YORKSHIRE WATER SERVICES LIMITED v THE COAL LCA/145/2002

UPPER TRIBUNAL
LANDS CHAMBER
LCA/145/2002Case No LCA/145/2002
Between
YORKSHIRE WATER SERVICES LIMITEDApplicantTHE COALRespondent
Before
His Honour Judge Michael Rich Q.C.Venue 48/49 Chancery Lane, London WC2A 1JRDate 3 February 2004Hearing 28 and 29 January 2004Property: Public road and surface water servers and highway drains at Darlington, South, YorkshireCatchwords: Compensation – Mining subsidence - Coal Mining Subsidence Act 1991, ss.9, 13 and 44(2) – Limitation period for making Reference – When obligation to make payment in lieu of works arises – When “expenditure incurred”
[1]The claimant is the statutory undertaker with responsibility for the maintenance of the drainage system in the Darrington area of West Yorkshire. On 17th November 1992, the claimant served on the Authority’s statutory predecessor a Damage Notice pursuant to s.3 of the Coal Mining Subsidence Act 1991 stating that deformation of the drainage systems for which it was responsible, had been caused by mining subsidence.[2]By s.2(1) of the Act, it became the duty of the Authority to take remedial action in respect of such subsidence damage. In the case of damage to property which a statutory undertaker is under a duty to maintain, S.9(1) requires that the remedial obligation is to take the form of a payment under that Section, which is headed “Obligatory payments in lieu”, that is in lieu of the execution of remedial works by the Authority. By s.9(3):
“Subject to subsection (4) below, the payment required under this section in respect of any damage is a payment equal to the cost reasonably incurred by any person [i.e. other than the Authority] in executing remedial works.”
Subsection (4) provides:
“Where remedial works are executed after the end of the period of three years beginning with the date of the claimant’s damage notice, the amount of any payment under subsection (3) above shall not exceed the cost which might reasonably have been expected to have been incurred in executing those works if they had been executed immediately before the end of that period.”
[3]On 3rd November 1997, the Authority approved a scheme of remedial works, which the claimant employed a contractor, Murphys, to undertake under a contract entered into on 24th November 1997. Murphys achieved substantial completion of the works on 17th September 1998, and delivered their final account on 19th May 1999. The engineer’s certificate in respect of that final account was delivered on 10th December 1999, and the claimant made the final payment to Murphys in the sum of £249,424.72 on 4th January 2000.[4]The claimant has claimed from the Authority a total of £835,029.36 as being the cost of the agreed remedial works. Of this £606,046.46, including the final payment made on 4th January 2000, was paid to Murphys. The remaining £185,732.23 was paid to other contractors or consultants at earlier dates during 1998 and 1999. The Authority has paid a total of £630,854.79 in discharge of its obligation under s.9 of the Act, to make payment in respect of the cost incurred in executing the work, which it had approved. It has refused to pay further sums. THE CLAIM[5]On 3rd December 2002, the claimant issued a notice of reference making a claim “in respect of the breach by the Coal Authority of their remedial obligation in respect of subsidence damage.” By Points of Claim served in January 2003, the sum claimed was 2 quantified as £204,174.57 being the difference between the claimant’s total claim of ££835,029.36 and the total payments made by the Authority in the sum of £630,854.79.[6]By its Points of Defence, served on 24th February 2003, the Authority admits that it has refused to make payment of the sum now claimed by the claimant, but raises three defences. Firstly it is denied that costs equal to such amount, were reasonably incurred. Secondly reliance is placed on s.9(4) and it is alleged that the costs incurred exceeded what might reasonably have been expected to have been incurred in executing the works if they had been executed before the end of three years from the service of the Damage Notice. It should perhaps be noted that in calculating such period the Authority has not disregarded, as required by s. 16(5)(d) of the Act, the period from 21st January 1993 till 10th November 1993, during which it is agreed, in an agreed statement of facts, that a stop notice pursuant to s.16 of the Act was in force.[7]By paragraph 7 of the Points of Defence, the third defence was raised as follows:
“Further or in the alternative, the Claimant’s reference has not been made within the period required pursuant to s.44(2) of the 1991 Act, and the claim is accordingly statute barred.”
S.44(1) of the Act applies that section “to any question arising under this Act as to whether the [Authority] are in breach of their remedial obligation in respect of any subsidence damage”. Sub-s (2) provides:
“No question to which this section applies shall be heard and determined by any tribunal …unless the necessary reference is made … before the end of whichever of the following periods last expires, namely – (a) the period of three years beginning with the earliest date on which [the Authority] are in breach of their remedial obligation; and (b) the period allowed by section 3 above for giving a damage notice …( the period of six years beginning with [the first date on which any person entitled to give the notice had the knowledge required for founding a claim (see s. 3(3))]”
The period under paragraph (b) clearly expired no later than 17th November 1998, and the issue raised by this paragraph of the Points of Defence is therefore whether the period of three years from the alleged breach of the Authority’s remedial obligation had also expired. PRELIMINARY ISSUE[8]By Order dated 26th August 2003, the President ordered the trial of the following preliminary issue; “whether the reference was made within the period limited by section 44(2) of the Coal Mining Subsidence Act 1991.” 3 Having regard to the matters which I have set out above, the answer to this question depends upon whether the date of the Authority’s alleged breach of its remedial obligation was or was not before 3rd December 1999. THE AUTHORITY’S ARGUMENT[9]Although, before the Tribunal, Mr Singer, for the claimant, made his submissions first, it seems to me that the burden of showing a limitation defence properly rests on the party setting up such defence, and it is convenient to deal first with the submissions of Mr Darling QC on behalf of the Authority.[10]Mr Darling’s skeleton argument relied upon the formulation of the Authority’s obligation under s.9(3) of the Act as being to make a payment “equal to the cost reasonably incurred …in executing works” (my underlining). He submitted that the cost was incurred when the contract was entered into in November 1997. He drew attention to the decision in Hillingdon v ARC Ltd [1999] Ch 199 where, at p.150, it was accepted that a cause of action may accrue although the sum to be recovered has yet to be quantified. Even if that was not right, he submitted that, at the least, costs were incurred when liability to make payment arose, which he submitted must be when the work was completed in September 1998 or no later than the date when the Final Account ought to have been ascertained and paid which he put at September or October 1999.[11]It was only during the course of Mr Singer’s opening submissions that attention was directed to s.13 of the Act which, in my judgement, sets out the date upon which the Authority’s obligation to make payment, in fact, arises. Sub-sections (3) to (7) set out the power of the Authority to make advance payments in respect of “proposed expenditure”. By sub-s.(6) the Authority “shall not unreasonably refuse any request to make an advance payment”, but no such request was made and it is not alleged that the Authority was in breach of its remedial obligation other than its failure to make payment as required by subs. (8). This provides: “So far as not made … before the expenditure in question is incurred, any payment .. shall be made as soon as practicable after the expenditure in respect of which it is required to be made has been incurred” (my underlining). The question which determines the date of any breach by the Authority of its remedial obligation, which does indeed, arise under s.9, is not, therefore, the date upon which “the cost” was incurred, which is what is referred to in subs (3) of that section. That subsection, together with subs (4) which deals with delay in executing works, sets a limit upon what may be recovered by the claimant by reference to what might reasonably have been incurred. The amount thus assessed is, however, then to be paid “as soon as reasonably practicable after the expenditure has been incurred”.[12]Mr Darling accordingly drew my attention to the decision of Wild CJ in a New Zealand tax case, King v Commissioner of Inland Revenue [1974] 2 NZLR 190. In that case Wild CJ construed the definition of allowable deductions for tax purposes in s. 121 of the Land and Income Tax Act 1954 which used the expression “Expenditure incurred .. in the borrowing of money”, to include a liability added to the amount of a loan, rather than actually paid out 4 in the relevant year. His conclusion rests heavily upon the history of the particular enactment, which was a consolidating act, and upon a comparison with the construction of an Australian statute dealing with similar matters, which referred to “losses or outgoings .. incurred”. He said at p. 195:
“The phrase ‘losses or outgoings’ in the Australian section is to be compared with the word ‘expenditure’ in the New Zealand section. ‘Expenditure’ is defined in The Shorter Oxford English Dictionary as ‘The amount expended from time to time’ and the meaning of ‘expend’ is given as ‘To pay away, lay out, spend’. In the New Zealand section the word ‘expenditure’ is linked with the word ‘incurred’, as is the phrase ‘losses or outgoings’ in the Australian section. For that reason, notwithstanding the citation made by McGregor J. from Kekewich J., I think the reasoning of the High Court [of Australia] should be applied to the construction of s.121. Accordingly I think that a deduction may be allowed under that section in respect of ‘expenditure incurred’ although there has been no actual disbursement if, in the relevant year, the taxpayer is definitely committed to that expenditure.”
Thus, although the judgment places some reliance on the meaning of the word “incurred”, it accepts that the ordinary meaning of “expenditure” involves actual disbursement. Every statute must, of course, be construed according to its own context, and to that extent the judgment of Wild CJ is of limited assistance any way. But it seems to me that in s.13 of the Act of 1991, there is a clear contrast made between expenditure “incurred” which gives rise to an obligation to pay and expenditure “proposed” which gives rise to a power to pay and a duty, only if a request is made, not unreasonably to refuse to pay in advance of the expenditure being incurred. Only if an advance payment is made can payment have been made “before the expenditure in question is incurred” such as is envisaged by s.13(8). In such a context I do not think that “incurred” can be construed to have the wider meaning apparently given to it in the Australian case upon which Wild CJ relied, namely of committed, rather than its natural meaning in the context of expenditure namely defrayed, discharged or disbursed.[13]I would in rejecting Mr Darling’s primary submissions, for the above reasons, also place reliance upon the contrast between the language of s.9 and that of s.13. The draftsman has, in the two sections, carefully distinguished between “cost” and “expenditure”. In s.13(7) payments are to be made to the person “by whom the cost of executing the works .. is (or is to be) incurred”, but by s.13(8) it is to be paid “after the expenditure .. has been incurred.” In s.9(3) the contrast is between the “payment”, which is to be made, and “the cost reasonably incurred” by reference to which the amount of the payment is to be determined. I would accept that, particularly in the context of such differentiated choice of language, “cost” does mean price or the amount of the commitment, not the amount of a disbursement. “Expenditure”, by the same token, means disbursement, not merely commitment or liability to disburse.[14]The conclusion at which I have arrived from consideration of the language of the statute also commends itself in terms of workability. If Mr Darling’s construction, that the Authority’s obligation to pay arises upon the claimant’s committing itself to incur the expenditure, rather than upon its actually making the payment, were right, s.13(8) would impose an obligation on the Authority to make a payment, in respect of which it also would 5 have an overlapping power to make an advance payment. The Court of Appeal held in Knibb v National Coal Board [1987] QB 906 that where the compensating authority, under the preceding legislation to the 1991 Act had failed, to comply with its remedial obligations, the Tribunal had power to award interest. Of course, any such award would be discretionary, but the obligation as construed by Mr Darling would entitle the claimant to be put in funds before he had any liability for actual disbursement. This does not appear to be a reasonable scheme of compensation. Moreover it would be inconsistent with s.13(6), which places an obligation to make an advance payment on the Authority, only if it would be unreasonable to refuse.[15]In further submission, Mr Darling distinguished different heads of the claim, totalling, as I have set out, £204,174.57 in all, in a way with which Mr Singer, for the claimant has accepted. It is therefore most convenient to record the effect of these submissions, in turning to the claimant’s case. CLAIMANT’S ARGUMENT[16]Mr Singer’s primary submission was that the relevant date for determining when the Authority was in breach of any remedial obligation for the purpose of s.44(2)(a) of the Act, is the date by which it would have been reasonably practicable to make payment, after the claimant had actually paid for the execution of the works in respect of which he is claiming reimbursement. For the reasons which I have given in paragraphs 11 to 14 above, I accept that that is the correct construction of the Act.[17]In order therefore to ascertain, for the purposes of s.44(2)(a), what is the earliest date on which the Authority was in breach of its remedial obligation to make any particular payment, it is necessary to ascertain the date upon which the claimant made the particular payment in respect of which he seeks reimbursement. If that is not within the limitation period, it would become necessary to determine a reasonable time after such date within which the Authority should have made payment. Mr Darling, as I think rightly, distinguishes the payments made to Murphys from other payments. The payments made to Murphys were made in stages. Reimbursement was likewise made by stage payments, not precisely matching or specifically assigned to any items in the Murphys account. The last payment to Murphys was on 4th January 2000. Such last payment has not been fully reimbursed and payment has now been refused for the following items:(i) loss of productivity £123,275.25(ii) Site Overheads £ 11,304.30 (iii ) Deferred Start £ 18,634.87 (iv) Delayed Start £ 10,457.24 making a total of £163,671.66 This total is however less than the payment of £249,424.72 made to Murphys on 4th January 2000. If, as is alleged, those sums should have been reimbursed upon the claimant’s submitting such final account to the Authority, the Authority’s breach of its obligation arose upon its failure to make such payments as soon as reasonably practicable after that date. That 6 is necessarily less than three years before the making of the reference in December 2002, and the claim in respect of those sums is not statute barred.[18]In the case of the payments other than to Murphys, however, Mr Singer accepts that the position is different. Mr Singer accepts that the rest of the claimant’s outstanding claim, amounting to £40,502.91 (which I will refer to as the “non-Murphys claim”) is in respect of moneys disbursed so far before 3rd December 1999 that it would have been reasonably practicable for the Authority to make payments in respect of them. He has, none the less, argued that the Authority could not be in breach of their obligation to make payments whilst they continued to make stage payments, as they did until a last payment of £6,992.97 in December 2002. If there had been some agreement that such delayed payments would be accepted as complying with the obligation to pay “as soon as reasonably practicable”, I could understand such submission; but if the Authority was in breach of its remedial obligation by not making the full payment due, additional payments of part of what is due merely remedy the breach to the extent that they make payment of what is due. In respect of what is still due and outstanding, the date from which it has been outstanding is not affected by subsequent part-payment. CONCLUSION[19]I therefore determine the Preliminary Issue in this case by declaring that the reference was made within the period limited by section 44(2) of the Act of 1991, in respect of those items of claim listed in paragraph 17 of this Decision, but that the non-Murphys claim is barred under that section. COSTS[20]Mr Singer asks that, if he thus succeeds on the preliminary issue, the claimant should have its costs of the issue, without prejudice to the order as to costs on the substantive hearing which may be appropriate if costs have been expended on the merits of the non- Murphys claims.[21]Mr Darling resists that application firstly on the ground that the claimant has been only partially successful. It seems to me that the Authority has failed in the objective of seeking the trial of a preliminary issue, namely to bring the proceedings as a whole to an end. So far as that objection to costs following the event therefore, I think that the Authority is sufficiently protected if I specifically confine my Order to the costs of the issue in the way Mr singer proposes.[22]Mr Darling next says that the claimant should be deprived of its costs, or some part of them, because no reference was made in Mr Singer’s skeleton argument to s.13, which I have held to be the determinative provision in the Act. But skeletons were exchanged. The burden was on the Authority. Counsel on both sides owed a duty to the Tribunal to draw attention to the relevant statutory provisions. Mr Darling’s skeleton, none the less, equally omitted to refer to this section of the Act. It is, I agree, unfortunate that the parties pursued this issue without, apparently, identifying on either side what, on its being raised, was accepted as the determinative statutory provision. I do not think, however that that can, in the circumstances, be a reason for depriving the successful party of its costs. 7[23]My Order as to costs is therefore that the claimant shall have the cost of the preliminary issue only, to be assessed by the Registrar, if not agreed. FURTHER DIRECTIONS[24]Directions were given on 31st January 2003, and, by the order dated 26th August 2003, the time for compliance with the outstanding directions, was extended till 56 days after this Decision. The parties were given liberty to apply. In the absence of further application no further directions appear to be required, but the parties should seek to agree with the Tribunal’s listing officer a date for the substantive hearing. Dated 3 February 2004 (signed) His Honour Judge Michael Rich QC 8