Unless the decision is overturned on appeal, Hampshire council will have to find the money out of its running costs. Although the authority self- insures, it has not built up separate insurance reserves.
Hampshire council's liability arose from the mistaken decision of fire officers to switch off the factory's sprinkler system, believing it was hampering their efforts to reach and fight the fire. The court accepted that had the sprinklers been left on, damage would have been much less severe. It was, said Mr Justice Havery, "a bad blunder".
Lawyers acting for the building's owner, Capital & Counties, also successfully argued that the fire brigade was in breach of its duties to inspect buildings properly, and consequently was unaware that there were voids in the roof space that allowed the fire to spread quickly. This is of great potential significance, as many fire brigades have reduced their fire prevention work in response to budget cuts.
The other joint defendants had settled earlier in the case's progress, accepting that the fire had been caused by the mistake of an employee, had been possible because of a defective electrical connector and had spread as a result of a design failing.
Hampshire council had unsuccessfully argued that public bodies did not owe a duty of care. This view was rejected by the courts. "Courts are not very keen on the idea of putting public bodies on a pedestal, and saying that whatever they do, they are immune to action," said Geoff Smyth of the solicitors Cameron Markby Hewitt, which acted for Capital & Counties.
"Fire brigades do a splendid job, but if emergency services make mistakes, they can't expect to be in a different position from the man in the street," Mr Smyth added. "Another point was that the fire brigade was not very disposed to take advice from people available, such as the employees of Digital Equipment, who could have told them about the sprinklers in the roof. Instead, the fire brigade rushed in."
The court's decision has been received badly by Hampshire council. The authority's chief executive, Peter Robinson, said: "We are extremely concerned at the implications of the judgment in this case, both in relation to the county council in particular and the standard of care in general which has now been placed on fire and rescue standards up and down the land.
"When emergency services respond to incidents and take decisions literally in the heat of the moment, in good faith, for which they are held to account years later following a legal analysis in the cold light of dawn, it is a significant issue of general public policy," Mr Robinson said.
"It must be borne in mind that this judgment could create a situation where emergency services could be better off not acting at all because failure to act cannot lead to a liability," he added.
However, the extraordinary concept of fire brigades refusing to respond to call-outs in fear of creating a negligence liability was dismissed by Mr Smyth, who argues that fire brigades do have a duty of care to answer emergency calls.
The case will be of particular interest to those councils that, like Hampshire, have dispensed with insurance policies and decided to self- insure. It has been common for organisations that self-insure to place large sums aside as additional reserves, to meet extraordinary liabilities that would otherwise have been met by an external insurer.
But Hampshire failed to build up dedicated self-insurance reserves because of the pressure on its budgets from council tax-capping, limitations in government grant and increased responsibilities. Consequently, the council will have to meet its compensation liabilities by making cuts from its running costs, or by reducing its capital programme.
Lawyers are predicting that the Digital case will persuade local authorities to cease the practice of self-insurance and to take out conventional policies, despite the fact that annual premiums run into hundreds of thousands of pounds. In practice, the break-up of many county councils and their replacement by smaller unitary bodies may already mean that self-insurance has ceased to be a viable option, with smaller councils unable to meet the cost of extraordinary liabilities.