NI Department of Justice Proposal to Reform Compensation Scheme

20 April 2015

Graham Pierce considers the impact of the review of the Criminal Damage Compensation Scheme and potential inadequacies in the repairing and insuring provisions of commercial leases

Northern Ireland’s Department of Justice has recently concluded a consultation on proposals to reform the criminal damage and criminal injuries compensation schemes in Northern Ireland. This article concentrates on the criminal damage aspects of the review.

The review comes against the background of swingeing budget cuts across the criminal justice system in Northern Ireland including to the legal aid fund.The Department is keen to point out the burden the present scheme imposes on the public purse and cites in evidence the scale of compensation paid out by the government in the wake of the riots in North London in the summer of 2011.In that case compensation ran into hundreds of millions of pounds and one claim alone in relation to an electronics retailer’s warehouse in Tottenham amounted to some £74m.

The Criminal Damage (Compensation) (NI) Order 1977 was introduced in the midst of the worst of the bombing campaign in Northern Ireland and in particular attacks on the commercial heart of Belfast. This had led to much of the insurance industry withdrawing cover for riot and terrorist damage to buildings in Northern Ireland so the government was forced to step in to effectively underwrite the insurance industry by providing a tax-payer funded compensation scheme.As the department’s consultation document says, “a very different environment exists today” and the amount of claims made and compensation paid out under the legislative scheme has fallen steadily to the point where in the year 2013/2014 only 13 claims for terrorist related events were successfully made. Furthermore following consultations with the insurance industry the Department is satisfied that insurance cover for terrorist related damage is now widely available in Northern Ireland and indeed the insurance industry views the risk of criminal damage occurring as a result of terrorist activity as being no greater in Northern Ireland than in any other part of the United Kingdom.

Accordingly government evidently thinks the time is right to scale back tax-payer support in this area. Nevertheless the proposal is that Northern Ireland should still have a statutory criminal damage compensation scheme for the foreseeable future (making it the only country within the EU to have such a scheme).

Accordingly cover would still be provided were damage is caused as a result of terrorist related activity or by persons acting on behalf of an unlawful association or resulting from serious public disorder however whereas under the present scheme three persons or more could constitute a riot, under the new scheme it would require a minimum of twelve persons to constitute serious public disorder.

Significantly there is also a proposal to introduce a cap of £2m on the maximum amount of compensation payable for any individual claim.It is believed that the insurance industry will provide cover for any loss greater than £2m although how the mechanics of this would work are unclear. For example, would the property owner be required to claim the maximum amount of compensation and pay it to his insurer before the insurer would pick up the balance?

There are also question marks as to the compatibility of the proposals with the repairing obligations contained in many commercial leases of property in Northern Ireland, obligations which have been agreed against a background of unlimited availability of compensation. There could be a mismatch between the obligations of a claimant as tenant under a commercial lease and the availability of compensation, leading to a situation where the risk is uninsured and not eligible for compensation and the tenant has insufficient funds to reinstate the property. Landlords and tenants may therefore wish to review the adequacy of the repairing and insuring provisions of their leases in the light of the new proposals and landlords will certainly wish to review the adequacy of their insurance cover, should these proposals be brought into effect.

This article is only intended to give a brief overview of the government’s proposals.The proposals are more detailed and wide-ranging than can be covered in this article and specific legal advice should be sought before any steps are taken. 

Graham Pierce is a Commercial Property partner at Worthingtons.Tel:028 9043 4015; Email:Graham@worthingtonslaw.co.uk or visit www.worthingtonslaw.co.uk

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