Court of Appeal judgment to have major implications for local authorities

The Royal Borough of Kingston-Upon-Thames v Derek Moss [2020] EWCA Civ 1381

In a decision which will have major implications for local authorities and housing associations, the Court of Appeal has found that the Royal Borough of Kingston-Upon-Thames (the “Council”) was a ‘water re-seller’ within the meaning of the Water Resale Orders of 2001 and 2006.

The Council was appealing the earlier decision in which Mr Justice Morgan confirmed that that the Council as a ‘water re-seller’ had overcharged social housing tenants by charging them amounts in excess of the limits set out in the Water Resale Order, notwithstanding that these amounts were the same as they would have paid Thames Water Utilities (“TWU”) if they had been supplied directly, and by not passing on discounts and commission provided by TWU for performing this service for them. However, the Court of Appeal gave a unanimous decision to dismiss the appeal, as a result of which other local authorities with similar agreements in place may now also be liable to refund their tenants any similar excess charges.

Background

It was previously the case that local authorities would collect water and sewerage charges from tenants at the same time as rent, but privatisation in the 1990s vastly altered the arrangements in place.

In 2003 the Council and TWU entered into an agreement which provided for the Council to receive commission for providing the services of collecting water and sewerage charges, together with an allowance for properties which may been empty (the “2003 Agreement”). The 2003 Agreement was in standard terms and similar agreements were in place with different local authorities in the Thames Water area.

In the 2016 case of Jones v Southwark [2016] EWHC 457 (Ch), the High Court found that the maximum charge of £5 that any ‘water re-seller’ under the Water Resale Orders could charge had been breached by Southwark. Southwark was a ‘water re-seller’ and not an agent and so it what it had charged for the supply exceeded the maximum charge permissible.

The respondent Mr Moss was a secure tenant of the Council. Following the decision of Jones, he sought to be refunded by the Council. However, the Council, supported by the Local Government Association, chose to issue a claim in the High Court against this tenant, seeking a declaration from the Court to the effect that the Council was not a ‘water re-seller’. However, Mr Justice Morgan sitting in the High Court found that the relationship was one of service provision and the Council was a ‘water re-seller’.

The Council appealed this decision seeking for the Court to determine that the Council’s agreement with TWU was for the collection of charges “on behalf of” them and so the Council was acting “for” the undertaker, and it was not a purchaser “from” the undertaker.

Judgment

Lewison LJ in giving the lead judgment dismissed the appeal finding that the terms of the 2003 Agreement were clear and consequently the previous judgment was correct in finding the Council was a ‘water re-seller’.

The critical question for the Court turned on the interpretation of the 2003 Agreement to determine if the Council had merely collected water charges for TWU or as the Mr Moss claimed the council supplied the water as provided by TWU.

The Council sought to argue that previous agreements and pre-contractual negotiations were relevant to interpreting the 2003 Agreement accurately. In particular, it was argued that a letter from 1977 between TWU and the Council showed core terms of the putative contract. Interpreting the 2003 Agreement by reference to the previous arrangements results in uncertainty and the Court could then find a relationship of agency. Further the Council sought to rely on the the two provisions in the 2003 Agreement as to VAT and commission which were inconsistent with the Council intending to purchase water from TWU to sell on.

However, the Court remained consistent with previous judgments in confirming that: ‘consideration of a previous contract has been found to be unhelpful’. The Court found that the previous arrangements themselves lead to no clear answer, and as a result the 2003 Agreement must be found within its own terms which pointed to a relationship of supply and not one of agency. Consequently, the Court in considering the substantive rights and obligations contained in the 2003 Agreement concluded that it meets the terms of the Water Resale Orders and the Council was a ‘water re-seller’.

A further point relating to the interpretation of a clause in Mr Moss’s tenancy agreement was not considered because the Council failed on its main ground of appeal.

Comment

As was raised in the case, the Council and local authorities with similar agreements, undoubtedly had made a ‘bad bargain’. However, that does not dismiss the requirements of the Water Resale Orders and the Court has confirmed that the Council as a ‘water re-seller’ must now refund Mr Moss.

The case will not be welcomed by local authorities who have similar agreements to the Council with TWU as it confirms the case of Jones that the tenant must be refunded the difference for the overcharging of water (less a fixed £5 annual sum permitted by the Water Resale Orders).

The judgment opens the door for potentially hundreds of thousands of tenants to claim they have been overcharged for water and sewerage and to claim a refund. It may lead to local authorities having to pay millions out of their Housing Revenue Accounts, with a vastly detrimental impact on Council’s housing budget.

The case also serves as a valuable reminder of the principle that a contract must be objectively interpreted and serves as a definitive record of the parties’ rights and obligations. Pre-contractual documentation and any previous arrangements were conclusively dismissed in the judgment, when interpreting the 2003 Agreement. It is of fundamental importance that when entering into an arrangement parties must carefully examine the core wording of the agreement and the potential consequences which flow from the inclusion of certain clauses.

Equally, in respect of complicated arrangements between utility companies and local authorities the need to have a sound awareness of the relevant legislation is key to ensuring a good bargain is achieved.

Sharpe Pritchard has a number of experienced Housing Litigators who are available to answer any queries local authorities may have arising from this Judgment. Please contact Simon Kiely if you wish to discuss the implications of this case in more detail.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.

Posted in Dispute Resolution, Latest news and blog, Local government, Property and Housing Disputes.