Reading the riot act

It is estimated that more than 1000 homes and business in London were adversely affected in some way or another by the recent violence, which engulfed many parts of the capital in August this year. Around the UK many other cities were affected as well, to the extent that Parliament was recalled to debate the issue.

The riots raise interesting issues that relate also to those involved in construction projects, in particular, what compensation, if any, can be claimed by those affected.

Under the JCT suite of contracts a contractor’s loss occasioned by a “specified peril” (which includes riots) is a relevant event, which entitles the contractor to an extension of time but not a relevant matter entitling the contractor to claim loss and expense as well. In these situations most will turn to their insurance policies for compensation. Even if valid claims can be made under insurance policies there are still, in some cases, substantial excesses to be borne by the affected claimant.

Other types of contracts are not so generous. For example in standardised PFI contracts although riot and civil commotion is a”relief event” the contractor bears the financial risk of such an event. A relief event only entitles the contractor to relief from termination. It also does not fall within the definition of force majeure.

Luckily help is at hand in the form of a 125 year old statute - the Riot (Damages) Act 1886 (RDA). This is a statutory compensation scheme, which entitles those affected by rioting to claim compensation under the RDA against the relevant local police authority. The RDA provides that where a house, shop or building in a police area has been injured, stolen or destroyed or the property within it has been injured, stolen or destroyed by anyone “riotously and tumultuously” assembled together, compensation is paid out of the police fund of the area to any such person who has sustained loss by such injury, stealing or destruction.

The compensation scheme is available to all persons or organisations who have suffered loss related to the riots regardless of whether or not they are insured. If they are insured they can only claim for amounts for which they have not been able to recover under the insurance policy, for example, any excess.

Even better news for the insurance companies is that they can also claim if they have had to pay out as a result of the rioting. This policy decision by the government means that policy holders will not be penalised in the form of higher premiums purely as a result of the increased number of claims caused by the riots.

The main limitation of the RDA in terms of scope of compensation is the fact that a claimant cannot recover compensation for lost profit or other business interruption. In the absence, therefore, of adequate insurance cover, a contractor would not be able to recoup all its loss and expense under the RDA. Contractors affected by the riots should check their policy wording carefully.

Under RDA claims have to be made within 14 days of the event but the government announced that this time limit for submitting claims has been extended to 42 days. Some claimants are concerned that the Metropolitan Police is seeking to avoid responsibility for paying compensation under the RDA on account of the fact that they have not categorised the violence as rioting. The Met Police homepage describes the rioting as “serious disorder and violence” but “riot” is defined under the Public Order Act 1986 as “where 12 or more persons who are present together use or threaten unlawful violence for a common purpose and the conduct of them (taken together) is such as would cause a person of reasonable firmness present at the scene to fear for his personal safety.”

The Department for Business, Innovation and Skills has helpfully published on its website guidance notes and a claim form for those wishing to make a claim under the RDA. The government has also made available £20m to local authorities for high street support scheme funding to help small and medium sized enterprises (SMEs) to get back on their feet after the riots (see www.bis.gov.uk).