COMPENSATION FOR CONSEQUENTIAL LOSSES OF SMALL FIRMS (Hansard, 22 April 1991)

§ Mr. Heathcoat-Amory
I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker
With this it will be convenient to take Government amendments Nos. 28, 13 to 17, 30, 31 and 35.

§ Mr. Heathcoat-Amory
When we debated clause 29 in Committee, it was pointed out that treating subsidence damage to movable property as though it had arisen from British Coal's negligence would allow claims to be made for consequential loss. As a result, as my hon. Friend the Member for Sherwood (Mr. Stewart) pointed out at the time, the Bill as considered by the Standing Committee was inconsistent in that it allowed claims for consequential loss when these arose from subsidence damage to movable property, but not when they arose from subsidence to buildings. I therefore undertook to reconsider the issue of consequential loss.
I remind the House that the Waddilove committee, which considered the matter, did not recommend that statutory provision should be made in respect of consequential loss arising from subsidence damage, except in specific instances such as crop loss payments to farmers and expenses incurred by householders who had to move home. It was not, therefore, the Government's intention to legislate to allow claims for consequential loss generally. However, it had escaped our attention that, in the case of movable property, such claims would be allowed.
Although the general idea of consequential loss is well known, it is nevertheless a concept that lacks precise definition. Unlike the case of damage to property, consequential loss depends on such factors as the nature of the business affected, the state of its order book, the 832 availability of spare capacity, the duration of the damage, and scope for mitigation. It is hard for any business to assess its liabilities for consequential loss which it may cause in other businesses, given the uncertainties. That is offset for most businesses by the knowledge that a liability for consequential loss will arise only if they are negligent. But it would be much more difficult for British Coal to assess its liability for consequential loss arising from mining subsidence because subsidence is not negligence but part of its normal, day-to-day, lawful business operations.
A business can operate without being negligent; but British Coal cannot realistically operate without causing mining subsidence. Accordingly, there would be a serious risk that substantial quantities of otherwise economically extractable coal reserves might be sterilised simply on account of the uncertain scale of liability that might arise from claims for consequential loss. This consideration alone would point towards proceeding cautiously.
Another important point, however, is that British Coal is not acting negligently in carrying out mining operations. It is lawfully entitled to do so, in the public interest, in order to exploit a major energy resource. Where such mining damages property, the law requires the corporation to take remedial action and bear the expense. That is what the Bill is about. That is the case even if, for example, a developer erects a new commercial building in a mining area over mineable reserves of coal. He has in so doing created a new liability for British Coal—the liability to repair any subsidence damage to this new building arising from the mining of coal that it already owns. In a sense, one could describe this as a consequential loss for British Coal arising from the developer's activities—although in this situation the corporation has no entitlement to compensation for the increased cost of recovering those coal reserves or even for their sterilisation, if that is the consequence of the development.
There are some fundamental issues here, involving a conflict between the legitimate interests of business operations on the surface and the legitimate business operations under the surface of the same land by British Coal.
The House may have to return to this issue in future legislation, but for the moment I recognise that consequential loss experienced by business may give rise to hardship, and in such circumstances compensation would be appropriate.

§ Mr. Meale
Will the Minister clarify one point? I fully appreciate what is proposed in the new clause. I realise that the Minister is helping the business community, but what about the large businesses in the communities called local authorities? Will consequential loss by them be covered? Such costs ultimately fall on the ratepayers. Is the provision only for small businesses?

§ Mr. Heathcoat-Amory
I shall come to the types of business that would be covered by consequential loss, but I confirm to the hon. Gentleman something which he already knows. There is no provision in statute for consequential loss, and certainly local authorities are not covered.
British Coal aims to deal sympathetically with such hardship cases. To give an easy example, if a corner shop loses trade while subsidence damage is being repaired, the sole proprietor could well experience hardship. On the 833 other hand, if a supermarket which operates in a mining area but is part of a regional or national chain loses trade in similar circumstances, the proprietors of such a geographically diverse business are unlikely to experience hardship.
8 pm
Hardship in this context would be difficult to define in legislative terms. As a proxy, we have prepared a new clause which allows compensation to be paid to small firms which experience consequential loss as a result of damage to their business premises. Amendments to clause 29 treat similarly consequential loss arising from damage to movable property.
Because consequential loss is likely to increase with time, the clause would require the small firm to notify British Coal as soon as reasonably practicable after the loss is first experienced so that the corporation can suggest any mitigating action and the precise circumstances of the loss can be understood by the two parties to the claim to minimise the risk of subsequent disputes.
Clearly, all reasonable steps to mitigate the extent of consequential loss should be taken as quickly as possible, and subsection (2) refers explicitly to the common law rules that apply. Notification of individual property owners under the provisions of clause 44 will alert the firm to the possibility of subsidence damage and therefore will assist in planning mitigating action. The serving of such individual notices on business premises will also remind British Coal of the possibility of consequential loss arising from mining operations. In all the circumstances, we think it right to restrict claims for consequential loss to properties for which such notices have been or should have been given.
The definition of "small firm" is important. We have borrowed it from employment legislation and have set a ceiling of 20 employees, although we propose to vary that number by order and provide for that in the Bill.
New clause 3 and the amendments to clause 29 establish a clear basis on which small firms, those most likely to experience hardship, could claim compensation for consequential loss arising from damage to business premises or movable property used by such businesses. It represents a sensible advance on present law. The wider questions connected with consequential loss will need to be looked at in connection with future legislation.

§ Mr. Barron
I intend to be brief. We welcome new clause 3, which arises directly from amendments to clause 29 that we tabled in Committee. It deals with the question of compensation for consequential loss to movable property, but not fixed property. We gave as an example a dairy farmer.
New clause 3 is a brave attempt to strike a balance. It addresses the question of how far coal mining is prejudiced by any losses that may be suffered on the surface—not in terms of property, which is easily definable, but in circumstances of consequential loss or of contracts that may be held by anybody working above any areas that are being mined. We are pleased that the Government have taken our arguments on board.
The Minister said that the Government had borrowed the definition of small firms, which was firms of not more than 20 people. We hope that they will be flexible and prepared to vary the number by order to include bigger firms. We look forward to seeing how the proposed new 834 clause operates and whether it brings better, more effective justice to people and businesses, however small, that are affected by mining activities.