compensation as hereinafter mentioned shall be paid out of the police fund of the area to any person who has sustained loss by such injury, stealing or destruction....
1) The losses claimed by the Claimants were caused "by any persons riotously and tumultuously assembled together" within the meaning of the RDA; and
2) Consequential losses (including loss of profit and loss of rent) are recoverable under the RDA.
Persons riotously and tumultuously assembled
The Court held that the following characteristics are necessary for the relevant police authority (MOPAC in this instance) to be liable to provide compensation:
- There must be a riot within the meaning of s.1 of the Public Order Act 1986. That requires that there must be 12 or more persons present together who use or threaten unlawful violence for a common purpose whose conduct is such that would cause a person of reasonable firmness present at the scene to fear for his personal safety.
- The assembly must be of "some size". The Court left open the question of whether the minimum of 12 people would always satisfy the "tumultuously" requirement of the RDA or whether that was to be determined separately as there were upwards of 20 involved in this instance.
- The persons assembled must be acting in an "agitated, excited, volatile manner, usually also making a noise, rather than acting stealthily, so that it can be said that their riotous behaviour could, at least notionally, have been prevented by the police". Although that does not mean that the rioters must necessarily be making a tremendous noise, there must be some "public" element to their behaviour to which the police could, notionally, have responded.
- The rioters must be engaged in wanton damage to property or exhibit an animus toward the property (and not simply be looting to steal).
Unsurprisingly on the facts, the Court held that each of the above criteria was satisfied in this instance. The overwhelming body of evidence demonstrated that well in excess of 12 persons participated in the incident, and the conduct of the group included smashing down the door, running through the warehouse looting and then setting fire to it (such as would quite clearly have caused a person of reasonable fortitude to fear for his personal safety). The behaviour of the participant youths was agitated and volatile whilst they were gathering beforehand and CCTV footage showed that the incident itself was a "frenetic, agitated, chaotic process with some groups almost dancing around outside whilst others smashed their way into the building using a variety of implements". Although the Court held that the raid on the warehouse was planned (in the sense of youths gathering beforehand and calling or messaging others to join in), the Court rejected the notion that this was a systematic burglary – the behaviour was agitated, excited and volatile and not that of a professional gang of thieves where one might have expected the use of more sophisticated tools to effect entry and the theft of a vehicle to carry away stolen goods.
Interestingly, the Court held that seeking to place the incident in the wider context of the civil disorder in London did not advance the Claimants' cases given the focus placed by s.2 of the RDA on a specific "house, shop or building... or property", though the Court nevertheless recognised that the civil disorder in Enfield itself could be relevant in evidencing that the youths acted "tumultuously" on the incident night given that there was evidence that they were also involved in the previous night's disorder, and given the perception of the local community that the disorder from the previous evening was set to resume on the incident night.
The claims in question included substantial claims for consequential losses (for loss of rent and lost profit including the costs of mitigation), and the question as to whether or not consequential losses are recoverable under the RDA is obviously one of considerable importance to the insurance industry generally.
Upon careful consideration of the principles of statutory interpretatioxn (including the legislative history), the Court held that:-
- On the correct construction of the RDA as a whole, the compensation payable is limited to physical damage to the relevant premises or property in it and does not extend to consequential losses such as loss of profit or loss of rent.
- Because it is "clear" from the wording of the RDA that compensation is only provided for physical damage and not consequential loss, it was not necessary or appropriate to have regard to the wording of the 1886 Regulations made under the RDA, but even if it had been, the Regulations make it "quite clear", according to the Court, that the loss to be compensated is restricted to physical loss or damage.
- The above analysis is not affected by insurers' argument that the liability to pay compensation is akin to a strict liability in tort sounding in damages. The RDA provided a self-contained regime of compensation which has a number of aspects alien to the general law of tort and the award of damages in tort. The Court also commented (on an obiter basis) that the scheme of compensation under the RDA is analogous to a form of statutory insurance, and there is nothing in the slightest bit surprising or alarming in the fact that the compensation provided excluded consequential losses.
- At the time that the RDA was enacted, the provisions of s.2(1) were completely different from the basis upon which damages would have been awarded in tort. It was never intended by parliament, on the correct construction of the RDA, to equate the damages payable with damages recoverable in the law of tort.
- As to insurers' point that it would be anomalous if the compensation did not include loss of profits in circumstances where the assessment of the market value of profit earning property might include an element of uplift for anticipated profits, the Court held that whilst such an uplift might be made in an appropriate case in assessing the market value of a property to determine the "just" compensation under the RDA, the RDA does not provide compensation for consequential losses as a free-standing head of claim.
- Although the judgment on consequential losses ought to come as no surprise in the context of a common sense interpretation of the RDA and the historical approach to such losses, it will nevertheless naturally be of some disappointment to insurers given the considerable sums at stake arising from the 2011 rioting.
- Whilst policymakers continue to debate the modernisation of the regime on riot damage compensation, this judgment disallowing consequential losses may well reduce any impetus for effecting any change which transfers the liability for such losses to the public purse.
- The judgment is nevertheless to be welcomed for laying down further guidance on the interpretation of the RDA (and in particular the question as to when persons will be considered to be "riotously and tumultuously assembled together"), and clarifying any remaining uncertainty on the consequential loss position.
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