HC Deb 27 April 1971 vol 816 cc383-94

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Fortescue.]

10.49 p.m.

Mr. George Cunningham (Islington, South-West)

Our business tonight is of a particularly watery character, but the waters which I intend to discuss are backwaters compared with those which we discussed earlier. The aspect of legislation and administration which I want to discuss is a backwater in which injustices can occur.

I have asked for the debate so that I can press the Minister to take action to enable the Brost Forge Company in my constituency to be compensated for damage to property and loss of earnings caused by flooding after two large water mains burst in Islington last summer. I am sure the Minister will recognise that this matter goes further than an individual case, and I raise the wider and more general issues so as to achieve justice in this case.

I feel that there is a need, as the Minister will know from previous correspondence, to review the law on the responsibility of water boards for providing compensation when their escaped water causes damage, but tonight I am not arguing for a change in the law—

Mr. Deputy Speaker (Sir Robert Grant-Ferris)

Changes in the law are out of order in Adjournment debates.

Mr. Cunningham

That, Mr. Deputy Speaker, is why I am not arguing for a change in the law, but rather inviting the Minister to operate the existing law and practice to provide justice to my constituent. I emphasise that I am not arguing for a change in the law and so anticipate the Minister's possible defence against my case.

I am describing a situation in which a water main, usually a large one, bursts and the water causes damage to private property in homes and factories in the area. This is not uncommon. In the Metropolitan Water Board area in the last five years there have been on average about 2,000 water main bursts per year, and in my Borough of Islington there have been in that period about 70 bursts a year. I make no criticism of the sense of responsibility and the administration of the Metropolitan Water Board. I am criticising the way in which the existing law has been applied in this particular case. I have a high regard for the administrative competence of the Metropolitan Water Board.

On two occasions last summer large water mains burst in the area of Holloway, and the Brost Forge factory was damaged because it lies at the bottom of a slope and the water collected and could not get away. The water rose to a height of several feet on both occasions, equipment was damaged—some quite expensive equipment—and some was damaged beyond repair. The operation of the business was held up for several days and the business suffered not only damage to property but loss of earnings because the property had been damaged.

The law, I understand, is like this. If the water board commits an act of negligence, for example by fitting a wrong connection to a pipe, it can be sued and will pay compensation. However, the mere fact that water bursts out of a pipe between one end and the other is not held to imply negligence on the part of the water board. I personally dispute that view in common sense, but that view has been upheld by the courts over the years, and there is, therefore, nothing we can do about it without passing legislation.

One consequence of this situation which has been allowed to become more and more restrictive over the years is that when a person suffers damage in this way he writes and asks for compensation. The kind of response he gets is an explanation that—and I quote from one such letter— as statutory undertakers acting without negligence, the Board is advised that it is under no legal liablity in this matter. People throughout the country get that kind of response to requests for compensation. There is no indication there to the ordinary member of the public that this is an ex parte view of the water authority which he is entitled to contest and to test in the courts if necessary. If he knows about these things, then he will know his rights, but the ordinary member of the public who has suffered damage to his property does not know these things.

It is important, therefore, that the Minister should get it straight with the water authorities, that when they deal with requests for compensation, they should make clear, in repudiating responsibility, if they must, that this is their view, and provide some means by which a member of the public can test that view and take the matter further. It should at least be made clear that he is entitled to take the matter further if he wishes, together with information about the particular form of compensation to which I am about to refer.

Despite what I have said, compensation is paid in certain cases where the law places no legal obligation on the authorities to do so. If a water authority wants to pay compensation, it asks the Minister to approve an ex gratia payment. The technicality of this, I understand, is that the Minister issues a certificate under section 228 (1) of the Local Government Act, 1933. That has the effect of debarring the district auditor from inquiring into the legality of the payment. It does not make an illegal payment legal, but it removes the remedy from what seems to remain an unstatutory payment.

That procedure has been commonly used—and this is a large part of my case —in past years. Between 1966 and 1970, it was used 32 times and a total of up to £3,000 has been paid out by various water authorities under Section 228 (1) by means of ex gratia payments. So the principle of paying compensation has been conceded and a procedure, albeit a very curious one, has been firmly established over the years for doing so.

I contend that, since this procedure is both legal and firmly established, it should be applied in the case of the Brost Forge Company. But the Metropolitan Water Board has declined to put the case to the Minister for consideration. The Board's argument is that this procedure is only used, should only be used and can only be used in cases where hardship has been caused to persons of very limited means, and it says that the Brost Forge Company does not fall into that category.

In order to satisfy itself of this, the Board conducted a very detailed examination of the accounts of the company. The company is a small one; it is a private company and the people who own it work in it. It is one of those companies which have been built up slowly over the years by the sweat of the people who own it. For many hours, the Board's accountant went over the books of the company in enormous detail—in more detail than would normally be required for anything except for Inland Revenue purposes. After that examination, the Board concluded that the company was not in such a situation as to make it a hardship case for the purpose and practice of paying compensation.

Although I am not now asking for a change in the law to provide a general system of compensation, it is as well to look at some general principles involved here because of the guidance they give on how the system of ex gratia payments ought to be operated. It may be held that insurance companies exist to cover exactly this kind of risk, and many policies do cover damage from flooding, but flood insurance is a particularly awkward form of insurance, Many policies do not cover it and many policy holders do not realise until it is too late that the flood cover is either very limited or non-existent.

There is a more important consideration. Most people would think, in common sense, that a water board should be liable when a pipe bursts and damage is done, and are therefore less careful about acquiring the necessary private insurance. They normally acquire private insurance for risks like burglary, where one cannot be certain of getting recompense. But when people know that a water board has the necessary finances, perhaps ill-advisedly they think that there is no need for private insurance. That reasonable conclusion has been frustrated only by the technicalities of judges in making the law much more restrictive.

It is said that these bursts are sometimes pure accidents for which no-one can be blamed. This view which has been built up, and which is particularly based on the 1963 case, Dunne v. North Western Gas Board, should not be applied in these cases. The whole purpose of a water board is to conduct water from one end of a pipe to the other without the water getting out in between, and it should be liable when the unexpected happens.

It would be unreasonable to expect the water board to examine its pipes sufficiently frequently to ensure that they never fractured. In the London area especially, where the pipes are old, the traffic is getting heavier and there are one-way streets which impose an additional strain on the pipes, it is impossible for the water board to dig them up every so often for a check. One cannot ensure that there will not be bursts, but only that there will be sufficient compensation, so that the person at the bottom of the hill does not suffer alone but the burden is spread over all users by means of a small additional charge. Those general criteria should be applied in dealing with the question of the ex gratia payment system.

My case is this: until the law is changed to put a general obligation on the boards, I accept that when loss is covered by insurance the boards should not pay. The Brost Forge Company was not covered by insurance for the damage caused by the first burst. It was covered in time for the second burst but there were some losses, like stationery and, more important, loss of earnings, for which cover was either non-existent or not total. It is difficult to get insurance companies to accept every possible kind of risk in these cases. Consequently, the company has suffered a loss of about £800, which is not covered by insurance.

Second, on the hardship question, an old-age pensioner who needs £20 or so to buy a new carpet is accepted as a hardship case. I wish to make it clear that there has been great appreciation in the area of these bursts of the payments of that character which have been made—and promptly made—by the Metropolitan Water Board. But it is not regarded as hardship when a small company struggling to build itself up suffers a loss of £800 which could cripple it. I do not accept that that is not hardship. If it is argued that a company which can afford to lose £800 cannot be hard up, I am prepared to advance the counter-argument that anyone who loses £800 suffers hardship and should be regarded in that way.

Thirdly, there is a clear conflict between the Metropolitan Water Board and the Ministry about the conditions necessary for an ex gratia payment. This is an important matter which the Minister must pursue. In a Written Answer to a Question by me on 9th February, the Minister said that no guidance had been given to water boards on the nature of the applications that the Minister was prepared to sanction. I verified later that that answer was intended to apply to the Minister and his predecessors in office. Another reply told me that each application is considered on its merits. Moreover, as a matter of fact, there has been no single case in the last five years of an application passed on to the Minister having been turned down.

However, the Metropolitan Water Board have told me and the company that the Minister will consider sanctioning such payments only where there is evidence that the party concerned is in necessitous circumstances and where the damage or loss is not covered by insurance. So there is a clear conflict between the board and the Ministry about whether it is the Ministry which is insisting that there needs to be hardship before an ex gratia payment can be made. Neither side has defined what "hardship" amounts to, which is another matter.

My case, therefore, is that there is confusion in this matter between at least this one water board and the Ministry, and I do not see why my constituents should suffer loss in circumstances where there is this total confusion about the law and practice between the Ministry and the board. If there had not been this confusion and the situation were that the Minister will consider any case put to him, it is very likely that this case would have been put to him and, if the past is anything to go by, it would have been approved, since no case put to the Minister in the past five years has not been accepted.

In these circumstances, it is not possible for the Ministry to shuffle the matter off, saying that it has no responsibility. It has overall responsibility for the legislation and for the working arrangements between itself and the Metropolitan Water Board. If it allows this confusion to arise, it cannot expect my constituents to suffer as a result.

I conclude, therefore, that the company has suffered loss through no fault of its own, and suffered hardship as a result. A means is available under the law as it stands by which compensation can be made legally by way of an ex gratia payment. Such payments have been made in many cases in the last few years, and for about the amount that I have been discussing, or more. There is utter confusion about cases which can be accepted and those which cannot be accepted, and, on that ground, my constituents should be given the benefit of any doubt. I ask the Ministry to go into this matter with the Metropolitan Water Board with a view to ensuring that my constituents are provided with an ex gratia payment up to the amount of the loss that they have suffered which is not covered by private insurance.

11.10 p.m.

The Under-Secretary of State for the Environment (Mr. Michael Heseltine)

There is not a great deal of doubt about the facts of the case as explained by the hon. Member for Islington, South-West (Mr. George Cunningham). I entirely accept that we are dealing with claims which he has been energetically pursuing on behalf of his constituent company, the Brost Forge Company, which has been claiming against the Metropolitan Water Board as a result of two bursts of their water mains last summer. However, there are difficulties which the hon. Gentleman would expect me to explain.

The Secretary of State does not have the power, which the hon. Member assumes him to have, to bring the sort of pressure on the board which would be necessary to make it accept liability for damages. Although it was not strictly relevant, in passing he made the point that the board and other water undertakers in letters turning down unsuitable applications in cases of this sort should be expected to explain that it was only their opinion which was expressed in the letter and that legal implications should be pursued through solicitors.

That may be applicable to people not sufficiently well versed in the normal practices of the law, but certainly that could not be said to apply to this company. It is clearly well able to understand the likelihood of a board of this sort being right or wrong. The Metropolitan Water Board is governed by the Statutes of the country, and the mere fact that the company has consulted the hon. Member indicates that it is not a company to take things lying down—and I would be the last person to suggest that it should. But the mere fact that it determined to raise the matter in this way shows that it had the determination to consult solicitors as soon as it discovered the legal situation within which the board operated. It is for the board to define its position in law, but the company is at liberty to pursue that definition through the courts. It is one of the facts of the case that it has not sought to do so, although that was entirely within its discretion.

This raises a fundamental question in these cases. The board is liable to pay when it is negligent. In this instance, however, it is advised by its solicitors that it was not negligent. In such circumstances, the board has made no application to the Secretary of State for exemption under Section 228 of the 1933 Act, because it believes that it has no liability.

Mr. Cunningham indicated dissent.

Mr. Heseltine

I do no think that the hon. Member can dispute this explanation of the facts. The board believes that it has no liability because it is legally advised that it was not negligent. That is a matter of fact. It is up to anybody who disagrees to seek redress through the courts.

Mr. Cunningham

The board has not applied to the Minister. This is not on the ground that it believes that it was not negligent. Indeed, if it had been negligent, it would not have needed to apply but would have paid compensation without applying to anybody. It has to apply when it has not been negligent, but nevertheless wants to make a payment. It is on that issue that I make my case.

Mr. Heseltine

Whether or not the board believes that there is a special case of hardship arising out of the burst mains last summer which would justify the payment of an ex gratia payment and to protect itself against the surcharge which could follow, the board did not apply for sanction under Section 228.

The hon. Gentleman suggests that the Department is in some way responsible for laying down conditions under which the board can expect to receive support if it makes such an application. I will certainly look at any letter which the hon. Member suggests he has received, but my information is that this is entirely a matter for the board itself to decide. It is true that none of the applications made to the Department in the last five years has been turned down, but it is for the board to decide the conditions under which it will make ex gratia payments. It takes the view that it is responsible to its consumers as a whole and that it should not accept liability except where there is a case of negligence, believing that if it were to make ex-gratia payments of this sort, which would have to come out of its funds, it would be subject to criticism unless there were exceptional circumstances. The exceptional cases, in the view of the board arise, only where there is a degree of hardship over and above that which the person who suffers may be expected to meet—in other words, in cases of extreme personal hardship where a householder of slender means is not insured or where a firm would have been bankrupted if the board's decision were to be other than favourable.

I accept at once that in this case detailed examination was carried out and it was felt that the extreme conditions of hardship did not apply, fortunately. In these circumstances the board decided not to apply for a sanction under Section 228. It is entirely the board's decision. It is not a matter on which the Secretary of State could seek to intervene.

Mr. Cunningham

I quite understand that the decision is one for the board and that it has not put up a case to the Minister. However, I hope that the Minister will take my point that there is confusion between the Minister's saying that he has given no guidance and the board's saying this in a letter dated 21st October, 1970 to the Brost Forge Company: The Minister will only consider sanctioning such payments where the party concerned is in necessitous circumstances and where the damage or loss is not covered by insurance. This conflict must be sorted out and the benefit of any doubt must be given to the member of the public who suffers. It cannot be left that the board has decided that there is nothing to be looked into. Clearly the whole matter needs to be examined and cleared up. In so doing, companies like the Brost Forge Company which have suffered must receive their just recompense. I hope that the Minister, who has spoken about hardship, will do something to try to lessen the hardship. One thousand pounds has been paid out in the form of an ex gratia payment in the past. If it were all right to pay £1,000 in one case, why is it not all right to pay out £800 in this case?

Mr. Heseltine

I said earlier that I will certainly study the letter to which the hon. Gentleman refers. I can only assume that the letter means that the board believes, in the exercise of its discretion, that it would be wrong to make application to the Secretary of State in terms other than those which I have outlined. However, if the hon. Gentleman would be good enough to let me have a copy of the lettter I will study it, because it is not the type of matter which I can be expected to study over the Dispatch Box or even to appreciate on having it read out to me by the hon. Gentleman.

I do not think that that letter changes the point that I wish to make, that no application has been made to the Secretary of State. I understand that it is not the board's intention to make any application, because it believes that in all the circumstances of this case there is no extreme hardship which would justify it in doing so. This is a matter for the board to decide. The remedy which is available in advance to the constituent company is one of insurance. In arrears it is a question of redress through the courts if the company believes that the board is in any way falling down or has fallen down on its statutory duties.

It would not be for the Secretary of State to urge or encourage water undertakers to make payment in circumstances in which they have no statutory authority to do so. It would not be part of the view we take of our responsibilities as a Department of State. It would be using the powers of sanction, which I suppose that we could argue that we have, in lieu of legislating. As the hon. Gentleman pointed out, this debate is not about a change in the law. That would be out of order, as the hon. Gentleman pointed out. It is outside the scope of the debate.

Therefore, I have to say that in the context of this case there is nothing that the Secretary of State feels able to do, al- though I qualify that by my offer that, if there is a letter which the hon. Gentleman wishes me to look at, I will be only too happy to do so; but I greatly doubt that there will be some new evidence—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at nineteen minutes past Eleven o'clock.